I think it’s important to own a diversified portfolio unless you’re going to go down the route of just owning exchange traded funds (ETFs) as your share investments.
But “diversified” doesn’t just mean a telco like Telstra Corporation Ltd (ASX: TLS) just for the sake of it, which can lead to “di-worsification”, meaning that you’ve added shares to your portfolio but worsened your returns.
Good diversification means owning shares that are mostly uncorrelated to each other but still offer good potential returns. I think the below five fit the bill:
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
WHSP is one of the largest investment businesses in Australia and it’s also the oldest. It makes long term investments in businesses it thinks are good investments that will generate good cashflow.
WHSP has consistently outperformed the benchmark, it has been paying a steadily growing dividend for almost two decades and it has low risk balance sheet in terms of its liabilities.
It could be one of the last shares standing on the ASX in the decades to come.
MFF Capital Investments Ltd (ASX: MFF)
MFF Capital may be the best listed investment company (LIC) on the ASX. It’s led by Magellan Financial Group Ltd (ASX: MFG) co-Founder Chris Mackay and it has been the top performer over the last decade as it concentrated on large global winners like Visa and MasterCard which have excellent network effects.
It has one of the lowest management fees (as a percentage) in the LIC sector, which helps keep the net returns higher.
Vitalharvest Freehold REIT (ASX: VTH)
Vitalharvest is the only REIT to make it onto my list, I think many of the others have gotten too expensive compared to their asset value and the yield is too low.
It owns farmland that is based on healthy nutritious food which there is a growing demand for. The REIT earns a 8% base rent on its farm value (plus on capital improvements) and also receives 25% of the underlying earnings from the farm.
Over the past 12 months Vitalharvest has paid distributions amounting to a current yield of 6.6%.
Altium Limited (ASX: ALU)
Altium is one of the world’s leading electronic PCB software businesses which is essential for engineers to design future phones, computers, cars, tractors, spacecraft, robots and so on.
A high growth rate, big goals and low interest rates have driven the Altium share price to a high level, but I think it looks better value compared to other tech shares like WiseTech Global Ltd (ASX: WTC).
If it achieves US$500 million by 2025 then today’s price could seem fairly cheap.
Webjet Limited (ASX: WEB)
The online travel business has seen its share price decline quite a bit since the middle of the year despite revealing further profit growth and profit margin growth, which helps profit grow faster than revenue.
If it achieves the expected growth over the next couple of years it could be valued as low as 13 times the estimated earnings for the 2021 financial year.
Summary
I think each of these shares could be very good for long term returns. For the more conservative minded I think WHSP and Vitalharvest could be good investments for five plus years, but Webjet could be very good value for the thrill seekers and could create the biggest returns.
Other growth shares to consider for a growth portfolio are the two revealed for free in the report below.
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Disclosure: Jaz owns shares of Washington H. Soul Pattinson and Co., MFF Capital Investments, Vitalharvest Freehold and Altium at the time of writing, but this could change at any time.
