Investors concerned about market concentration risk may want to consider value-focused investing.
Phil McInnis, chief investment strategist at Avantis Investors, suggests taking a more diversified approach rather than simply looking at index funds. S&P 500He believes his exchange-traded fund strategy can deliver better returns over the long term by focusing on companies with low valuations and strong balance sheets.
“We’re going to be less concentrated,” he told CNBC’s “ETF Edge” this week, “so we’re making a lot of smaller bets on these stocks that are lower valuations and have higher returns.” [companies] It will pay off over time.”
Avantis’ US Large Cap Value ETF (AVLV) tracks the Russell 1000 Value index, with the caveat that the fund manager screens stocks using a profitability overlay.
“We also consider earnings as we sift through and identify companies that are trading at more attractive prices,” McInnis said. “This goes beyond the passive measures commonly used today that define value and growth based on a single variable or a whole set of variables.”
rear apple and MetaThe next largest holding after the Large Cap Value Fund is J.P. Morgan, Costco and ExxonMobilFinancial services and retail are the top sectors, accounting for about 15% of the portfolio, while energy is in third place at about 12%, according to FactSet.
“It starts at the company level and then the sector is a by-product, so we have caps on a sector-by-sector basis to make sure the stakes aren’t too big and we’re not too concentrated in any one sector,” McInnis added.
The Avantis Large Cap Value ETF was up 7.7% through 2024 as of market close on Friday. The Russell 1000 Value Index was up 4.5% over the same period.
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