I’m always on the lookout for ways to diversify my portfolio whilst maintaining strong returns. If you can mitigate risk whilst also beating the market then that’s a powerful combination.
Diversification usually means investing into different industries and perhaps businesses that offer geographical diversification away from Australia.
Here are three shares that I think would offer good diversification:
BETANASDAQ ETF UNITS (ASX: NDQ)
One of the most impressive growth stories of the past decade has been the rise of the American FAANG tech shares. Facebook, Apple, Amazon, Netflix and Google (Alphabet) have all been strong performers. You can also throw Microsoft and Nvidia into that list as well.
This exchange-traded fund (ETF) provides exposure to all of the above names and the rest of the 100 of the biggest tech shares listed on the ASX.
Despite already achieving strong growth for the past decade, many of the largest constituents like Facebook and Alphabet are still growing revenue at impressive double digit rates.
I don’t think there’s another group of blue chip shares, outside of Asia, that offer as much potential growth as the FAANG shares. I think every Aussie investor should have some portfolio exposure either directly or indirectly to these tech giants. This ETF could be the best way to do it.
Apiam Animal Health Ltd (ASX: AHX)
Diversifying your portfolio can also mean investing in small caps.
Apiam is a small cap veterinary business that operates in regional areas, it specialises in offering services to farm animals.
I like this aspect to Apiam because it provides exposure to the growing Australian food export business in a less-volatile manner compared to food prices. Apiam is also setting up vet clinics inside regional Petstock locations such as Bendigo.
In FY18 it revealed underlying earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 17.3% and organic revenue growth of 4%. It could turn into one of those slow-and-steady growers over time.
The beaten-down share price offers good value in my opinion, it’s currently trading at 17x FY18’s earnings with a grossed-up dividend yield of 4.1%.
Propel Funeral Partners Ltd (ASX: PFP)
Propel is another small cap, it’s the second largest funeral operator in Australia and New Zealand, although it is a lot smaller than its large rival InvoCare Limited (ASX: IVC).
One of main things that attracts me to Propel is its ultra-long-term tailwind of the number of deaths due to Australia’s ageing population. 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.
However, Propel also plans to rapidly expand its business by making well-chosen acquisitions to expand into geographical areas that it doesn’t currently operate. It plans to grow in Australian capital cities.
It’s currently trading at around 22x FY19’s estimated earnings.
I believe all three of these shares will deliver ASX Index-beating returns over the next two or three years at the current prices. Apiam could be trading at around 10x FY19’s estimated earnings, so it definitely looks the cheapest. But the other two could make very good investments over the next decade.
These top shares could also be excellent investments over the next decade, including one winner that is heavily exposed to the ageing population tailwind.
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Motley Fool contributor Tristan Harrison owns shares of Apiam Animal Health Ltd, InvoCare Limited, and Propel Funeral Partners Ltd. The Motley Fool Australia owns shares of and has recommended BETANASDAQ ETF UNITS. 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.