OUSA’s Quality Holdings Outperform Peers in December as a Defensive Mindset Builds

• The ALPS | O’Shares U.S. Quality Dividend ETF (OUSA) and its focus on profitable companies with high return on assets (ROA) outperformed its large-cap peers in December, capping off strong relative performance in the second half of 2024 as investors look for high-quality stocks amid building market uncertainty in 2025.  
  
  
• OUSA’s quality holdings continued to report strong earnings in December, with Information Technology name, Broadcom Inc. (AVGO, 0.59% weight*), rising 43.40% on the heels of a Q4 earnings per share (EPS) beat with 220% year-over-year revenue growth in its Artificial Intelligence (AI) segment. While OUSA has exposure to Magnificent 7 stocks like Apple, Inc. (AAPL, 5.62% weight*), Microsoft Corp. (MSFT, 4.94% weight*) and Alphabet Inc. (GOOGL, 4.43% weight*) that continue to lead a very concentrated market, its underweight to mega-cap tech stocks provides an attractive setup in 2025 as investors potentially rotate away from overbought names. 
  
  
• An overweight to U.S. consumer names helped OUSA outperform its high-quality peers in December, as Kroger, Inc. (KR, 0.09% weight*) outperformed after announcing a resumption of share buybacks on its growing cash flow profile after more than a 2-year pause. Target Corp. (TGT, 0.10% weight*) also outperformed last month on the back of strong U.S. holiday shopping trends and price-sensitive consumers. Lastly, within OUSA’s Financial sector, Visa Corp. (V, 5.53% weight*) benefited from positive momentum last month after its CEO stated, “The U.S. consumer remains strong”, especially with potential 2025 tax cuts under the new Trump administration. Similarly, Blackrock Inc. (BLK, 0.55% weight*) outperformed in December after the global ETF industry saw assets surge 32% year-over-year in 2024 with a strong fourth quarter of ETF flows. 

“We continue to recommend staying up in quality, looking for stocks of companies with factors like improving profit, balance-sheet strength, ample interest coverage ratios (which measure a company's ability to pay interest on its debt) and healthy free cash flow.”

– Schwab Market Perspective: 2025 Outlook, December 13, 2024

OUSA Can Help Mitigate Elevated Portfolio Risk in Concentrated S&P 500 Holdings

• 2024 marked another strong year for U.S. stocks with the mega-cap heavy S&P 500 Index notching a 25% gain. Looking forward to 2025, the wall of worry over rising U.S. interest rates, geopolitical tensions with potential Trump tariffs and tougher earnings comparisons year-over-year for Magnificent 7 stocks have resulted in investors rotating towards more defensive sectors and away from pro-cyclical sectors. 
  
  
• OUSA excludes stocks within more volatile, pro-cyclical sectors, including Energy, Materials and Real Estate Investment Trusts (REITs), as they tend to have low ROA coupled with high debt levels. While S&P 500 companies are expected to see earnings growth of 14.8% for 2025, per FactSet, up from 9.4% in 2024, 2025 earnings growth for Magnificent 7 stocks is expected to decelerate to 21% from 33% in 2024, while the other 493 stocks in the S&P 500 are expected to grow earnings by 13% in 2025, up from 4% in 2024. However, uncertainty in 2025 earnings forecasts is building as U.S. long-term interest rates have recently spiked. Since mid-September, the U.S. 10-Year Treasury yield has added nearly 100 basis points (bps) to close out 2024 at 4.53% highs, prompting investors to rotate into higher quality stocks that exhibit stable profitability and low debt levels. With potential tariffs and tax cuts set to transpire in 2025, long-term U.S. interest rates are expected to remain elevated for the foreseeable future.    
  
  
• The ALPS | O’Shares U.S. Quality Dividend ETF (OUSA) provides high-quality exposure to U.S. large-cap stocks that are screened for their high profitability, low volatility, dividend growth and low leverage, minimizing the mega-cap concentration risk in core S&P 500 holdings. As negative earnings revisions for 2025 increase across pro-cyclical sectors on elevated interest rates, OUSA’s sector positioning within historically profitable companies with low cyclicality may benefit the Fund in 2025, relative to its peers and broad-based indices.  

