Gathering Quality Dividend Payers with Low Volatility in One Fund

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

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.


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