The Motley Fool

Do you own a diversified portfolio?

I believe that diversification is important to achieve satisfactory returns with ASX shares 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:

PM Capital Asian Opportunities Fund Ltd (ASX: PAF) 

There are some wonderful businesses in Asia but there are also some pretty terrible ones too. If you can find an investment manager that can successfully identify those opportunities then it will probably yield good results. Asian shares trade on much cheaper valuations than western shares.

PM Capital is an effective fund manager and its global strategy has performed very well since inception. This listed investment company (LIC) for exciting Asian shares outside of Japan with a portfolio usually between 15 to 35 “deeply researched” shares.

Some of its current positions include Freeport-McMoRan Copper, Heineken Malaysia and MGM China Holdings.

If a trade deal goes through between the US and China there could be a quick resurgence of Asian shares.

It’s trading at an 8% discount compared to the pre-tax net assets at the end of November 2019.

Propel Funeral Partners Ltd (ASX: PFP) 

Propel is the second largest funeral operator in Australia and New Zealand. More of its locations are in regional areas rather than capital cities, but it is looking to expand into major metro areas with acquisitions.

Sadly, there is a number of people that pass away each year, so Propel is almost guaranteed to achieve a certain level of volume each year.

It’s a powerful combination if Propel can keep increasing the average price of a funeral when also thinking about the long-term ageing of the 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.

It’s trading at 18x FY21’s estimated earnings.

Brickworks Limited (ASX: BKW) 

Brickworks is seeing a strong price but its Australian building products business is actually suffering from a low point in the construction cycle after the property downturn in 2018 and earlier this year. But it’s already seeing growth for its order book.

I’m particularly excited about Brickworks’ other divisions. The newly-acquired US building products business is expected to improve profit margins and bring Australian expertise to the market.

The 50% stake of the industrial property trust that it owns with Goodman Group (ASX: GMG) has a very good future with rising eCommerce while the large investment in Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) continues to deliver growing dividends and earnings over the long-term.

Brickworks is trading at 15x FY20’s estimated earnings.

Foolish takeaway

I believe each of the above shares is likely to beat the ASX over the next few years. I think Brickworks is the most likely to deliver market-beating results but the PM Capital Asian LIC could deliver the strongest results over the next 12 months if a trade deal occurs.

These top ASX shares would also be great picks to diversify a portfolio and quite likely beat the market.

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Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. The Motley Fool Australia has recommended Brickworks and Propel Funeral Partners Ltd. 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.

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