One of the easiest ways to get good diversification is by investing in listed investment companies (LICs).
Some LICs copy the ASX index with most of the top holdings being similar to the ASX200. This doesn’t strike me as a market-beating strategy and those LICs are likely to achieve the same returns as the index, if not underperform.
However, the below three LICs all have index-unaware strategies and also have big dividend yields. Therefore, I think they would be good choices for income investors:
WAM Research Limited (ASX: WAX)
WAM Research is one of the oldest listed investment companies run by Wilson Asset Management. However, I believe it’s actually the best of the WAM LICs.
The WAM Research investment team purely look at the underlying quality of the business and only invests if the team see a catalyst that will improve the valuation and then sells the share if it reaches that valuation.
This strategy clearly works very well as the LIC has delivered an average return of 18.1% per annum, before fees, over the past five years.
It’s currently trading with a grossed-up dividend yield of 8.7%.
Naos Emerging Opportunities Company Ltd (ASX: NCC)
Naos Emerging Opportunities is Naos’ longest running LIC. Over the past five years it has delivered a 17.87% return per annum, before fees.
It focuses on smaller companies, in the market capitalisation range of less than $250 million. It also has a much more concentrated portfolio compared to most other managers, at the end of February the LIC had nine long positions and no short positions.
Naos is currently trading with a grossed-up dividend yield of 7.85%.
Clime Capital Limited (ASX: CAM)
Clime is the smallest LIC on the list, but it has the most interesting strategy. It invests in large caps, medium caps and small caps on the ASX. It also puts a portion of its capital into overseas stocks.
So far in FY18 the LIC has delivered a return, net of fees, of 9.6%. Some of its top holdings include Ramsay Healthcare Limited (ASX: RHC), Janus Henderson Group (ASX: JHG), Collins Foods Ltd (ASX: CKF) and Alphabet (Google).
It currently has a grossed-up dividend yield of 8.2%.
I think all three shares are some of the best LICs out there. They all offer very good yields and are delivering good long-term returns. At the current prices I’d be inclined to go for the Naos LIC because it’s trading much closer to its NTA than WAM Research.
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Motley Fool contributor Tristan Harrison owns shares of NAOS EMERG FPO, Ramsay Health Care Limited, and WAM Research Limited. The Motley Fool Australia has recommended Ramsay Health Care Limited. 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.