• OUSA’s underweight to Magnificent 7 stocks has been a drag on its performance over the past few years, but, as the AI trade in mega-cap stocks potentially begins to fade in 2025 on an earnings deceleration, we believe investors may rotate to high-quality large-cap stocks with attractive balance sheets and profit margins. 
  
  
• Despite the lower weighting to mega-cap stocks, OUSA exhibits a higher profit margin than the S&P 500, with a P/E ratio nearly 3 turns lower due to the Fund’s quality methodology.

Source: Bloomberg L.P. and SS&C ALPS Advisors, as of 12/31/2024

Performance data quoted represents past performance. Past performance is no guarantee of future results so that shares, when redeemed, may be worth more or less than their original cost. The investment return and principal value will fluctuate. Current performance may be higher or lower than the performance quoted. For current month-end performance call 1-866-759-5679 or visit www.alpsfunds.com. Performance includes reinvested distributions and capital gains.

Market Price is based on the midpoint of the bid/ask spread at 4 p.m. ET and does not represent the returns an investor would receive if shares were traded at other times.

Performance data prior to 06/21/2022 reflects the performance of the Fund as managed under the OSI ETF Trust.

Fund inception date: 07/14/2015, date reflects the commencement of investment operations.

¹ The O’Shares U.S. Quality Dividend Index performance information reflects the blended performance of the FTSE USA Qual/Vol/Yield Factor 5% Capped Index through 05/31/2020 and the O’Shares U.S. Quality Dividend Index thereafter.

Total Operating Expenses: 0.48%

* Weight in OUSA as of 12/31/2024

Top 10 Holdings

As of 12/31/2024, subject to change

Important Disclosures & Definitions

An investor should consider the investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus containing this and other information, call 1-866-759-5679 or visit www.alpsfunds.com. Read the prospectus carefully before investing.

Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemable.

Performance data quoted represents past performance. Past performance is no guarantee of future results; current performance may be higher or lower than performance quoted.

All investments are subject to risks, including the loss of money and the possible loss of the entire principal amount invested. Additional information regarding the risks of this investment is available in the prospectus. 

Concentration in a particular industry or sector will subject the Fund to loss due to adverse occurrences that may affect that industry or sector. The Fund may use derivatives which may involve risks different from, or greater than, those associated with more traditional investments. A Fund’s emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform the market. Also, a company may reduce or eliminate its dividend after the Fund’s purchase of such a company’s securities. 

The Fund employs a “passive management” - or indexing - investment approach and seeks investment results that correspond (before fees and expenses) generally to the performance of its underlying index. Unlike many investment companies, the Fund is not “actively” managed. Therefore, it would not necessarily sell or buy a security unless that security is removed from or added to the underlying index, respectively. 

Basis Point (bps): a unit that is equal to 1/100th of 1% and is used to denote the change in a financial instrument.

FTSE USA Qual/Vol/Yield Factor 5% Capped Index: designed to measure the performance of publicly-listed large-capitalization and mid-capitalization dividend-paying issuers in the United States that meet certain requirements for market capitalization, liquidity, high quality, low volatility and dividend yield. 

Magnificent 7: a group of seven high-performing and influential stocks in the technology sector including Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta.

Morningstar US Large-Mid Cap Broad Value Index: designed to provide comprehensive, consistent representation of the large-mid cap value segment of the US equity market. 

O’Shares U.S. Quality Dividend Index: designed to measure the performance of publicly-listed large-capitalization and mid-capitalization dividend-paying issuers in the United States that meet certain market capitalization, liquidity, high quality, low volatility and dividend yield thresholds. The high quality and low volatility requirements are designed to reduce exposure to high dividend equities that have experienced large price declines.
 
Price/Earnings (P/E) Ratio: a valuation ratio of a company's current share price compared to its per-share earnings.

S&P 500 Index: widely regarded as the best single gauge of large-cap US equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization.\

One may not invest directly in an index. 

ALPS Advisors, Inc., registered investment adviser with the SEC, is the investment adviser to the Fund. ALPS Advisors, Inc. and ALPS Portfolio Solutions Distributor, Inc., affiliated entities, are unaffiliated with O’Shares Investments.

ALPS Portfolio Solutions Distributor, Inc. is the distributor for the Fund.

Not FDIC Insured • No Bank Guarantee • May Lose Value

OUS000367  04/30/2025