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:
Domain Holdings Australia Limited (ASX: DHG)
Domain is the owner of the second most popular property website in Australia, Domain.com.au. It has significant pricing power because most properties that are sold in Australia are listed on the site. The more properties it has advertised on its site, the more buyers it attracts, which attracts more sellers and so on. This is a good moat to have.
According to reports in the media, there are actually more properties coming onto the market in recent times. All of those vendors may have to spend a little more on the premium Domain advertising to make their property stand out.
Domain is currently trading at 35x FY19’s estimated earnings.
Apiam Animal Health Ltd (ASX: AHX)
Apiam is a regional veterinary business that services farm animals as well as typical pet animals. I believe it’s a decent way to get exposure to the ‘food bowl of Asia’ theme, whilst perhaps having less volatility than cattle prices or other animal prices.
The company is also expanding into regional cities by opening vets inside Petstocks in places like Bendigo and other hubs on the edge of Apiam’s geographical operations.
Apiam is trading at 14x FY18’s estimated earnings.
Lifestyle Communities Limited (ASX: LIC)
Lifestyle Communities is one of the largest retirement village operators in Australia with 15 communities.
It describes its locations as secure & gated, with 5-star resort-style facilities and modern & low-maintenance homes.
There is a growing number of people reaching above 50 in age and housing affordability is also a big issue in Australia. Both of these themes could boost Lifestyle Communities over the coming years. Lifestyle Communities offers residents homes that are typically 20% less than the local suburb.
Lifestyle Communities has large institutional backing of its strategy, with Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) one of the substantial shareholders.
I like the idea of owning all three shares. However, if I had to narrow it down to one I’d pick Apiam because it’s attractively priced for how much it could grow over the next two to three years. Domain is probably too expensive for me, whilst rising interest rates could make Lifestyle Communities better value in the coming years.
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Motley Fool contributor Tristan Harrison owns shares of Apiam Animal Health Ltd and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company 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.