In a market where concentration risk is a growing concern for investors, considering value-oriented investments could be a strategic move. Avantis Investors chief investment strategist, Phil McInnis, believes in a more diversified approach beyond just looking at index funds like the S&P 500. He advocates for their exchange-traded fund strategy, which focuses on companies with low valuations and strong balance sheets, aiming for better long-term returns.
Avantis’ U.S. Large Cap Value ETF (AVLV) aligns with the Russell 1000 Value index, but with a unique twist — the fund managers use a profitability overlay to screen stocks. This distinctive approach sets them apart from traditional passive instruments that often rely on a single variable or a myriad of variables to define value versus growth.
Beyond tech giants like Apple and Meta, the Large Cap Value fund holds significant positions in companies like JPMorgan, Costco, and Exxon Mobil. FactSet data reveals that financial services and retail dominate the portfolio as the top sector weightings, each accounting for approximately 15%. Energy follows closely behind, representing nearly 12% of the holdings. McInnis emphasizes the importance of capping sector exposures to avoid overconcentration and mitigate risk.
As of the latest market close, Avantis’ Large Cap Value ETF has yielded a return of 7.7% in 2024, outperforming the Russell 1000 Value index, which saw a 4.5% increase during the same period. McInnis attributes this success to the fund’s focus on lower valuation, higher profitability companies, suggesting that their investment thesis is paying off steadily over time.
The landscape of investing is evolving, and traditional approaches may not always be the most effective in navigating the complexities of today’s markets. By exploring value-oriented investments with a diversified and uniquely structured strategy like that of Avantis Investors, investors can potentially mitigate concentration risk and achieve stronger long-term returns.
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