Get Dividend Exposure as Bets on ECB Rate Hikes Rise

Investors are placing bets on more aggressive rate hikes by the European Central Bank (ECB). For fixed income investors looking to counter rising rates, consider a dividend exchange-traded fund (ETF) option like the ALPS O’Shares Europe Quality Dividend ETF (OEUR).

Inflation appears to be stubborn and central banks around the world are acknowledging that it could take some time to get rising prices under control. The ECB, just like the U.S. Federal Reserve, is facing a dilemma of how best to raise interest rates without spinning the economy into a recession.

“Investors are betting the European Central Bank will raise interest rates to all-time highs, spurred on by the eurozone economy’s resilience and signs that inflation could prove tougher to rein in than expected,” a Financial Times report noted. “The Frankfurt-based central bank, widely seen as one of the world’s most dovish during its eight-year experiment with negative borrowing costs, is now expected to raise rates substantially this year.”

Some economists are noting that the ECB has been the most hawkish of the central bank bunch. As mentioned, it’s a stark contrast from their more dovish stance.

“It is really surprising to see the ECB now looking like the most hawkish of the big central banks,” said Sandra Phlippen, chief economist at Dutch bank ABN Amro.

Get Quality Dividend Exposure to Europe

Fixed income investors looking to diversify their portfolios can look to Europe as an option. One way to minimize risk is to opt for equities using a screener that focuses on quality

OEUR is designed to offer investors efficient and transparent access to a portfolio of large-cap and mid-cap dividend-paying companies in Europe selected based on several fundamental metrics such as quality, low volatility, and dividend growth, according to SS&C ALPS Advisors. As of February 24, the fund’s dividend yield is 2.46%.

In order to outpace rising rates, investors may sometimes opt to get the most yield, but in the current market environment of unknowns, getting quality yield is imperative. OEUR has a focus on dividend quality to help avoid dividend cuts and suspensions and aims to provide strong performance with less risk, according to SS&C ALPS Advisors.

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