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Top fund manager reveals some of the best ASX shares to own

WAM Research Limited (ASX: WAX) has revealed some of the best ASX shares to own for strong returns for your stock portfolio.

What is WAM Research?

WAM Research is a listed investment company (LIC). The job of a LIC is to invest in other shares on behalf of shareholders.

Some LICs invest in large ASX shares, others target smaller ones. Then there’s another group of LICs that look for the best internationally-listed shares to buy for their portfolios.

WAM Research is looking for ASX shares that are the most exciting undervalued growth opportunities in the Australian market.

Why follow what ASX shares this LIC invests in?

It’s true that anyone can name some shares that it thinks are worth buying. Over time a fund manager can create a track record of choosing great ASX shares at the right price. If they’re right, the results will speak for themselves.

Wilson Asset Management is one of the most respected fund managers in Australia with a great track record.

WAM Research changed its investment strategy in July 2010. The LIC’s investment portfolio performance since then, before fees and expenses, has been 14.1% per annum. The S&P/ASX All Ordinaries Accumulation returned 7.6% per annum in that same timeframe. So WAM Research’s gross performance has been better by 6.5% per annum.

I think it’s worth following what this investment team is doing with ASX shares if WAM Research can outperform by that much.

May 2020 update

At the end May 2020, WAM Research’s portfolio had outperformed the index by 5% in FY20 to date. During the May 2020 update WAM Research said that significant contributors to the solid investment portfolio outperformance in the month included auto parts business Bapcor Ltd (ASX: BAP), education placement provider Idp Education Ltd (ASX: IEL) and home furnishings retailer Adairs Ltd (ASX: ADH).

The reason behind owning Bapcor was an anticipation of an increase of car usage as the coronavirus lockdown measures began to reverse. During the month Bapcor raised $56 million from a share purchase plan, adding to the $180 million institutional placement completed in April. This put the balance sheet in a strong position. 

During May 2020 the LIC invested more into ASX share IDP Education. The idea here is that WAM Research expects international students’ tertiary education to recommence faster than expected by the market.

In May’s trading update Adairs said that online sales had beaten expectations and more than made up for the lost revenue from closed stores. Online sales grew 221% in the period. WAM Research also pointed out that the company is managing its working capital and reducing costs across the company. The company’s update today proves it’s still on a good track. 

The WAM Research team stated that they continue to see opportunities in undervalued companies such as Adairs that are able to shift their focus to growing online demand.

What are some of the ASX shares that WAM Research owns now?

At the end of May, its top 20 holdings still included Adairs, Bapcor and IDP Education.

Other ASX shares it owned included gambling machine and gaming business Aristocrat Leisure Limited (ASX: ALL), shipbuilder Austal Limited (ASX: ASB), appliance company Breville Group Ltd (ASX: BRG), natural beauty business BWX Ltd (ASX: BWX), plus-size clothes retailer City Chic Collective Ltd (ASX: CCX), Codan Limited (ASX: CDA), Cleanaway Waste Management Ltd (ASX: CWY), agri business Elders Ltd (ASX: ELD), real estate portal business REA Group Limited (ASX: REA), telco TPG Telecom Ltd (ASX: TPM) and energy business Viva Energy Group Ltd (ASX: VEA).

My own take

I agree that the lifting of COVID-19 restrictions and the shift to online shopping opens up some exciting opportunities for ASX shares like Adairs. City Chic was already selling a good proportion of items online before the pandemic hit. City Chic is one of my top long-term small cap picks. BWX seems to have turned a corner, so that could be one to watch in FY21.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Austal Limited and Idp Education Pty Ltd. The Motley Fool Australia owns shares of and has recommended Bapcor and BWX Limited. The Motley Fool Australia has recommended Elders Limited and REA Group 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.

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