In a market where concentration risk is a concern for investors, exploring value-oriented investments could be a wise decision. According to Phil McInnis, the chief investment strategist at Avantis Investors, taking a more diversified approach can provide better long-term returns compared to simply relying on index funds like the S&P 500. By focusing on companies with low valuations and strong balance sheets, investors can potentially mitigate risks associated with market concentration.
Avantis’ U.S. Large Cap Value ETF (AVLV) tracks the Russell 1000 Value index but with a unique twist. The fund managers implement a profitability overlay when screening stocks, going beyond the traditional definition of value versus growth. This approach allows them to identify companies that are not only trading at attractive prices but also have strong profit potential. McInnis emphasizes the importance of making smaller bets on lower valuation, high profitability companies to yield positive results over time.
After Apple and Meta, the Large Cap Value fund’s top holdings include JPMorgan, Costco, and Exxon Mobil, highlighting a diverse mix of industries. With financial services and retail making up approximately 15% of the portfolio each, and energy accounting for nearly 12%, Avantis ensures that sector weightings are capped to prevent overexposure to any single industry. This strategy aims to minimize sector-specific risks and maintain a well-rounded portfolio.
Despite market fluctuations, Avantis’ Large Cap Value ETF has shown resilience, boasting a 7.7% increase in 2024 as of the latest market close. In comparison, the Russell 1000 Value index gained 4.5% during the same period, highlighting the potential benefits of a value-oriented investment approach. By focusing on companies with strong fundamentals and undervalued stocks, investors can position themselves for long-term growth and stability in their portfolios.
For investors concerned about concentration risk in the market, exploring value-oriented investments like Avantis’ Large Cap Value ETF could offer a viable solution. By adopting a more diversified approach that emphasizes companies with low valuations and strong profitability, investors can potentially mitigate risks and achieve better long-term returns. With the right investment strategy and careful consideration of sector weightings, investors can build a well-rounded portfolio that stands the test of time.