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Summary Kevin O’Leary, of Shark Tank fame, recently released his first U.S.-listed dividend ETF. The fund selects approximately 142 stocks based on factors that include quality, volatility, and yield. This passive index approach underscores a unique dividend oriented portfolio with solid fundamentals. Kevin O’Leary, of the Shark Tank fame, has morphed into one of the most polarizing investment figures on reality TV. Now he is taking his talents off-camera by releasing his first U.S.-listed exchange-traded fund focused on dividend paying stocks. The O’Shares FTSE U.S. Quality Dividend ETF (NYSEARCA: OUSA ) debuted this week to a great deal of intrigue by the financial media. Whether you love or hate O’Leary for his no-nonsense criticism and direct business style, this new ETF is certainly worth a look for serious income investors . According to the fund company’s website , “The Fund is designed to be a core investment holding that seeks to provide cost efficient access to a portfolio of large-cap and mid-cap high quality, low volatility, dividend paying companies in the U.S. selected based on certain fundamental metrics.” To achieve that end result, OUSA follows the FTSE U.S. Qual/Vol/Yield Factor 5% Capped Index. This fundamentally driven methodology selects stocks based on three core factors – quality, volatility and yield. The final portfolio is made up of 142 dividend paying companies with an average yield of 3.20%. Top holdings include well-known names such as Johnson & Johnson (NYSE: JNJ ) and Exxon Mobil (NYSE: XOM ). In addition, each of the underlying constituents is capped at a maximum 5% allocation so as not to significantly overweight a single position . I think it’s an important distinction to make that O’Leary is essentially the face of this company and not involved in any direct investment recommendations. This ETF is designed to follow a strict passively managed index without worrying over deviating into uncharted waters as some active funds can do. The current next expense ratio of OUSA is listed at 0.48%, which is on the high side for a passive ETF. Nevertheless, the fundamental selection criteria (read: smart beta) is one of the reasons that the fund company may feel justified to charge more for its ETF versus its peers. After analyzing the top 10 holdings of OUSA, my initial conclusion is that this ETF falls closest in nature to the iShares Core High Dividend ETF (NYSEARCA: HDV ). Both funds share 8 of their top 10 holdings and are dedicated to a more concentrated mix of high quality dividend stocks. HDV currently has $4.5 billion in assets, an expense ratio of 0.12%, and a 30-day SEC yield of 3.90%. It’s worth noting, however, that although there are similarities between the two funds, there are also significant differences too. HDV has very high asset concentrations in its top holdings, which currently make up 59% of the portfolio. The top 10 holdings in OUSA make up just 38% of its asset allocation. In addition, HDV has a great deal more energy and telecom exposure that is supplanted by technology and health care in OUSA. These portfolio weightings are likely to change over time as market factors and other conditions evolve. Vanguard investors can breathe easy that the Vanguard High Dividend Yield ETF (NYSEARCA: VYM ) shares 7 of the same top 10 holdings in OUSA as well. However, VYM covers a much broader spectrum of over 400 stocks. The Bottom Line Despite its higher expense ratio, OUSA appears to be constructed of a very solid mix of dividend paying stocks through a dependable index provider. Currently, this ETF does offer enough differentiating factors to make it worthy of your consideration when comparing equity income funds . It will be interesting to follow how much initial attention is generated in OUSA based on fund flow data, as well as how the portfolio adapts over time. The market for dividend ETFs is certainly filled with many beloved products and attracting attention may prove to be a difficult battle. According to prospectus filings, O’Shares is set to debut four additional international-focused dividend ETFs in the near future as well. That will help round out the fund family and offer strategies designed to excel under differentiating circumstances. Disclosure: I am/we are long VYM, HDV. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: David Fabian, FMD Capital Management, and/or clients may hold positions in the ETFs and mutual funds mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell, or hold securities. Scalper1 News
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