Here's how to diversify your portfolio

Portfolio diversification is an important part of investing.

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Most of Australia's biggest companies have large market share positions like the big four banks, Telstra Corporation Ltd (ASX: TLS) and Woolworths Limited (ASX: WOW). It is unlikely most of Australia's top stocks can grow faster than the national population growth, plus inflation. This also means that Australia's index funds could also be on course for poor performances.

Therefore, I believe that investors need to look at different sized businesses, in different industries and perhaps in different countries.

In light of Labor's franking credit announcement today, here are three shares to diversify your portfolio and avoid the franking credit refund removal:

Magellan Global Trust (ASX: MGG)

This is a listed investment trust (LIT) that invests in some of the largest companies in the world. The Magellan investment team have a long-term track record of outperforming the global share market's returns.

Some of its top holdings include Facebook, Alphabet (Google), Apple, Lowe's, Kraft Heinz, Starbucks and Visa.

The trust has an aim to pay a yield representing 4% of its net asset value each year.

Rural Funds Group (ASX: RFF)

Rural Funds is a real estate investment trust (REIT) that purely invests in agricultural property and then leases them out to high quality tenants.

All of Rural Fund's contracts include rental indexation, which means management can confidently predict a 4% increase to the distribution each year.

I really like Rural Funds as a long-term investment idea because farmland has been a useful asset for an extremely long time and should continue to be useful for a long time to come.

Rural Funds is currently trading with a distribution yield of 4.6%.

National Storage REIT (ASX: NSR)

National Storage is the largest self-storage provider in Australia and New Zealand.

Real estate prices per square metre are really high these days in most Australia capital cities, so it makes sense to store items in a cheaper location, which is exactly what National Storage offers.

The business is benefiting from economies of scale, land value growth and population growth.

The bigger it gets the slower the growth may become, but it currently offers a distribution yield of 5.96%.

Foolish takeaway

I believe all three will deliver better returns than the ASX index over the medium-term. At the current prices I believe that the Magellan Trust is the best buy because it's trading below its net asset value and has some very high-quality holdings.

Motley Fool contributor Tristan Harrison owns shares of MAGLOBTRST UNITS and RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED and Telstra Limited. The Motley Fool Australia has recommended National Storage REIT. 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 Scott Phillips.

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