We’ve all heard that it’s hard for ASX investment managers to outperform their benchmark, but some could be worth investing in.
I don’t actually like the ASX index because it’s dominated by low-growth, Australia-focused businesses such as Commonwealth Bank of Australia (ASX: CBA), Woolworths Group Ltd (ASX: WOW) and Telstra Corporation Ltd (ASX: TLS).
I think the best way to beat the ASX index is to invest in smaller ASX shares or international shares. Or, we could pick investment managers on the ASX that specialise in those areas.
Here are my three favourite ASX manager investments:
Magellan Global Trust (ASX: MGG)
This is a listed investment trust (LIT) operated by Magellan Financial Group Ltd (ASX: MFG), it invests in what the Magellan team believe are the highest-quality businesses in the world such as Alphabet, Facebook, Visa, MasterCard and Microsoft.
At the end of December 2018 the Magellan Global Trust had delivered net returns over the past quarter which beat the MSCI World Net Total Return Index by 3.2%. Since inception in October 2017, it has outperformed its benchmark by 4% per annum.
I think Magellan Global Trust could continue to outperform over the long-term thanks to its high-quality holdings and 18% cash position.
WAM Microcap Limited (ASX: WMI)
This is the listed investment company (LIC) which aims to invest in the smallest ASX businesses, which have market capitalisations under $300 million.
The smallest businesses have the biggest growth potential because they can grow a lot before size becomes a limiting factor and the smaller shares usually trade on lower earnings multiples because they are under-researched.
Since inception in June 2017, WAM Microcap’s portfolio has created returns of an average of 17.3% per annum, this outperformed the S&P/ASX Small Ordinaries Accumulation Index by an average of 8.8% per annum. These returns are quoted before fees and expenses.
WAM Microcap also aims to pay a growing fully franked dividend yield, it has an ordinary grossed-up dividend yield of 4.3%.
Naos Emerging Opportunities Company Ltd (ASX: NCC)
This is also a LIC which also aims to invest in the smallest shares on the ASX, it targets ones with market capitalisations under $250 million.
The recent market volatility has not been kind to small caps, which is partly why over the past year the Naos portfolio has dropped by nearly 15% before fees but after expenses.
But, since inception in February 2013 it has returned 12.41% per annum before fees, outperforming the S&P/ASX Small Ordinaries Accumulation Index by 8.48% per annum.
Naos also aims to pay a growing dividend, it has increased its dividend each year since the second half of FY13. It currently offers a grossed-up dividend yield of 9.6%.
All of the above managers have long-term histories of outperforming their benchmark whilst providing a solid source of income. At the current prices I’d be happy to buy shares of all three of them.
Motley Fool contributor Tristan Harrison owns shares of MAGLOBTRST UNITS and WAM MICRO FPO. The Motley Fool Australia owns shares of and has recommended Telstra 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.