Designed to provide broad exposure to the Style Box - Small Cap Blend category of the market, the ALPS O'Shares U.S. Small-Cap Quality Dividend ETF (OUSM) is a smart beta exchange traded fund launched on 12/30/2016.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.
This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsor & Index
The fund is sponsored by Alps. It has amassed assets over $342.03 million, making it one of the average sized ETFs in the Style Box - Small Cap Blend. OUSM, before fees and expenses, seeks to match the performance of the FTSE Russell US Qual / Vol / Yield Factor 3% Capped Index.
The OShares U.S. Small-Cap Quality Dividend Index is designed to reflect the performance of publicly-listed small-capitalization dividend-paying issuers in the United States exhibiting high quality, low volatility and high dividend yields.
Cost & Other Expenses
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.
Operating expenses on an annual basis are 0.48% for this ETF, which makes it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 2%.
Sector Exposure and Top Holdings
It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
OUSM's heaviest allocation is in the Industrials sector, which is about 27.40% of the portfolio. Its Financials and Information Technology round out the top three.
Taking into account individual holdings, Lincoln Electric Holdings Inc. (LECO) accounts for about 2.64% of the fund's total assets, followed by Watsco Inc. (WSO) and Encompass Health Corp. (EHC).
Its top 10 holdings account for approximately 23.35% of OUSM's total assets under management.
Performance and Risk
So far this year, OUSM has gained about 8.11%, and is up about 12.75% in the last one year (as of 09/20/2023). During this past 52-week period, the fund has traded between $29.99 and $37.73.
OUSM has a beta of 1.09 and standard deviation of 17.21% for the trailing three-year period. With about 117 holdings, it effectively diversifies company-specific risk.
ALPS O'Shares U.S. Small-Cap Quality Dividend ETF is an excellent option for investors seeking to outperform the Style Box - Small Cap Blend segment of the market. There are other ETFs in the space which investors could consider as well.
IShares Russell 2000 ETF (IWM) tracks Russell 2000 Index and the iShares Core S&P Small-Cap ETF (IJR) tracks S&P SmallCap 600 Index. IShares Russell 2000 ETF has $50.75 billion in assets, iShares Core S&P Small-Cap ETF has $68.12 billion. IWM has an expense ratio of 0.19% and IJR charges 0.06%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Small Cap Blend.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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