Why CSL Limited is 8.1% of this high-performing LIC’s portfolio

It’s quite hard to deliver significant outperformance when concentrating on the largest shares on the ASX.

Large listed investment companies (LICs) like Australian Foundation Investment Co. Ltd. (ASX: AFI), Argo Investments Limited (ASX: ARG) and Milton Corporation Limited (ASX: MLT) generally track the index’s returns over a short time period.

Therefore, it’s impressive that Diversified United Investment Limited (ASX: DUI) managed to produce a total shareholder return of 23% over 12 months to 31 October 2017 according to Baillieu Holst Research.

Diversified United describes itself as a LIC founded in 1991 which invests in Australian equities and international equities. The Company’s objective is to continue to provide shareholders with dividends and capital appreciation over the longer term within acceptable levels of risk. The LIC has maintained or increased its dividend every year since 1992.

One of the main reasons its outperformance has been impressive is its investment in CSL Limited (ASX: CSL). The healthcare giant was 8.1% of the portfolio at 31 December 2017.

CSL is by far Australia’s largest healthcare business with a market cap of over $60 billion. However, its large size doesn’t mean that its profit growth is slowing.

On a constant currency basis CSL’s FY17’s result was very impressive with revenue growing by 15%, underlying net profit after tax (NPAT) growing by 24% and underlying earnings per share (EPS) growing by 26%.

I’m a big believer in Australia’s healthcare sector, I think it’s the best industry to be invested in overall. Healthcare offers investors defensive earnings because of how valuable we deem our well-being, healthcare is a growing industry due to western society’s ageing population.

CSL is fairly unique at the big end of the ASX, its research & development process takes several years before it can generate revenue from its products. This business is a good definition of investing for the long-term.

CSL is also still expanding its core business. It had 180 plasma collection centres at the end of FY17, but has plans to open a further 25 to 30 during FY18.

In FY18 CSL expects profit to grow by 10% to 16% in FY18, which is impressive considering this would be on top of an impressive FY17 result.

Foolish takeaway

CSL could be the best blue-chip stock to own in the ASX20, I’d be happy to own shares. I’m not sure today’s price is good value, as it’s currently trading at almost $143 per share. I imagine Diversified United will be happy holders for a long time.

These top blue chips could also make excellent additions to a strong portfolio.

Top 3 ASX Blue Chips To Buy In 2018

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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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