Investors concerned about concentration risk in the market should consider shifting towards value-oriented investments. According to Avantis Investors chief investment strategist, Phil McInnis, taking a more diversified approach can potentially yield better returns in the long run when compared to simply investing in index funds like the S&P 500.
Avantis’ U.S. Large Cap Value ETF (AVLV) follows the Russell 1000 Value index, with a unique twist – the fund managers utilize a profitability overlay when screening potential stocks. This approach allows the fund to identify companies with low valuations and strong balance sheets, ultimately making smaller bets on these undervalued stocks that could pay off over time.
Portfolio Composition and Sector Weightings
Apart from tech giants like Apple and Meta, the Large Cap Value fund also holds significant positions in companies such as JPMorgan, Costco, and Exxon Mobil, as reported by FactSet. The fund’s top sector weightings include financial services and retail, each making up around 15% of the portfolio, with energy coming in third at nearly 12%. McInnis emphasized the importance of capping sector exposure to prevent over-concentration and excessive risk within the portfolio.
As of the latest market close, Avantis’ Large Cap Value ETF has gained 7.7% in 2024, outperforming the Russell 1000 Value index, which saw a 4.5% increase during the same period. This performance highlights the potential benefits of a value-oriented investment strategy, particularly when paired with a diversified approach that considers profitability alongside traditional valuation metrics.
Investors looking to mitigate concentration risk in their portfolios and potentially achieve better long-term returns may find value-oriented ETFs like Avantis’ U.S. Large Cap Value ETF to be a suitable option. By focusing on companies with low valuations, strong balance sheets, and profitable operations, while maintaining a diversified approach to sector exposure, investors can position themselves for success in a dynamic market environment.