Boston-based investment manager O’Shares Investments has announced that its smart beta fund, the O’Shares FTSE US Quality Dividend ETF (NYSE Arca: OUSA), outperformed the S&P 500 by 10.5% in the 12 months since its inception on 14 July last year.
Kevin O’Leary, chairman of O’Shares ETF Investments.
Kevin O’Leary, chairman of O’Shares ETF Investments, said in a statement: “Growth of this new generation of ETFs will be driven by investors searching for less risk and more yield in a low interest rate environment. We are very pleased with the performance OUSA has generated for investors, getting over 90% of market upside performance and less than 50% of the market downside performance during the period, essentially winning by losing less.”
The ETF owns 140 US large cap dividend stocks selected for quality, low volatility, yield and diversification, based on the FTSE US Qual / Vol / Yield Factor 5% Capped Index, developed for O’Shares ETF Investments by FTSE Russell, a leading provider of indices to the ETF industry.
Factors such as quality, low volatility and dividend yield have historically over long-term time periods provided risk and return enhancements versus market cap-weighted indices. By diversifying across multiple factors, the fund’s strategy attempts to mitigate the impact of periods of relative underperformance of a single factor. Due to low correlations between each factor, combining multiple factors should smooth the time-varying nature of performance.
The firm reports that as of 14 July 2016, the total market return of the ETF was 15.9% compared to 5.4% for the S&P 500.
The largest sector allocations are to the consumer goods (18.5%), health care (14.6%), industrials (14.0%), energy (10.7%) and technology (9.2%) sectors. The largest holdings in the fund are Johnson & Johnson (5.4%), Exxon Mobil Corporation (5.2%), Verizon Communications (4.3%), AT&T (4.2%) and Microsoft (3.7%).
The strategy has proven to be attractive to investors who currently have allocated almost $270m in assets under management to the fund. The O’Shares FTSE US Quality Dividend ETF is offered with a gross expense ratio of 0.56% and a net expense ratio of 0.48%.
Connor O’Brien, chief executive officer of O’Shares ETF Investments, added: “OUSA performance is driven by its unique portfolio of 140 dividend stocks, selected for financial quality, low volatility and yield, and excludes all the rest that do not measure up. Also, because there are many great global companies in Europe and in Asia, we have applied the same rules to stocks in Europe for O’Shares ETFs…and the same again for stocks in Asia. These ETFs focused on Europe and Asia give investors access to global diversification using a consistent rules-based investment approach.”
The full range of O’Shares ETFs, all listed on the NYSE Arca, also includes the:
O’Shares FTSE Europe Quality Dividend ETF (OUER). TER – 0.58%
O’Shares FTSE Europe Quality Dividend Hedged ETF (OEUH). TER – 0.68%
O’Shares FTSE Asia Pacific Quality Dividend ETF (OASI). TER – 0.58%
O’Shares FTSE Asia Pacific Quality Dividend Hedged ETF (OAPH). TER – 0.68%
In the UK, there are several ETFs offering multifactor exposure to US equities. These include the iShares Edge MSCI USA Multifactor UCITS ETF (LSE: IFSU) where constituents are selected and weighted according to their value, momentum, quality and size characteristics. The fund’s TER is 0.35%. The WisdomTree US Quality Dividend Growth UCITS ETF (LSE: DGRA) invests in high yielding equities that have been screened for quality and growth characteristics. The TER is 0.33%. The Source FTSE RAFI US Equity Income Physical UCITS ETF (LSE: DVUS) initially screens stocks for financial health, selects remaining constituents according to dividend yield then applies a weighting scheme based on a combination of dividend yield and economic size. The fund’s TER is 0.35%.