The ALL ORDINARIES (Index: ^AXAO) (ASX: XAO) index consists of around 500 of the ASX's largest businesses, but I think you can beat it with carefully-selected ASX growth shares.
Whilst the All Ordinaries index does provide diversification, it is dominated by financial shares such as Commonwealth Bank of Australia (ASX: CBA) & Westpac Banking Corp (ASX: WBC) and resource shares like BHP Billiton Limited (ASX: BHP) and Woodside Petroleum Limited (ASX: WPL).
I think these three ASX growth shares are likely to beat the All Ordinaries over the next five years:
Costa Group Holdings Ltd (ASX: CGC)
Costa is Australia's largest fresh food business. It grows tomatoes, avocados, mushrooms, berries and citrus fruit.
It has delivered solid shareholder returns since listing and has predicted low double-digit profit growth for each of the next five years. This growth is being driven by productivity investments, bolt-on acquisitions near existing farms, large-scale acquisitions in new regions and expanded plantations in Australia, China and North Africa.
Costa could grow further into other fresh food categories – the avocado segment is only a recent addition. It's this particular idea that makes me believe Costa could surprise the market positively in the future.
The prices Costa gets for its produce could increase over time with improving Australian diets and growing demand for Australian products from middle class Asians.
Costa is currently trading at 28x FY19's estimated earnings.
Challenger Ltd (ASX: CGF)
Challenger is Australia's largest provider of annuities, which turns retirees' capital into a source of guaranteed earnings.
Share markets are volatile, but the underlying demand for annuities is expected to grow due to the ageing demographics, supportive government policies and likely negative changes to franking credits & negative gearing.
Challenger may be able to grow underlying earnings at high single digits annually for several years to come.
It's currently trading at 14x FY19's estimated earnings with a grossed-up dividend yield of 5%.
WAM Microcap Limited (ASX: WMI)
I think one of the best ways to beat the All Ordinaries is with small cap shares because their small starting size means they can grow significantly before size becomes an issue.
WAM Microcap is run by the high-performing Wilson Asset Management. Since inception in June 2017 its portfolio has returned an average of 20.1% per annum before fees and taxes.
With small cap growing businesses like Specialty Fashion Group Ltd (ASX: SFH) and 360 Capital Total Return Fund (ASX: TOT) in the current portfolio it's likely WAM Microcap can keep outperforming the All Ordinaries.
WAM Microcap is currently trading at a slight premium to its underlying NTA with a grossed-up ordinary dividend yield of 4.2%.
Foolish takeaway
I think each of these shares are good candidates to beat the All Ordinaries over the next five years. At the current prices I think Challenger looks the best choice to me for compounding returns, but I'd happily buy the other two for the long-term at the current prices.
However, rising interest rates could mean there are even better choices than Challenger out there.
