When it comes to investing, many investors are becoming increasingly concerned about concentration risk in the market. In light of these worries, Avantis Investors chief investment strategist Phil McInnis suggests a different approach to traditional index funds like the S&P 500. He believes that a more diversified investment strategy, particularly focusing on value-oriented investments, can offer better long-term returns.
Avantis’ U.S. Large Cap Value ETF (AVLV) follows the Russell 1000 Value index, but with a unique twist. The fund managers utilize a profitability overlay to screen stocks, going beyond the conventional passive instruments that define value and growth based on a single variable or a set of variables. By identifying companies with low valuations and strong balance sheets, Avantis aims to make smaller bets that pay off over time.
After Apple and Meta, the top holdings of the Large Cap Value fund include JPMorgan, Costco, and Exxon Mobil. With financial services and retail making up about 15% each of the portfolio, and energy accounting for nearly 12%, the fund ensures sector caps to prevent over-concentration. McInnis emphasizes the importance of starting at the company level to avoid excessive concentration in any individual sector.
As of Friday’s market close, Avantis’ Large Cap Value ETF has seen a 7.7% increase in 2024, outperforming the 4.5% gain in the Russell 1000 Value index during the same period. This performance highlights the potential benefits of a value-oriented, diversified approach to investing, especially in times of market uncertainty.
Concerned investors looking to mitigate concentration risk in their portfolios may find value-oriented investments like Avantis’ Large Cap Value ETF a compelling option. By taking a more diversified approach and focusing on companies with low valuations and strong balance sheets, investors can potentially achieve better long-term returns. As the market continues to evolve, exploring alternative investment strategies that prioritize value and profitability may prove to be a prudent choice for building a resilient and robust investment portfolio.
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