In a market where concentration risk is a growing concern, investors are constantly looking for alternative investment strategies that offer more diversification. One such approach is value-oriented investments, as suggested by Avantis Investors chief investment strategist Phil McInnis. His firm’s exchange-traded fund strategy aims to provide better returns in the long run by emphasizing companies with low valuations and strong balance sheets.
McInnis believes that simply looking at index funds like the S&P 500 may not be enough to mitigate concentration risk. Instead, Avantis’ U.S. Large Cap Value ETF (AVLV) tracks the Russell 1000 Value index while incorporating a profitability overlay. This unique screening process sets the fund apart from traditional passive instruments by considering a variety of variables beyond just value versus growth.
The AVLV fund holds a diverse portfolio, with top holdings including JPMorgan, Costco, and Exxon Mobil after Apple and Meta. Financial services and retail sectors make up a significant portion of the portfolio, each around 15%, followed by energy at nearly 12%. McInnis highlights the importance of capping sector weightings to prevent overconcentration and ensure a well-diversified portfolio.
As of the latest market close, Avantis’ Large Cap Value ETF has shown promising returns, up 7.7% in 2024, outperforming the Russell 1000 Value index’s gain of 4.5% during the same period. This performance underscores the potential benefits of a diversified investment strategy that focuses on companies with low valuations and strong profitability.
Overall, investors concerned about concentration risk in the market may find value-oriented investments like Avantis’ Large Cap Value ETF to be a compelling alternative to traditional index funds. By taking a more diversified approach and focusing on companies with solid fundamentals, investors can potentially achieve better long-term returns and reduce their exposure to market volatility.
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