Value-Oriented Investments for Diversification

Value-Oriented Investments for Diversification

In a market saturated with index funds like the S&P 500, investors are increasingly concerned about concentration risk. To address this issue, Avantis Investors chief investment strategist Phil McInnis advocates for a more diversified approach through value-oriented investments. His firm's exchange-traded fund strategy aims to deliver superior long-term returns by focusing on companies with low valuations and robust balance sheets.

McInnis emphasizes the importance of being less concentrated in investment portfolios. He believes that making numerous small bets on undervalued companies with strong can yield significant returns over time. Avantis' U.S. Large Cap Value ETF (AVLV) tracks the Russell 1000 Value index but implements a profitability overlay to screen stocks. This unique approach sets it apart from traditional passive instruments that rely solely on a single variable or a combination of variables to define value and growth.

Beyond popular tech giants like Apple and Meta, the Large Cap Value fund holds significant positions in companies like JPMorgan, Costco, and Exxon Mobil, as reported by FactSet. The top sector weightings in the portfolio are financial and retail, each representing approximately 15% of the total assets, followed by energy at nearly 12%. McInnis stresses the importance of capping sector exposures to prevent excessive concentration and mitigate sector-specific risks.

Avantis' Large Cap Value ETF has demonstrated strong performance, with a return of 7.7% in as of the latest market close. In contrast, the Russell 1000 Value index posted a gain of 4.5% during the same period. This outperformance underscores the effectiveness of Avantis' value-oriented investment strategy in generating alpha and delivering positive returns for investors.

For investors seeking to diversify their portfolios and mitigate concentration risk, value-oriented investments like Avantis' Large Cap Value ETF offer a compelling solution. By focusing on undervalued companies with strong profitability metrics and maintaining sector diversification, investors can potentially achieve superior long-term returns. Phil McInnis' emphasis on a diversified approach to reinforces the importance of strategic asset allocation and prudent risk management in navigating volatile and uncertain market conditions.

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