Investors seeking to mitigate concentration risk in the market might want to explore the potential benefits of value-oriented investments. According to Avantis Investors’ chief investment strategist, Phil McInnis, a diversified approach beyond traditional index funds like the S&P 500 could offer better long-term returns. By focusing on companies with low valuations and strong balance sheets, investors can potentially reduce the impact of market volatility and uncertainty.
Avantis’ U.S. Large Cap Value ETF (AVLV) tracks the Russell 1000 Value index but with a unique twist – the fund managers incorporate a profitability overlay when selecting stocks. This approach goes beyond traditional passive instruments that merely categorize companies as value or growth based on a single variable or set of variables. By considering both valuation metrics and profitability, the ETF aims to identify companies with the potential for long-term success.
Apart from tech giants like Apple and Meta, the Large Cap Value fund’s top holdings include JPMorgan, Costco, and Exxon Mobil. With financial services and retail sectors comprising around 15% each of the portfolio, followed by energy at nearly 12%, the fund maintains a balanced sector allocation to prevent overexposure. McInnis highlighted the importance of capping sector weights to ensure diversification and minimize concentration risk within individual sectors.
As of the latest market data, Avantis’ Large Cap Value ETF has delivered a return of 7.7% in 2024, outperforming the Russell 1000 Value index, which gained 4.5% during the same period. Despite ongoing market fluctuations and economic uncertainties, McInnis remains optimistic about the fund’s ability to generate competitive returns over time. By adhering to a disciplined investment strategy focused on value and profitability, investors may stand to benefit from the fund’s potential for consistent growth and stability.
Value-oriented investments represent a compelling option for investors looking to diversify their portfolios and navigate market volatility effectively. With an emphasis on companies with sound fundamentals and attractive valuations, funds like the AVLV ETF offer a strategic approach to long-term wealth accumulation. By incorporating a profitability overlay and maintaining sector diversification, investors can position themselves for success in a dynamic and ever-changing market environment.
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