I believe that diversification is important to achieve satisfactory returns in the short-term and the long-term.
Diversification doesn’t just mean spreading your money among Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and Telstra Corporation Ltd (ASX: TLS).
I think it’s important that investors spread their money across different industries and different businesses that have good growth prospects.
Here are three I think fit the bill:
Propel Funeral Partners Ltd (ASX: PFP)
Propel is the second largest funeral provider in Australia and New Zealand. It is looking to quickly expand through acquisitions, although it appears to be competitor InvoCare Limited (ASX: IVC) that is doing most of the acquiring at the moment.
I believe Propel is a good long-term opportunity because death volumes are expected to grow by 1.4% per annum between 2016 to 2025 and then increase by 2.2% per annum from 2025 to 2050. There are few businesses on the ASX that can point to continued growth over the next 30 years.
Propel is currently trading at 22x FY19’s estimated earnings.
MFF Capital Investments Ltd (ASX: MFF)
MFF Capital has been one of the highest-performing listed investment companies (LICs) on the ASX over the past five years. It has an attractive management fee for its growth potential and also pays a dividend.
Its portfolio is full of some of the highest quality businesses in the world like Visa, MasterCard, Facebook and Alphabet (Google).
It’s currently trading at a 13% premium to its post-tax NTA, but I believe it could be worth the premium over the long-term.
Ingenia Communities Group (ASX: INA)
This is a business this is heavily exposed to two important themes in Australia. A rising number of retirees will want to use one of Ingenia’s retirement villages or holiday locations.
The high cost of Australian real estate also is a motivator for Australians to sell to unlock equity and move to a cheaper location and rent there, which can be funded with help from rental assistance.
I also like that Ingenia is focusing on moving towards no entry or exit costs and instead just charges a rising amount of rent. This is a more sustainable business model.
I believe that all three could outperform the ASX and global indices over the long-term. At today’s prices I am most drawn to MFF Capital because outperformers usually continue to outperform. However, Propel is also a compelling ultra-long-term buy. I fear rising interest rates could have a negative effect on Ingenia over the next couple of years.
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Motley Fool contributor Tristan Harrison owns shares of InvoCare Limited, Magellan Flagship Fund Ltd, and Propel Funeral Partners Ltd. The Motley Fool Australia has recommended InvoCare 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.