Is ALPS O'Shares U.S. Small-Cap Quality Dividend ETF (OUSM) a Strong ETF Right Now?

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?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

OUSM is managed by Alps, and this fund has amassed over $915.4 million, which makes it one of the average sized ETFs in the Style Box - Small Cap Blend. Before fees and expenses, this particular fund 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

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Annual operating expenses for OUSM are 0.48%, which makes it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 1.73%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

For OUSM, it has heaviest allocation in the Financials sector --about 36.6% of the portfolio --while Industrials and Consumer Discretionary round out the top three.

Taking into account individual holdings, National Healthcare Corp. (NHC) accounts for about 2.51% of the fund's total assets, followed by Donaldson Co. Inc. (DCI) and Royalty Pharma Plc (RPRX).

OUSM's top 10 holdings account for about 21.97% of its total assets under management.

Performance and Risk

So far this year, OUSM has added roughly 3.59%, and it's up approximately 2.05% in the last one year (as of 12/29/2025). During this past 52-week period, the fund has traded between $37.73 and $45.73.

OUSM has a beta of 0.96 and standard deviation of 15.13% for the trailing three-year period. With about 112 holdings, it effectively diversifies company-specific risk .

Alternatives

ALPS O'Shares U.S. Small-Cap Quality Dividend ETF is a reasonable option for investors seeking to outperform the Style Box - Small Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.

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 $76.01 billion in assets, iShares Core S&P Small-Cap ETF has $90.22 billion. IWM has an expense ratio of 0.19% and IJR changes 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

Bottom Line

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This article originally published on Zacks Investment Research (zacks.com).

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