I think listed investment companies (LICs) are a great way of Aussie investors to get diversification and usually good dividends for their portfolio.
The job of a LIC is to invest money on behalf of shareholders into other shares.
I think some LICs can work well with a portfolio of growth shares, like these two:
Naos Emerging Opportunities Company Ltd (ASX: NCC)
This LIC hunts for ASX opportunities that have market capitalisations under $250 million. In other words, it looks at the smallest shares on the ASX. These ideas are normally overlooked by other investors when they could actually be tomorrow’s blue chips. Some of them could be great opportunities.
I’d guess nearly every ASX investor doesn’t have enough small cap exposure, so this LIC could be the best way to do it.
I like the Naos way of investing – only holding a small number of high-conviction ideas for the long-term. The strategy has worked, since inception in February 2013 it has delivered an average return per annum of 14.66% after expenses but before fees.
It has increased its dividend each year since the second half of FY13 and currently offers a grossed-up dividend yield of 8.7%.
WAM Global Limited (ASX: WGB)
WAM Global is the latest LIC to be launched by the investment team at Wilson Asset Management. Unlike WAM Capital Limited (ASX: WAM) and WAM Leaders Ltd (ASX: WLE), WAM Global invests in international shares.
Australia only represents 2% of the listed businesses in the world, so you’d think there are some good opportunities out there in the other 98% of global equities.
Some of WAM Global’s top holdings include American Express, Danone, Diageo, Hasbro, HCA Healthcare and Logitech.
WAM Global may not quite be able to replicate the early success or long-term returns of WAM Capital, but it could still generate net mid-teen returns over the next decade with a growing dividend.
Both of these LICs have quality teams and good investment strategies. I am fairly confident they will both be able to outperform the ASX All Ords Index over the long-term after fees, which is why I think they’re worth holding in any portfolio.
Out of the two I think I’m more drawn to buying more WAM Global at the moment, it’s likely trading at a discount to its underlying value and has a high cash position to weather the current (and likely upcoming) volatility.
Of course, both come with fairly high management fees, so that does hamper the chance of outperformance.
However, it doesn’t cost an annual management fee to own quality individual ASX businesses that beat the market like these three long-term winners.
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Motley Fool contributor Tristan Harrison owns shares of WAMGLOBAL FPO. The Motley Fool Australia has no position in any of the stocks mentioned. 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.