More investors appear to be looking at dividend stocks ahead of the Federal Reserve's interest rate decision in September.
Paul Baiocchi of SS&C Alps Advisors sees this as a sound strategy because he sees the Fed easing interest rates.
“Investors are moving back into dividends from money markets, into fixed income, but more importantly into leveraged companies that may be rewarded by a declining interest rate environment,” said the chief ETF strategist on CNBC’s “ETF Edge” this week.
ALPS is the issuer of several exchange-traded funds including: ALPS O'Shares US Quality Dividend ETF (OUSA) And its counterpart, ALPS O'Shares US Small-Cap Quality Dividend ETF (OUSM).
towards Standard & Poor's 500Both ETFs are overweight. health care, Finance and IndustriesAccording to Baioki, ETFs do not include: energy, Real Estate and MaterialsHe points to the three groups as the most volatile sectors in the market.
“There is not just price volatility, there is fundamental volatility in those sectors,” Baioki said.
He explains that these fluctuations would undermine the goal of OUSA and OUSM, which is to avoid a drawdown.
“You look for earnings as part of the methodology, but you look for earnings that are sustainable, earnings that have been growing, and that are well supported by fundamentals,” Baiocchi said.
Mike Akins, co-founder of ETF Action, sees OUSA and OUSM as defensive strategies because the stocks generally have clean balance sheets.
He also notes that the dividend category of ETFs is seeing a surge in popularity.
“I don’t have a crystal ball as to why dividends are so widespread,” Akins said. “I think people look at it like if you pay a dividend, and you’ve been for years, there’s a sense that the company’s balance sheet is sustainable.”
