In a market where concentration risk is a growing concern, investors are turning towards value-oriented investments for a more balanced portfolio. According to Avantis Investors chief investment strategist Phil McInnis, the key lies in adopting a diversified approach rather than relying solely on index funds like the S&P 500. McInnis believes that his firm’s exchange-traded fund strategy offers the potential for better long-term returns by focusing on companies with low valuations and strong balance sheets. By making smaller bets on these undervalued yet profitable companies, the strategy aims to deliver value over time.
The Strategy Behind AVLV ETF
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. This approach sets it apart from traditional passive instruments that rely on a single variable or a set of variables to define value and growth. By identifying companies trading at attractive prices and analyzing their profitability, AVLV aims to capture the value potential in the market. Key holdings in the fund include JPMorgan, Costco, and Exxon Mobil, alongside tech giants like Apple and Meta.
One of the core principles of Avantis’ investment strategy is to avoid concentration risk not just at the company level but also at the sector level. The fund limits sector weightings to ensure that no single sector dominates the portfolio, thereby reducing the overall risk exposure. Financial services and retail make up around 15% each of the portfolio, while energy accounts for nearly 12%. This balanced sector allocation helps in spreading the risk across different industries and sectors, promoting stability and reducing volatility in the portfolio.
As of the latest market close, Avantis’ Large Cap Value ETF has shown strong performance, outperforming the Russell 1000 Value index. With a return of 7.7% in 2024, the fund has delivered value to investors looking for exposure to undervalued companies with strong fundamentals. The strategy’s focus on profitability and low valuations has been key to its success, providing a unique approach to value investing in the market. Looking ahead, investors are likely to continue seeking out value-oriented investments as they navigate the evolving market landscape.
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