Plenty of Aussie portfolios may be in need of some diversification because of a heavy weighting to ASX financial shares and ASX mining shares.
Some people may directly have large allocations to Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ), National Australia Bank Ltd (ASX: NAB), BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO) and Fortescue Ltd (ASX: FMG).
There are plenty of different potential investments on the ASX we can use to reduce industry exposure risk and potentially increase returns, so I'll talk about three.
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VanEck MSCI International Quality ETF (ASX: QUAL)
This is an exchange-traded fund (ETF) that invests in a global portfolio of around 300 names across a range of geographies and sectors.
The countries with a weighting of more than 1% of the portfolio include the US, Switzerland, the UK, Japan, the Netherlands, Denmark, France and Canada.
In the S&P/ASX 200 Index (ASX: XJO), financials and mining make up more than half of the portfolio, while in the QUAL ETF they (combined) account for less than 10% of the fund. Instead, appealing growth industries like IT (34.3%) and healthcare (17.9%) make up more than half of the allocation of the VanEck MSCI International Quality ETF.
To be chosen for this portfolio, the stocks have to rank well on key fundamentals, including a high return on equity (ROE), have earnings stability and have low financial leverage. When you put those together, you're left with strong global businesses like Nvidia, Microsoft, Meta Platforms and Apple in the portfolio.
Past performance is not a guarantee of future performance, but since the QUAL ETF started in October 2014 it has returned an average of 16.6% per annum.
Adore Beauty Group Ltd (ASX: ABY)
Adore Beauty is a leading digital retailer that sells products related to beauty and health. There are over 270 brands on the website, with more than 13,000 products.
Over time, I think more people are going to buy more of their items online, and this ASX share is in a good spot to take advantage. The numbers are all showing positive signs.
After the one-off impacts of the COVID-19 period, Adore Beauty is back to reporting solid progress with its revenue, which increased by 7% in the first half of FY24. Meanwhile, revenue rose 8.1% in the second half of FY24, showing strong momentum.
It's also seeing growing numbers of customers – the HY24 result saw returning customers increase 5% to 507,000 while active customers went up 0.5% to 804,000.
Pleasingly, the business is generating positive reported earnings before interest, tax, depreciation and amortisation (EBITDA) – it made $2.4 million in the HY24 result. I think the company's margins can materially increase as it grows thanks to operating leverage.
The company is expanding the ranges of its owned brands – AB Lab, Adore Beauty and Viviology. Adore Beauty also said it's actively pursuing possible acquisitions.
In five years, I think the ASX share could be much more profitable.
Bailador Technology Investments Ltd (ASX: BTI)
Bailador is a company that seeks to invest in unlisted technology businesses. I think everyone should have good exposure to technology because that's the sector from which some of the most groundbreaking companies seem to be emerging these days.
Bailador typically looks to invest between $5 million to $20 million in businesses that are seeking 'growth-stage' investment.
The businesses it invests in typically are run by the founders, have a proven business model with attractive unit economics, have international revenue generation, a huge market opportunity and the ability to generate repeat revenue.
Is it priced attractively? In recent months it has usually traded at a discount of more than 20% to its net tangible assets (NTA), which is an appealing discount in my opinion.
Two of its biggest investments at the moment include the world leader in hotel management software and the largest independent tours and activities booking software provider.
