In recent months, the small-cap sector has experienced a strong rebound. Investors are increasingly turning to high-quality small caps like the ALPS O’Shares U.S. Small-Cap Quality Dividend ETF (OUSM ) that may be better equipped to weather market uncertainty.
Under normal market conditions, OUSM invests 80% of its assets in companies within the O’Shares US Small-Cap Quality Dividend Index. This index focuses on small-cap companies that meet specific criteria for quality and stability, with an emphasis on low volatility. OUSM considers dividend yield in its definition of quality and caps exposure to dividend-heavy sectors, such as financials, to limit overweights.
Opportunities in Market Inefficiences
During periods of market turbulence, small-cap stocks can become undervalued compared to larger companies. Small-cap stocks are also often under researched and mispriced. OUSM presents an opportunity to buy into these high-quality small-cap stocks at attractive valuations, potentially offering higher returns once the market stabilizes.
Outperformance During Recoveries With OUSM
Small-cap stocks often outperform large-cap stocks during market recoveries. When the broader market faces downturns or volatility, small-cap stocks typically recover faster. As the market stabilizes and grows, these stocks show strong growth potential, offering investors significant upside.
According to YCharts, OUSM has delivered a 2.77% return YTD and a 1.97% return year-over-year. In comparison, the iShares Russell 2000 ETF (IWM ), which tracks a broader small-cap index, has experienced a -9.50% return YTD and a -3.12% return year-over-year. This also highlights OUSM’s ability to outperform the broader small-cap market thanks to its focus on high-quality, low-volatility stocks.
OUSM’s low-volatility strategy positions it as a smart choice for investors looking to capitalize on small-cap growth while managing risk. By focusing on high-quality companies with strong fundamentals, OUSM offers a stable yet attractive investment option, especially in today’s volatile market environment.
Additionally, investors continue to receive steady income through dividends, even in volatile market conditions.
With approximately $892 million in assets under management, OUSM offers both size and liquidity, making it a strong tool for investors seeking small-cap exposure without taking on excessive volatility risk.
VettaFi LLC (“VettaFi”) is the index provider for OUSM, for which it receives an index licensing fee. However, OUSM 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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