ETFs
Avoid concentration risk with this value play, suggests ETF expert
Investors are worried concentration risk in the market may want to consider value investing.
Phil McInnis, chief investment strategist at Avantis Investors, suggests taking a more diversified approach than just looking at index funds such as S&P500. He believes his firm’s exchange-traded fund strategy can provide better long-term returns, with a focus on companies with low valuations and strong balance sheets.
“We’re going to be less focused,” he told CNBC.Advantage of ETFs“This week. “So we’re kind of making a lot of small bets on these lower valuations and this better profitability.” [companies] paying off over time.
Avantis US Large Cap Value ETF (AVLV) follows the Russell 1000 Value index, but with a caveat: fund managers select stocks using a profitability overlay.
“As we sift through and identify companies that are trading at more attractive prices, we do so by looking at earnings,” McInnis said. “This goes beyond the typical type of passive instruments that define value versus growth on a single variable or an entire set of variables.”
After Apple And Metathe next biggest holdings in the Large Cap Value fund are J.P. Morgan, Costco And Exxon Mobile, according to FactSet. Financial services and retail are the most heavily weighted sectors, each accounting for around 15% of the portfolio, with energy coming in third at almost 12%.
“Starting at the company level and sectors being a by-product, we have caps with the sectors to make sure that these bets are not too big, that we are not too concentrated in any individual sector,” added McInnis.
The Avantis Large Cap Value ETF is up 7.7% in 2024, as of Friday’s market close. The Russell 1000 Value Index gained 4.5% during the same period.