OUSA’s Defensive Quality Positioning Outperformed Major Indexes Last Week

The ALPS O’Shares U.S. Quality Dividend ETF (OUSA) gained 0.17% last week, outperforming the S&P 500 and Russell 1000 Value Index, which ended the week in the red, as volatility increased within U.S. equities amid rising long-term interest rates. 

OUSA’s overweight within defensive sectors, including healthcare and consumer staples sectors, helped propel the fund’s relative outperformance last week, coupled with encouraging earnings within its quality-screened holdings, ALPS wrote in a recent insight.

OUSA’s excess yield generates position it as a good candidate to pair with any core equity allocation to possibly lower volatility and increase portfolio yields. The $772 million fund charges a 48 basis point expense ratio and brings a factor-based, high dividend yield approach to the large-cap U.S. equities. The fund tracks the O’Shares U.S. Quality Dividend Index, whose constituents are selected from the S-Network US Equity Large-Cap 500 Index, which is a compilation of the 500 largest stocks of publicly listed companies within the U.S., according to VettaFi. All stocks included in the S-Network US Equity Large-Cap 500 Index are screened for free-float and average daily trading volume.

A better-than-expected earnings season and full-year forecasts for the large-cap, quality companies in OUSA across a number of sectors have led to the fund outperforming the S&P 500 year-to-date by over 350 basis points, according to ALPS. 

“With rising interest rates and hints of recessionary conditions in the global economy, OUSA’s quality methodology that focuses on high return-on-assets and low leverage with low volatility and high dividend yields is extremely pertinent for today’s risks in the market,” ALPS wrote.

The fund’s overweight to defensive sectors and avoidance of more cyclical sectors that tend to carry high debt loads, including energy, materials, and real estate, has helped it achieve nearly 40 basis points of excess yield (trailing-12-month) relative to the S&P 500, according to ALPS. 

Despite the market typically “paying up” for high-quality names during times of high volatility, OUSA exhibits a lower price-to-earnings ratio (P/E) in the majority of its allocated sectors and a lower aggregate P/E of 19.23x, compared to the S&P 500 Index P/E of 20.11x, ALPS wrote.

Other dividend ETFs available to investors include the SmartETFs Dividend Builder ETF (DIVS), the WisdomTree US High Dividend Fund (DHS), and the T. Rowe Price Equity Income ETF (TEQI).

For more news, information, and strategy, visit the ETF Building Blocks Channel.

vettafi.com is owned by VettaFi, which also owns the S-Network US Equity Large-Cap 500 Index. VettaFi is not the sponsor of OUSA, but VettaFi’s affiliate receives an index licensing fee from the ETF sponsor.