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Buy these 3 shares for strong diversification

Getting diversification right for your portfolio is one of the best ways to deliver strong returns. Diversification can mean spreading your investments across industries and geographies.

It’s a good idea to expand your portfolio into companies that operate in different industries. If you invest like everyone else, then you’ll get similar results.

Here are three shares that I think would help diversify a portfolio:

WAM Microcap Limited (ASX: WMI)

WAM Microcap is the listed investment company (LIC) run by Wilson Asset Management that focuses on the smallest end of the share market. Its portfolio has gone up by 22% since the start of the financial year before fees, which is very impressive considering there are still two months to go for FY18.

Small caps are the most volatile part of the market, but small caps can also provide the biggest returns because it’s much easier for a small business to double in size.

I’m happy to delegate my small cap investing to effective managers like WAM Microcap, I’ll be interested to see how this LIC’s dividend grows over time.

MNF Group Ltd (ASX: MNF)

MNF is one of the world’s leading Voice over Internet Protocol providers. Some of its biggest clients include businesses in Australia like Uber, Skype and Carsales.Com Ltd (ASX: CAR).

The business is experiencing good organic growth each year and has a plan to expand its business further by offering a telecommunication service to baby boomers.

If the business can continue to grow at double digits for a few more years it could be attractively valued at 30x FY18’s estimated earnings.

Propel Funeral Partners Ltd (ASX: PFP)

Propel is Australia and New Zealand’s second largest funeral providers with an estimated market share of approximately 4.1% in Australia and 6.7% in New Zealand.

The company believes the funeral industry is a good long-term growth opportunity because the death volume in Australia is expected to grow by 1.4% between 2016 to 2025 and then 2.2% from 2025 to 2050.

Propel only just recently listed, so it doesn’t have much of a listed history and a lot of its future growth will be down to acquisitions. If it maintains a conservative balance sheet whilst slowly but steadily growing the dividend it could generate good long-term returns.

Foolish takeaway

At the current share prices I think all three will easily beat the ASX’s returns over the next five years. I believe MNF and Propel have a lot of organic growth potential and I’d be happy to buy shares today.

Another exciting growth idea is this top stock which is predicting profit growth of at least 30% this financial year.

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What does this mean for you? Well there is one stock I've found that could very well turn out to be THE best buy of 2018. And while there's no such thing as a 'sure thing' when it comes to investing - this ripper might come as close as I've ever seen.

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Motley Fool contributor Tristan Harrison owns shares of Propel Funeral Partners Ltd and WAM MICRO FPO. The Motley Fool Australia owns shares of and has recommended MNF Group Limited. The Motley Fool Australia has recommended 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.

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