Creating a portfolio is often considered to be more art than science. However, some general rules around position sizing and diversification are important.
When it comes to diversification, thinking about the correlation between stocks is important. Aligning all of your holdings in a row based on a single theme for example can introduce unnecessary risk. One way to avoid this is by seeking out appealing investments based on distinctly different attributes such as the following five types of investments.
Out of the spotlight leader
Amalgamated Holdings Limited (ASX: AHD) is a $1.4 billion company that is relatively unknown to many investors despite the firm owning high profile assets including Thredbo Alpine Resort, Rydges Hotels, Greater Union and Event Cinemas. In general, entertainment assets continue to provide solid returns to owners and Amalgamated's shareholders should be no exception.
Turnaround Play
AMP Limited (ASX: AMP) has underperformed the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) by around 12% over the past year, largely as a result of a poorly performing wealth protection division. It's a matter of time before corrective action taken by management starts to take effect within the troubled division. With the rest of AMP's business enjoying a tailwind from improving equity markets, this stock could switch from underperformer to outperformer once investors see the wealth protection division is turning around.
The Unloved
Coca-Cola Amatil Ltd (ASX: CCL) is trading at levels rarely seen since mid-2010 which highlights how unloved this once popular stock has become. Ongoing discounting by competitors and battle for market share between supermarket majors Woolworths Limited (ASX: WOW) and Coles, owned by Wesfarmers Ltd (ASX: WES), has been so severe that not even the mighty Coca-Cola brand has been spared. Despite this competitive headwind, the bottler still controls an appealing suite of beverage brands and offers a unique opportunity for investors to gain exposure to the fast growing Indonesian economy.
The Growth Story
As Primary Health Care Limited (ASX: PRY) did for General Practitioners (GPs), Greencross Limited (ASX: GXL) is doing for veterinary practices. This type of acquisitive business model is often referred to as a 'roll-up'. Although 'roll-ups' have a mixed record when it comes to successes and failures, if Greencross can get it right, then there is the potential for the company to grab significant market share.
The Dividend Payer
Aussie investors are still clamouring for yield, it's a situation made all the more attractive thanks to the franking credit system. While there are still a number of appealing stocks, including Telstra Corporation Ltd (ASX: TLS) and the major banks; marketing and communications juggernaut STW Communications Group Ltd. (ASX: SGN) not only boasts a 6.6% forward dividend yield but the company is forecast to grow its dividend over the next two years as well.
