I think that ASX share Future Generation Investment Company Ltd (ASX: FGX) could be a perfect buy for a $500 investment.
If you're investing with $500 then you want to make sure you choose the right one.
Shares are a great way to build wealth over the long-term. But you don't want your first investment to go badly wrong – that might put you off shares.
I think the right ASX share is to go for something that could provide solid returns over the long-term.
A quick overview of Future Generation
Future Generation is a listed investment company (LIC). The job of a LIC is to invest in other shares on your behalf. But you can buy a LIC just like any other business on the stock exchange like Commonwealth Bank of Australia (ASX: CBA).
Many fund managers charge a management fee of around 1% (and then perhaps an outperformance fee, if it outperforms). Future Generation doesn't charge any management fees or performance fees. Instead, it donates 1% of its net assets to youth charities. It has a noble cause.
Future Generation doesn't invest directly into ASX shares. Instead, it invests into the funds of Aussie fund managers who invest in ASX shares. Those fund managers also don't charge management fees or performance fees.
Why I think this ASX share is a great investment for $500
These are my reasons for picking Future Generation:
Diversification
When you start investing you have to pick something to buy. If you choose an individual share then your entire portfolio consists of just one share. That's not diversified at all. Even high-conviction fund managers usually have around 10 different positions in their portfolio.
Most LICs offer a pretty diversified portfolio with at least 20 shares, perhaps several dozen positions. Future Generation is invested in the funds of around 20 funds. Each fund represents a whole portfolio of shares. So Future Generation's underlying portfolio seems to be very diversified with different ASX shares.
Those fund managers only put shares in the portfolio they think can produce good returns, so it's a compelling portfolio of underlying shares.
Dividends
One of the best features of investing in shares is the dividends. It's nice to get paid for no effort, apart from making the initial investment.
Many LICs like to pay dividends to shareholders. LICs can pay a smoothed dividend to investors from the capital gains generated and dividends that the LIC receives.
Future Generation has increased its dividend every year since 2015, when it first started paying a dividend. The LIC was only formed in September 2014. That's a reliable record from the ASX share.
At the current Future Generation share price it offers a grossed-up dividend yield of 7%. That's a great yield in the current environment.
Performance
A LIC's investment performance can be measured against a benchmark. Future Generation's benchmark is the S&P/ASX All Ordinaries Accumulation Index.
Future Generation's gross portfolio performance has outperformed its benchmark by 3.3% over the past six months, 6% over the past year, 0.6% per annum over the past three years, 1.6% per annum over the past five years and 1.8% per annum since inception (September 2014).
Outperformance compared to the ASX share index over the long-term is attractive.
Cheap price
I think Future Generation is trading at an attractive price. With exchange-traded funds (ETFs) you buy $1 of assets for $1. With LICs you can buy $1 of assets for less than $1. That's described as a discount to the net tangible assets (NTA). I think that's an attractive way to buy ASX shares.
At the end of June 2020, Future Generation had NTA per share of $1.147. That compares to the current Future Generation share price of $1.02. That's a discount of 11%. I'd be very happy to accumulate shares at the current level.
