I’m always on the lookout for ways to diversify my ASX portfolio whilst maintaining strong returns with ASX shares. 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:
Japara Healthcare Ltd (ASX: JHC)
Japara is one of the largest aged care providers in Australia. I’m always willing to consider shares that could be bargains, the Japara share price is currently at an all-time low because of the aged care royal commission, low funding increases from the government and other shorter-term issues.
However, Japara should be a long-term beneficiary from Australia’s ageing population. The number of people in retirement age is expected to grow by 70% over the next two decades.
There are benefits that come from economies of scale – Japara has around 1,000 new places planned and on top of that it could acquire some smaller unprofitable players.
Vanguard FTSE Asia Ex Japan Shares Index ETF (ASX: VAE)
One of the more alternative ways to diversify a portfolio could be to go for Asian shares. Everyone in Australia knows ASX shares, and many of us are already invested in US shares directly or indirectly.
Asia also has tech shares, bank shares, insurance shares, eCommerce shares and so on. It helps that Asia and particularly China & India are growing at a much faster rate than western democracies. So it could be a good idea to be invested in those businesses through an exciting exchange-traded fund (ETF) like this one.
Shares like Ping An, Alibaba and Tencent are all growing at an excellent rate and are trading much cheaper than they would be if they were Australian or US companies.
If you invest in this ETF you’ll get exposure to over 1,000 businesses, so it’s a well diversified ETF.
Propel Funeral Partners Ltd (ASX: PFP)
Funeral operators are a morbid idea but they do have long-term potential due to Australia’s ageing demographics.
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 one of those slow-and-steady ideas which will hopefully manage to increase its volumes, profit margins and dividends over the long-term. The compounding return potential is good if management can grow in the right geographical areas.
I think each of these shares have the potential to beat the ASX over the next five years at the current prices whilst offering uncorrelated return potential. At the current prices it’s hard to pick a winner.
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Motley Fool contributor Tristan Harrison owns shares of VANGUARD FTSE ASIA EX JAPAN SHARES INDEX ETF. The Motley Fool Australia has recommended 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.