Investors concerned about concentration risk in the market may want to consider value-oriented investments, according to Avantis Investors chief investment strategist Phil McInnis. McInnis believes that taking a more diversified approach, rather than solely relying on index funds like the S&P 500, can lead to better long-term returns. Avantis’ U.S. Large Cap Value ETF (AVLV) follows the Russell 1000 Value index but employs a profitability overlay when screening stocks. This strategy aims to identify companies with low valuations and strong balance sheets, offering investors a more diversified and potentially lucrative investment option.
By taking a more nuanced approach to value investing, Avantis’ Large Cap Value ETF aims to avoid excessive concentration in its holdings. While the fund tracks the Russell 1000 Value index, it goes beyond traditional passive instruments by evaluating companies based on profitability in addition to their valuations. As a result, the ETF’s portfolio includes a mix of companies such as Apple, Meta, JPMorgan, Costco, and Exxon Mobil, with financial services and retail making up the top sector weightings. This diversified approach helps minimize sector concentration and potential risks associated with excessive exposure to any one industry.
Avantis’ strategy of focusing on companies with low valuations and strong profitability has proven successful, with the Large Cap Value ETF posting a 7.7% gain in 2024 as of the most recent market close. This performance outpaced the Russell 1000 Value index, which saw a 4.5% gain over the same period. By making smaller bets on undervalued yet profitable companies, Avantis aims to provide investors with a more resilient and potentially rewarding investment option compared to traditional passive index funds.
While the Large Cap Value ETF’s performance has been strong, investors should be mindful of the risks associated with any investment strategy. Diversification does not guarantee profits or protect against losses, and market conditions can change rapidly. Additionally, past performance is not indicative of future results, so investors should conduct thorough research and consider their individual investment goals and risk tolerance before investing in any fund.
In conclusion, investors concerned about concentration risk in the market may find value-oriented investments like Avantis’ Large Cap Value ETF appealing. By focusing on low valuation, high profitability companies with a diversified approach, the fund aims to provide potentially better long-term returns compared to traditional index funds. While the strategy has delivered solid performance thus far in 2024, investors should carefully consider the risks and conduct their own due diligence before making any investment decisions.
