I think that there are a few different ASX share options that would be good ideas for a $500 investment.
It can be hard to know where to start investing when there are so many different options. I think there are a few good places to start like exchange-traded funds (ETFs) and listed investment companies (LICs).
Both ETFs and LICs give investors the ability to invest in a large group of shares through a single investment. Most ETFs are index-based and LICs are run by an investor or an investment team.
I think an ETF or a LIC is a good start for a $500 ASX share investment because it creates instant diversification and you can’t go too wrong with most of them (as long as you pick a decent one – there are some very left-field ETFs out there).
Here are two ASX share ideas, one being an ETF and one LIC:
Betashares Global Quality Leaders ETF (ASX: QLTY)
This ETF is invested in quality global businesses which rank well on return on equity (ROE), have low debt levels and display earnings stability.
Betashares Global Quality Leaders ETF is invested in 150 of these global names right across the world. Whilst around two thirds of the ETF is allocated to US businesses, the other third is spread across Japan, Switzerland, France, Denmark, Hong Kong, the UK and so on.
The ETF doesn’t invest in ASX shares – it specifically excludes Australia from the potential investment list.
Betashares Global Quality Leaders ETF is heavily invested in IT and healthcare. These two sectors offer secular growth with many high quality names. The IT sector had a 32.4% allocation at 31 August 2020 whilst healthcare had a 25.7% allocation. The other sectors that make up more than 5% of this ETF’s holdings are communication services, consumer discretionary and financials.
So what businesses actually display these quality credentials? At the end of last month its biggest positions were: Nvidia, Apple, Adobe, Facebook, Intuit, Accenture, Intuitive Surgical, Nike, Alphabet and Texas Instruments.
BetaShares only launched the ETF in November 2018. Over the past year it delivered a net return of 17.6% and since inception it has delivered net returns per annum of 19.6%.
WAM Microcap Limited (ASX: WMI)
WAM Microcap invests in ASX shares with market capitalisations under $300 million.
It’s run by the investment team at Wilson Asset Management. The idea of picking small caps is that they can deliver strong outperformance if you can find an idea whilst it’s still relatively undiscovered or undervalued before its growth story is picked up by the wider market.
WAM Microcap has performed very strongly since inception in June 2017. The WAM Microcap gross portfolio return (before fees, expenses and taxes) over the past year has been 25.4%. Since inception the gross portfolio return has been 21.7% per annum, outperforming the S&P/ASX Small Ordinaries Accumulation Index by 13.3% per annum.
The LIC has been very effective at finding small cap growth opportunities like Citadel Group Ltd (ASX: CGL), Redbubble Ltd (ASX: RBL), City Chic Collective Ltd (ASX: CCX) and FINEOS Corporation Holdings PLC (ASX: FCL).
It would be unwise to expect that WAM Microcap’s long-term performance will continue to be more than 20% per annum. But it shows the level of returns that the WAM team can generate over good periods for the overall ASX share market. It’s quite hard for small caps to outperform when the market crashes.
At the current WAM Microcap share price it’s probably trading at close to its net tangible assets (NTA) per share. It also offers an grossed-up ordinary dividend yield of 5.6%.
Both of these ASX shares seem like good investments to me. WAM Microcap was one of my main buying targets earlier this year. I’d definitely be happy to buy more if there was another market dip.
Where to invest $1,000 right now
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Tristan Harrison owns shares of WAM MICRO FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends FINEOS Holdings plc. The Motley Fool Australia has recommended Citadel Group Ltd and FINEOS Holdings plc. 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.