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2 investments to diversify away from ASX 200 shares

Tristan Harrison
Australia

The ASX 200 (ASX: XJO) is full of good shares that we all know, but it could be an idea to diversify away from just those shares.

Lots of investors own shares of large ASX 200 businesses like Westpac Banking Corp (ASX: WBC) and Telstra Corporation Ltd (ASX: TLS). Lots of investors are invested in ASX 200 ETFs like BetaShares Australia 200 ETF (ASX: A200) and SPDR S&P/ASX 200 Fund (ASX: STW). Lots of investors are invested in large cap focused listed investment companies (LICs) like Australian Foundation Investment Co.Ltd. (ASX: AFI) and Milton Corporation Limited (ASX: MLT).

None of the above investments are bad, but they offer limited long-term capital growth and limited dividend growth, although the upfront dividend yield is solid. Here are two ideas to diversify away from the ASX 200:

PM Capital Global Opportunities Fund Ltd (ASX: PGF) 

PM Capital is a listed investment company (LIC) which invests in global shares, if you didn’t guess that already from the name.

Its annual base management fee is 1% per annum, which is cheaper than plenty of the other well-known global listed investment businesses.

Run by Paul Moore, it’s rated as one of best LICs on the ASX. It doesn’t chase the latest hot stocks, it goes for the global shares it thinks are the best value compared to the market, though it has been invested in shares like Alphabet and Visa – it’s not just going for ‘cheap’ shares which are cheap for a reason. Some of its current holdings include global banks, copper miners, alternative investment managers and European housebuilders.

Over the past year its portfolio’s net return after fees was 30.3%, over the past five years its net return per annum has been 12%.

It commenced in December 2013, it has increased its dividend every year since it started paying a dividend in March 2016 and it currently has a forward grossed-up dividend yield of 4.5%. In the last result it increased its dividend by 11%.

As a bonus, it’s currently trading at a 14.5% discount to its net assets disclosed at 7 February 2020, which is attractive for its solid recent performance.

WAM Microcap Limited (ASX: WMI) 

WAM Microcap is one of the best-performing small cap LICs on the ASX. It is run by a team of investors at Wilson Asset Management who focus on shares with market capitalisations under $300 million.

It’s these shares that have the best potential to beat the market. Not only are the shares less followed by regular investors and investment professionals alike – leading to lower valuations – but small caps are also at a much earlier stage of their growth journey, meaning it should take time before their business growth slows.

WAM Microcap has generated great returns since inception and particularly over the past year.

Before fees, expenses and taxes, WAM Microcap’s portfolio has grown by 21.9% per annum since inception in June 2017 and it generated gross returns of 35.6% in 2019.

Small caps are going to be more volatile than larger caps, but over the long-term they can generate stronger overall returns (as it has shown so far).

WAM Microcap has grown its ordinary dividend each year since it started paying a dividend in FY18. In the half-year result to December 2019 which it just reported it grew its interim dividend by 33.3% and it now has an annualised grossed-up dividend yield of 5.7%.

It’s currently trading at around its net asset value, so it’s not a bargain but not expensive either.

Foolish takeaway

It’s hard to pick a winner at the current prices because of the ongoing coronavirus uncertainty. I’d probably go for PM Capital today because of the discount, but I do want to add to my WAM Microcap holdings this year – I own shares in both.

The post 2 investments to diversify away from ASX 200 shares appeared first on Motley Fool Australia.

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Motley Fool contributor Tristan Harrison owns shares of PM Capital Global Opportunities Fund Ltd and WAM MICRO FPO. The Motley Fool Australia owns shares of and has recommended Telstra 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.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020