In a market where concentration risk is a growing concern among investors, the need for a more diversified approach has never been more essential. Phil McInnis, the chief investment strategist at Avantis Investors, believes that investing in value-oriented funds can offer better returns in the long run compared to traditional index funds like the S&P 500. His firm’s exchange-traded fund strategy focuses on companies with low valuations and strong balance sheets, aiming to reduce concentration and maximize profits over time.

Avantis’ U.S. Large Cap Value ETF (AVLV) tracks the Russell 1000 Value index but with a unique twist. The fund managers use a profitability overlay to screen stocks, ensuring that they are not only trading at attractive prices but also have solid financial fundamentals. This approach sets AVLV apart from other passive instruments that may solely rely on a single variable or a broad range of variables to define value versus growth.

After big tech giants like Apple and Meta, AVLV’s next-largest holdings include companies like JPMorgan, Costco, and Exxon Mobil, according to FactSet data. The fund’s top sector weightings are in financial services and retail, each making up around 15% of the portfolio, followed by energy at nearly 12%. McInnis emphasizes the importance of capping sector exposures to prevent over-concentration and ensure a well-diversified portfolio.

Performance and Growth Potential

As of the latest market close, Avantis’ Large Cap Value ETF has delivered a solid performance, up 7.7% in 2024, outpacing the Russell 1000 Value index’s gain of 4.5% during the same period. McInnis believes that the strategy of making smaller bets on undervalued, high-profitability companies will continue to pay off in the long term, providing investors with sustainable returns and mitigating concentration risk.

For investors seeking a more diversified and value-oriented approach to their investment strategy, funds like AVLV offer a compelling option. By focusing on companies with low valuations and strong balance sheets, and utilizing a profitability overlay to screen stocks, investors can potentially achieve better returns over time. With a well-diversified portfolio and capped sector weightings, AVLV aims to reduce concentration risk and provide investors with a safer and more profitable investment opportunity.

Finance

Articles You May Like

Anticipating Change: The Upcoming FAFSA Rollout and Its Implications for Students
HSBC’s Strategic Moves: A Strong Q3 Earnings Report and Share Buyback Initiative
Maximizing Tax Efficiency: The New 0% Capital Gains Bracket for 2025
Strategic Dividend Investing: Insights into Prominent Dividend Stocks

Leave a Reply

Your email address will not be published. Required fields are marked *