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Where I’d invest my first $500 into ASX shares

It can be a daunting task knowing where to invest your first $500 into ASX shares.

There are so many different investment options to choose from!

Many people would say that a low-cost exchange-traded fund (ETF) is a good place to start. Ideas like Vanguard Australian Share ETF (ASX: VAS) and BetaShares Australia 200 ETF (ASX: A200). These are not bad ideas. 

However, I think that there could be one ASX share that’s better in almost all regards compared to an ASX ETF:

Future Generation Investment Company Ltd (ASX: FGX) 

What is Future Generation?

It is a listed investment company (LIC) which invests in the funds of ASX-focused fund managers, around 20 of them. Those fund managers work for free so that Future Generation can donate 1% of its net assets to youth-focused charities.

Why is it better than an ASX ETF?

There are several different areas why I think Future Generation is a better pick.

First, it should provide more diversification. Each of the funds it’s invested in represent an entire portfolio. So, I think the funds would deliver better diversification in terms of both the number of names and better industry diversification – the ASX index is largely focused on resources and financials.

Second, the Future Generation portfolio’s performance (before donations) has generated returns of 10.1% per annum since inception in September 2014 and 10.7% per annum over the past five years, which outperformed the S&P/ASX All Ordinaries Accumulation Index’s respective returns of 9% since September 2014 and 9.6% over five years respectively.

Third, when you buy an ETF you are buying it at the current underlying share valuations. However, at today’s share price of $1.17 it’s trading at a 11% discount to the 31 January 2020 underlying value of Future Generation’s assets of $1.3155 per share.

Finally, I think it provides a better source of income. Future Generation’s dividend is fully franked, whereas the dividends of the most popular ASX ETFs are not fully franked due to the underlying dividends they receive from some businesses which are unfranked. Plus, it’s consistently growing its dividend. 

Foolish takeaway

Future Generation has a grossed-up dividend yield of 5.9%, which is solid in this environment of low interest rates. I’d be very happy to buy shares today with opportunities hard to find. 

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As of 13/2/20

Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN 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.

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