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Why this high-performing manager likes Smartgroup Corporation Ltd

There are few managers in Australia who have generated a return of more than 10% per annum over the past decade.

One of those high-performing listed investment companies (LIC) is WAM Research Limited (ASX: WAX). The LIC describes itself as providing investors with exposure to a diversified portfolio of undervalued growth companies, which are generally small-to-medium sized industrial companies listed on the ASX.

WAM Research’s investment objectives are to provide shareholders with a rising stream of fully franked dividends and achieve a high real rate of return, comprising both income and capital growth within risk parameters acceptable to the directors.

Over the past five years the portfolio has returned an average of 20.1% per annum.

One of its biggest holdings is Smartgroup Corporation Ltd (ASX: SIQ). It’s one of Australia’s largest providers of employee benefits and workforce optimisation services for the government, health and corporate sectors.

The business has a variety of subsidiaries to provide outsourced salary packing and leasing offerings. Two of its latest acquisitions include RACV Salary Solutions and Aspire.

Its result for the first half of 2017 was impressive, revenue grew by 57% and NPATA grew by 63%. The dividend increased by the largest percentage, it was increased by 68% for the half-year.

Salary packaging is an attractive method of delivering value for employees, particularly in this environment of low wage growth and bracket creep which makes it more important to be able to improve an employee’s package in cheaper ways.

Foolish takeaway

The Smartgroup share price has grown by 77% over the last year and there could be more growth to come because it’s only trading at 19x FY18’s estimated earnings with a grossed-up dividend yield of 3.96%.

Smartgroup isn’t the only stock that’s doing well, these hot shares could be great for any portfolio.

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Motley Fool contributor Tristan Harrison owns shares of WAM Research Limited. The Motley Fool Australia has no position in any of the stocks mentioned. 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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