Investors concerned about market concentration risk may want to consider value-oriented investments.
Avantis Investors chief investment strategist Phil McInnis suggests taking a more diversified approach than just looking at index funds such as S&P 500 Index. He believes his firm’s exchange-traded fund strategy can deliver better returns over the long term by focusing on companies with low valuations and strong balance sheets.
“We’ll be less focused,” he said this week on CNBC’s “ETF Edge.” “So we’re kind of making a lot of smaller bets on that lower valuation and better profitability. [companies] pays off over time.”
Avantis US Large-Cap ETF (AVLV) tracks the Russell 1000 Value Index, but with a caveat: Fund managers screen stocks using a performance overlay.
“As we look at and identify those companies that are trading at more attractive prices, we do that by looking at earnings,” McInnis said. “This goes beyond typical passive tools that measure value and growth based on a single variable or a whole set of variables.”
After Apple And MetaThe next largest holdings of a large cap fund are J.P. Morgan, Costco And Exxon MobilFactSet reports. Financial services and retail lead the sector, each making up approximately 15% of the portfolio, with energy coming in third at nearly 12%.
“Starting at the company level and the sectors that are by-products, we have sector caps to ensure that those rates are not too large and that we are not too concentrated in a single sector,” McInnis added.
The Avantis large-cap ETF was up 7.7% for 2024 as of Friday’s market close. The Russell 1000 Value Index rose 4.5% over the same period.
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