This ETF strategy may help investors skirt market concentration risk

The Avantis U.S. Large Cap Value ETF (AVLV) selects its holdings based on a combination of risk factors, primarily focusing on stocks trading at lower multiples relative to their profitability46. This approach is designed to provide better risk-adjusted performance than the Russell 1000 Value Index. The fund pursues a diversified approach by investing in a broad set of U.S. large-cap companies, with an emphasis on firms trading at what they believe are low valuations with higher profitability ratios2. The fund managers screen stocks using a profitability overlay, ensuring that the companies chosen have strong balance sheets and are undervalued in the market.

Phil McInnis of Avantis Investors recommends a more diversified approach for investors concerned about market concentration risk. He suggests that instead of solely relying on index funds such as the S&P 500, investors should consider value-oriented investments. Avantis Investors' exchange-traded fund (ETF) strategy focuses on companies with low valuations and strong balance sheets, making numerous smaller bets on these companies to provide better long-term returns. Their U.S. Large Cap Value ETF (AVLV) tracks the Russell 1000 Value index but uses a profitability overlay to screen stocks, going beyond typical passive instruments that define value versus growth based on a single variable or multiple variables2.