It’s no secret that mega-cap stocks have dominated investor interest for some time now.
The Financial Times noted that small caps have seen the worst performance against larger offerings since the 1990s. The publication added that since start of 2020, the S&P 500 has risen over 60%. In the same time period, the Russell 2000 index has only risen 24%.
There’s still plenty of hope for small-cap investing, however. In recent analysis, ALPS Advisors highlighted how their ALPS O’Shares US Small-Cap Quality Dividend ETF (OUSM) outperformed small-cap indices in March. The fund brought 4.83% in returns for the month of March.
OUSM has a net expense ratio of 0.48% and tracks the O’Shares U.S. Small-Cap Quality Dividend Index (OUSMX). Relative to the small-cap space as a whole, the underlying index is overweight in the consumer discretionary, industrials, and financials sectors.
In selecting assets to invest in, ALPS notes that the fund utilizes a number of metrics, including quality, low volatility, and dividend growth potential. At the discretion of the fund managers, OUSM may employ either a replication or representative sampling strategy to follow the performance of the index.
Quality Holdings
The ALPS analysis highlights a few of OUSM’s holdings that contributed to the fund’s success in March. In particular, Williams-Sonoma returned over 34% after beating analyst expectations on quarterly results. Dick’s Sporting Goods similarly bested analyst expectations, indicating that small-cap companies still have room to shine. Other companies within OUSM’s portfolio also saw gains in March, such as Choice Hotels International and Vista Corp.
While some companies in the Russell 2000 are struggling to profit, OUSM’s performance suggests that proper investment screenings that incorporate quality metrics can lead to quality small-cap returns.
“The ALPS | O’Shares U.S. Small-Cap Quality Dividend ETF (OUSM)’s top-decile small-cap ETF performance is backed by proven quality screens on profitability, dividend growth, low leverage and low volatility, providing a core small-cap investment without the added profitability risks seen in a broad-based small-cap index fund,” ALPS noted.
The fund has seen about 8% in growth over the last three months and is up roughly 21% over the last 12 months. Net flows for the fund remain robust as well, with OUSM gaining a little over $80 million across the last three months.
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