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In a market where concentration risk is a growing concern for investors, exploring value-oriented investments can be a prudent strategy. Diversifying beyond traditional index funds like the S&P 500 may offer unique opportunities for long-term returns. Phil McInnis, the chief investment strategist at Avantis Investors, advocates for a more diversified approach that focuses on companies with low valuations and strong balance sheets.

McInnis emphasizes the importance of avoiding concentration risk by making smaller bets on a wider range of companies with lower valuations and strong profitability metrics. By deviating from the typical value versus growth investment strategies, investors can potentially benefit from a more comprehensive evaluation of companies’ financial health and growth potential.

Avantis’ U.S. Large Cap Value ETF (AVLV) tracks the Russell 1000 Value index but incorporates a unique profitability screening process. This approach aims to identify undervalued companies with solid profit margins, offering investors a distinct advantage over passive investment instruments. The fund’s top holdings include industry giants like JPMorgan, Costco, and Exxon Mobil, reflecting a diverse portfolio composition.

With financial services and retail sectors comprising a significant portion of the portfolio, Avantis ensures that sector bets are capped to prevent excessive concentration in any single industry. By focusing on company-level analysis and prudent risk management, the fund aims to achieve balanced exposure across sectors while maximizing potential returns. Energy emerges as the third-largest sector weighting in the portfolio, contributing to overall diversification.

As of the latest market data, Avantis’ Large Cap Value ETF has outperformed the Russell 1000 Value index, showcasing a return of 7.7% in 2024. This positive performance underscores the effectiveness of the diversified value-oriented strategy employed by Avantis Investors. With a forward-looking approach to investment management, the fund seeks to capitalize on undervalued opportunities while mitigating inherent market risks.

Adopting a value-oriented investment approach can enhance portfolio diversification and potentially generate superior long-term returns. By incorporating rigorous profitability screening and maintaining a diversified sector exposure, investors can navigate market uncertainties with confidence. Avantis’ unique strategy exemplifies the benefits of thinking beyond traditional index funds and embracing a more holistic investment philosophy.

Finance

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