Value-Oriented Investments: A Diversified Approach

In a market marked by concerns over concentration risk, Avantis Investors chief investment strategist, Phil McInnis, proposes a unique and diversified approach to investing. Rather than relying solely on index funds like the S&P 500, McInnis advocates for a strategy that focuses on value-oriented investments. According to McInnis, this strategy involves making smaller bets on companies with low valuations and strong balance sheets, ultimately aiming for better long-term returns.

Avantis’ U.S. Large Cap Value ETF (AVLV) differentiates itself by tracking the Russell 1000 Value index while incorporating a profitability overlay in stock selection. McInnis explains that the fund’s managers screen for stocks that are not only attractively priced but also demonstrate strong profitability. This approach goes beyond traditional passive instruments that rely on a single variable or a wide range of variables to define value versus growth.

Diversification at the Company and Sector Levels

Aside from its unique stock selection process, the Large Cap Value fund also prides itself on diversification at both the company and sector levels. While Apple and Meta are top holdings, the fund also includes companies like JPMorgan, Costco, and Exxon Mobil. The top sector weightings in the portfolio are financial services and retail, each accounting for approximately 15%, with energy following closely at nearly 12%. McInnis emphasizes the importance of capping sector exposure to prevent over-concentration and excessive risk within the portfolio.

As of the most recent market close, Avantis’ Large Cap Value ETF has delivered a return of 7.7% in 2024, outperforming the Russell 1000 Value index, which gained 4.5% over the same period. This strong performance underlines the effectiveness of a diversified, value-oriented investment approach in navigating the complexities of the market and mitigating concentration risk. Investors looking to diversify their portfolios while seeking attractive long-term returns may find value in exploring Avantis’ unique investment strategy.