5 diversified shares for your watch list

Creating a portfolio is often considered to be more art than science. While investors can get by without having a concrete set of rules, 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 based on a single theme, for example, could introduce unnecessary risk.

One way to avoid this concentration risk is by seeking out appealing investments based on distinctly different attributes such as the following five ‘types’ of investments.

Out of the spotlight leader

Event Hospitality and Entertainment Ltd (ASX: EVT) 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 exposed to tourism and entertainment continue to provide solid returns to owners and Event should be no exception.

The Unloved

Magellan Financial Group Ltd (ASX: MFG) has underperformed the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) by around 20% since the beginning of calendar year 2016. With Magellan enjoying a prominent position as an Australian-based international fund manager this near term underperformance may prove to be a buying opportunity for long term investors.

Turnaround Play

Supermarket major Woolworths Limited (ASX: WOW) is trading near decade low levels as investors have become increasingly concerned by the company’s prospects. There are certainly plenty of reasons to be cautious, however, investors with unique insights into the supermarket industry may see the potential for a turnaround in Woolworths’ fortunes.

The Growth Story

The market loves a good growth story! One stock which has captured the attention of some investors is cloud-based accounting software provider XERO FPO NZX (ASX: XRO). Xero’s share price briefly soared to over $40 in early 2014, but today it sells for around $14. Although Xero is yet to turn a profit, the “size of the prize” appears enormous.

The Dividend Payer

Aussie investors are still clamouring for yield particularly after the Reserve Bank of Australia’s latest interest rate cut. The focus on dividends is made all the more attractive thanks to the franking credit system. With the sustainability of dividends from the major miners, major banks and even Woolworths all under a cloud of uncertainty, Telstra Corporation Ltd (ASX: TLS) remains a “go-to” income stock.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia owns shares of Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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