A Peek Under The Hood Of The New O’Leary Dividend ETF

Kevin O’Leary, of Shark Tank fame, has morphed into 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 US Quality Dividend ETF (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 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 (JNJ) and Exxon Mobil (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 their ETF versus its peers.

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FMD Capital Management, its executives, and/or its clients may hold positions in the ETFs, mutual funds or any investment asset mentioned in this post. ...

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