Investors concerned about the risk of concentration in the market may want to consider value-oriented investing.
Avantis Investors investment strategist Phil McInnis recommends taking a more diversified approach than just looking at index funds such as S&P 500. He thinks that the exchange-traded fund strategy can really provide better returns in the long term, emphasizing 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 smaller bet that these lower prices, the better profits (the company) pays off over time.”
The Avantis US Large Cap Value ETF (AVLV) tracks the Russell 1000 Value index, but with a caveat – the fund manager displays stocks using a profit overlay.
“When we sift through and identify companies that are trading at more attractive prices, we do so when looking at profits,” McInnis said. “It goes beyond the typical types of passive instruments that exist that make the definition of value versus growth in a single variable or a compendium of all variables.”
Next Apple and MetaThe next largest holdings of Large Cap Value funds are JPMorgan, Costco and Exxon Mobil, according to FactSet. Financial services and retail are the top sector weights, each accounting for about 15% of the portfolio, with energy coming in third at almost 12%.
“Starting at the company and sector level as a by-product, we have a cover with the sector to make sure that the stakes are not too big, so that we do not concentrate too much on individual sectors,” added McInnis.
The lowest value of Avantis’ Large Cap Value ETF in 2020 is 7.7%. The Russell 1000 Value Index gained 4.5% during the same period.
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