Exchange Traded Funds (ETFs)

Gathering Quality Dividend Payers with Low Volatility in One Fund

This week’s featured fund, O’Shares FTSE U.S. Quality Dividend ETF (OUSA), is designed to track the performance of an index that seeks to track publicly listed large-capitalization, dividend-paying issuers in the United States.

Interestingly, OUSA was the first exchange-traded fund (ETF) that O’Shares started in July 2015. It was designed with the goal of holding quality, high-dividend companies with low volatility.

As a means of diversification and a way to limit risk, OUSA caps investment in any one holding at 5%. The fund is rebalanced on a quarterly basis to ensure that weighting limit and to account for any changes in the fundamentals of its holdings.

OUSA does not trade in huge volumes, but it has a relatively low spread that caters to small/individual investors, and excellent block liquidity that makes it easy to enter and exit for large investors.

The fund makes good on its low volatility promise, as evident from the fact that in 2015-2017, the ETF’s maximum drawdown is 450 basis points less than the S&P 500. From the chart below, you will see a more detailed comparison between OUSA and the S&P 500 that O’Shares Chairman Kevin O’Leary personally.

Chart Provided Courtesy of Bloomberg and O’Shares

OUSA has returned 32% since its inception in July 2015. Year to date, however, OUSA has underperformed the market to slip 2.32% through July 9. The fund also carries an expense ratio of 0.48%, which is higher than most of its peers. However, OUSA does pay a solid monthly distribution that translates into annual distribution yield of 2.60%.

Top holdings for OUSA are: ExxonMobil (XOM), 4.77%; Johnson & Johnson (JNJ), 4.76%; Intel (INTC), 4.28%; Home Depot (HD), 3.47%; and AT&T (T), 3.28%.

OUSA is not a typical high-yield ETF. It is not as heavily exposed to utilities and other rate-sensitive sectors. In fact, OUSA’s holdings are diversified across 10 sectors, with the largest concentration of assets in industrials, 16%; in consumer goods, 14%; in consumer services, 14%; in technology, 13%; and in health care, 13%.

For investors looking for quality dividend companies with low volatility, consider doing more research on O’Shares FTSE U.S. Quality Dividend ETF (OUSA) and possibly investing.

I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.