As part of VettaFi’s 2025 Market Outlook symposium this week, SS&C ALPS Advisors Chief ETF Strategist Paul Baiocchi joined O’Shares Chairman Kevin O’Leary and VettaFi Investment Strategiest Cinthia Murphy to talk dividend investing in the new year. The conversation, which also touched on the broader macro outlook, spoke to the case for the ALPS O’Shares US Small-Cap Quality Dividend ETF, or OUSM.
See more: Get Diversification & Dividends in International Equity ETF IDOG
Why look to dividend investing for next year? Might dividends stand out in a positive macro environment? Baiocchi acknowledged that it has been a “challenging” environment for dividend-oriented investors. Despite that, he noted, the ongoing, massive wave of baby boomer retirements may see those investors increasingly lean towards dividends.
“Dividend strategies are typically popular among advisors who service that cohort of investors who are either in retirement or near retirement or and are now at the point where they’re looking to generate income off of the assets that they’ve accumulated over their career,” he said.
Baiocchi added, however, that simply adding more dividends alone may not meet client goals. A firm can offer strong dividend yields, for example, but not necessarily have good attributes otherwise. At the same time, other strategies, like options income funds, can provide similar benefits, so how can dividend ETFs stand out? Baiocchi pointed out the Russell 2000’s flaws as an example.
The 2025 Outlook and Current Income
“I think often people fall into the trap of simply looking at a dividend yield, whether it’s on an ETF or an individual company, and just sort of extrapolating out that dividend yield as part of a total return projection over the next one, five, ten, fifteen years, or whatever it might be,” he said. “What we’re arguing in the case of a quality-oriented dividend strategy is that that’s really not enough in terms of taking what an active manager or a team of analysts might do.”
He pointed to the Russell 2000 and how the ALPS O’Shares U.S. Small-Cap Quality Dividend ETF (OUSM ), approaches it as a better dividend investing option. Hundreds of Russell 2000 firms are “unprofitable,” he said, with the index as a whole “notoriously low quality.” A quality view, then, on top of a dividend yield approach, can help investors navigate the space.
Dividend Investing in OUSM
What role, then, can a fund like OUSM play? Charging 48 basis points (bps), the fund reweights the S-Network US Equity Mid/Small-Cap 2500 Index for quality as well as dividend yield and dividend quality. For O’Leary, funds like OUSM act as building blocks in a portfolio. Options-writing equity positions that look to offer income work until they don’t, he said, involving a degree of market timing. Overall, he concurred with Baiocchi’s view that screening dividend payers can help meet client goals.
“These are core building blocks in perpetuity,” he said. “I don’t want to own any companies that are not paying distributions from profits, I don’t want over leverage. I don’t want Johnny Come Lately hot ideas — you know, these tiny companies in the Russell 2000 which are here today, gone tomorrow.”
VettaFi LLC (“VettaFi”) is the index provider for OUSM, for which it receives an index licensing fee. However, [ETF IDOG is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of OUSM.
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