DIVIDEND STRATEGY SERIES

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DIVIDEND STRATEGY SERIES

THE POWER OF A QUALITY DIVIDEND INVESTMENT STRATEGY Q1 2020

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 // THE POWER OF A QUALITY DIVIDEND INVESTMENT STRATEGY

Dividends 04 The Most Powerful Force in the Universe 05 Dividend Growth has Generated Income Growth 06 Dividends Beat Value over 3, 5 and 10 Years 07 Dividends Instead of Value? Better Risk Adjusted Return Potential 08 ETF Money Flow Trends Where Can Investors Turn For Income? 10 Sources of Income: Dividends vs. Government Bonds, REITs and MLPs 11 Generating Income: Stocks vs. Bonds Why Quality Matters? 13 Profitability by Quartile: Stronger ROA; Stronger Performance 14 Sectors with Stronger ROA have Outperformed 15 Lower Leverage, Stronger Returns O'Shares ETF: OUSA 17 Quality Beat Value, Stronger Performance, Less Risk 18 OUSA: Quality Dividends to Reduce Risk and Downside Capture? 19 Key Portfolio Metrics O'Shares ETF: OUSM 22 Small-Cap Quality Beat Small-Cap Value, Stronger Performance, Less Risk 23 Key Portfolio Metrics 25 About O'Shares ETFs 26 Indices and Financial Definitions

All investing involves risk. See page 28 to learn more about these risks.

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THE POWER OF DIVIDEND INVESTING

Dividends are payments that companies make to shareholders at regular intervals, usually quarterly. Dividends and compounding may be a strong force in generating investor returns and growing income.

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THE MOST POWERFUL FORCE IN THE UNIVERSE?

Albert Einstein once stated, "Compound interest is the most powerful force in the universe." This theory is highlighted by the contribution from dividends and compounding to the long-term performance of the S&P 500.

The S&P 500 is widely regarded as one of the best gauges for the large-cap U.S. stock market. Dating back to the start of 1957, the price return of the S&P 500 is over 6500%. The total return which includes the impact of dividends and compounding is over 46000%. Approximately 80% of the hypothetical total return that an investor would have earned over this long period is attributable to dividends and compounding.

"Compound interest is the most powerful force in the universe." - Albert Einstein 80% of S&P 500 total returns come from dividends and compounded returns.

50000 %

S&P 500 Cumulative Price Return vs. Total Return since Inception

45000 %

40000 %

35000 %

30000 %

25000 %

20000 %

15000 %

10000 %

5000%

0% 1957 1961 1965 1969 1973 1977 1982 1986 1990 1994 1998 2002 2007 2011 2015 2019

Cumulative Price Return

Cumulative Total Return

Source: Bloomberg Finance L.P., data as of 12/31/2019. For Indices and Financial Definitions, please see page 26. Past performance does not guarantee future results. The referenced index is shown for general market comparisons and is not meant to represent the O'Shares Funds. Investors cannot directly invest in an index.

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DIVIDEND GROWTH HAS GENERATED INCOME GROWTH

Investors looking to boost the income generated by their portfolio may want to consider high quality dividend paying stocks. Profitable dividend paying companies have the ability to maintain and even grow dividend payments to their investors. This is demonstrated by the growth in dividends per share paid by the companies in the S&P 500. From 2010 through 2019 the dividends per share paid by the companies in the S&P 500 have more than doubled, a growth rate of nearly 11% per year.

Dividend Per Share

$70

S&P 500: Dividend Growth History

$59

$60

~11%

$54 $50

$50

$44

$47

$40

$40

$32

$35

$30 $24

$27

$20

$10

$0

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Source: Bloomberg Finance L.P., data as of 12/31/2019. For Indices and Financial Definitions, please see page 26. Past performance does not guarantee future results. The referenced index is shown for general market comparisons and is not meant to represent the O'Shares Funds. Investors cannot directly invest in an index.

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DIVIDENDS BEAT VALUE OVER 3, 5 AND 10 YEARS

Dividends Beat Value over 10 Years Investors often oversimplify the categorization of stocks into growth and value. Dividends may deserve a core allocation to an equity portfolio, not only for seeking income and risk reduction but for strong performance. Over the past 10 years, dividend stocks have outperformed value and the S&P 500. Additionally, dividends have outperformed value in the 3 and 5-year periods as well. The hypothetical growth of $10,000 invested over 10 years in dividends results in nearly $40,000. The hypothetical growth of $10,000 invested over 10 years in value or the S&P 500 were approximately $31,000 and $36,000, respectively.

Hypothetical Growth of $10,000

$45,000

$40,000

$35,000

$30,000

$25,000

$20,000

$15,000

$10,000

$5,000

$0

2009

2011

2013

2015

2017

2019

Dividends

Dividends Value Growth S&P 500

Growth

Value

Performance Summary

1Y

28.0% 31.9% 31.1% 31.5%

3Y

14.8% 11.5% 18.6% 15.2%

5Y

11.3% 9.5% 13.5% 11.7%

S&P 500

10Y

14.7% 12.1% 14.8% 13.5%

Source: Bloomberg Finance L.P., data as of 12/31/2019. For Indices and Financial Definitions, please see page 26. Past performance does not guarantee future results. The referenced indices are shown for general market comparisons and are not meant to represent the Fund. Investors cannot directly invest in an index.

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DIVIDENDS INSTEAD OF VALUE? BETTER RISK ADJUSTED RETURN POTENTIAL

Dividends in an equity portfolio may provide strong returns and help reduce risk. What may come as a surprise to investors is that over 10 years, dividend strategies have performed about the same as generic growth with much less risk. Going back 10 years, dividends have generated an annualized return of nearly 15% compared to the S&P 500 and Value which were ~13% and ~12%, respectively. Dividends were less risky and generated stronger performance than Value.

16.0%

Less risk and more return

15.0%

Dividends

14.0%

13.0%

Risk vs. Return ? 10 Years More risk and more return

Growth

S&P 500

12.0%

Value

Annualized Return

11.0%

Less risk and less return

10.0% 11.0%

11.5%

12.0% Volatility

12.5%

More risk and less return

13.0%

13.5%

Source: Bloomberg Finance L.P., data as of 12/31/2019. Volatility: Monthly annualized standard deviation. For Indices and Financial Definitions, please see page 26.

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ETF STRATEGY FUND FLOWS: QUALITY AND DIVIDENDS

Quality and Dividend ETF strategies have taken in over $20 billion and $7 billion, respectively in 2019.

During 2019, yield curve inversion, slowing global growth and trade wars had investors potentially positioning their portfolios for late economic cycle investing by shifting to Quality and Dividend strategies.

12,000 10,000 8,000 6,000 4,000 2,000

0 -2, 00 0 -4, 00 0

Q1-2018

Q2-2018

Quarterly Fund Flows ($ Million)

Q3-2018

Q4-2018

Dividends

Q1-2019

Q2-2019

Quality

Q3-2019

Q4-2019

Source: Bloomberg Finance L.P., data as of 12/31/2019. Quality: ETFs categorized as Quality focused by Bloomberg. Dividends: ETFs categorized as Dividend/Yield focused by Bloomberg. Bloomberg classifications based on documents and issuer input. For informational purposes only. Not meant to represent any investment.

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