Investors concerned about market concentration risk may want to consider value-oriented investments.
Phil McInnis, chief investment strategist at Avantis Investors, suggests taking a more diversified approach than just looking at index funds like index funds. Standard & Poor's 500. He believes his company's ETF strategy can provide better returns over the long term, focusing on companies with low valuations and strong balance sheets.
“We will be less focused,” he told CNBC's “ETF Edge” this week. “So we're making a lot of small bets on these lower valuations, and better profitability (of companies) that pay off over time.”
Avantis' US Large Cap Value ETF (AVLV) tracks the Russell 1000 Value Index, but with a caveat — fund managers screen stocks using a profitability overlay.
“As we sift through and identify those companies that are trading at the most attractive prices, we do so while looking at earnings,” McInnis said. “This goes beyond the typical type of passive instruments out there that base value versus growth on a single variable or a whole set of variables.”
after apple And deadThe next largest holdings of the large-cap value fund are: JP Morgan, Costco And Exxon MobilAccording to FactSet. Financial services and retail are the top weighted sectors, each accounting for approximately 15% of the portfolio, with energy coming in third at approximately 12%.
“Starting at the company level and the sectors being a byproduct, we have sector caps to make sure that these bets aren't too big, and that we're not too concentrated in an individual sector,” McInnis added.
Avantis' large-cap value ETF is up 7.7% in 2024, as of market close on Friday. The Russell 1000 Value Index rose 4.5% over the same period.
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