A smart beta exchange traded fund, the ALPS O'Shares U.S. Small-Cap Quality Dividend ETF (OUSM) debuted on 12/30/2016, and offers broad exposure to the Style Box - Small Cap Blend category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
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.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
The fund is managed by Alps. OUSM has been able to amass assets over $831.76 million, making it one of the average sized ETFs in the Style Box - Small Cap Blend. This particular fund seeks to match the performance of the FTSE Russell US Qual / Vol / Yield Factor 3% Capped Index before fees and expenses.
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
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.48% for OUSM, making it on par with most peer products in the space.
OUSM's 12-month trailing dividend yield is 0.97%.
Sector Exposure and Top Holdings
Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.
For OUSM, it has heaviest allocation in the Financials sector --about 31.60% of the portfolio --while Industrials and Consumer Discretionary round out the top three.
Looking at individual holdings, Genpact Ltd. (G) accounts for about 2.37% of total assets, followed by Dolby Laboratories Inc. (DLB) and Sei Investments Co. (SEIC).
Its top 10 holdings account for approximately 22.07% of OUSM's total assets under management.
Performance and Risk
Year-to-date, the ALPS O'Shares U.S. Small-Cap Quality Dividend ETF has lost about -8.45% so far, and was up about 0.21% over the last 12 months (as of 04/23/2025). OUSM has traded between $37.73 and $47.20 in this past 52-week period.
The ETF has a beta of 0.98 and standard deviation of 17.46% for the trailing three-year period. With about 111 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 $58.78 billion in assets, iShares Core S&P Small-Cap ETF has $71.83 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.
Bottom Line
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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ALPS O'Shares U.S. Small-Cap Quality Dividend ETF (OUSM): ETF Research Reports Dolby Laboratories (DLB): Free Stock Analysis Report Genpact Limited (G): Free Stock Analysis Report SEI Investments Company (SEIC): Free Stock Analysis Report iShares Russell 2000 ETF (IWM): ETF Research Reports iShares Core S&P Small-Cap ETF (IJR): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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