If your portfolio is just a few big blue chips like BHP Group Ltd (ASX: BHP), Telstra Corporation Ltd (ASX: TLS) and Commonwealth Bank of Australia (ASX: CBA), then it may definitely be worth diversifying your portfolio.
Here are some of the shares I’d consider.
BetaShares FTSE 100 ETF (ASX: F100)
Exchange traded funds, also known as ETFs, are a great way to improve your diversification. The UK sharemarket could be a good way to improve your diversification because Brexit has hurt investor sentiment about UK-listed businesses, even if many of the biggest ones generate profit globally.
The F100 ETF seeks to track the performance of the Financial Times Stock Exchange 100 Index (FTSE 100), which is an index of the largest 100 shares on the London Stock Exchange by market capitalisation.
The London Stock Exchange is home to some of the world’s biggest and oldest businesses. You won’t find many tech giants on there, but there are plenty of industry heavyweights.
For example, there is global bank HSBC, consumer heavyweights Unilever and Reckitt Benckiser, energy giants BP and Royal Dutch Shell, worldwide telco Vodafone, and plenty of other big name companies.
The ETF has a price/earnings ratio of under 13 and a dividend yield of around 5%. Brexit may be solved soon, which may be a catalyst to boost the UK sharemarket.
Magellan Global Trust (ASX: MGG)
Magellan Global Trust is run by Magellan Financial Group Ltd (ASX: MFG), an internationally-focused fund manager. Hamish Douglass, co-founder of Magellan, is one of the two portfolio managers of the Magellan Global Trust.
The video below is a snippet from Episode 27 of The Australian Investors Podcast, where Hamish Douglass details his process of identifying and valuing high-quality companies to buy and hold:
The Magellan Global Trust’s investment philosophy is to invest in a focused portfolio of 15-35 of the world’s best companies at a discount to intrinsic value.
In doing so, it invests in some of the best growing businesses in the world like Alphabet, Microsoft, Apple, LVMH (Louis Vuitton Moët Hennessy), Alibaba, MasterCard and Visa. You wouldn’t be able to find these types of big quality businesses on the ASX.
Although Magellan does charge a fairly high management fee (1.35% + a performance fee subject to meeting return hurdles), it has produced consistently good returns.
You can read more about the Magellan Global Trust in this article I’ve previously written here.
Brickworks Limited (ASX: BKW)
Brickworks was listed on the ASX in 1962 and has paid a dividend every year since then. The construction business has four divisions – Building Products Australia (e.g. Austral Bricks), Building Products North America (e.g. Glen-Gery), Property, and Investments.
Brickworks is best known for its Australian building products businesses like Austral bricks. This is a solid business, but it can be cyclical.
The other elements of Brickworks is what makes it very attractive and more stable. It owns a growing portfolio of industrial properties in partnership with Goodman Group (ASX: GMG), which delivers regular rental income.
Brickworks also owns a significant portion of investment house Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which is steadily growing its dividend, earnings and underlying value.
Brickworks is trading at a much cheaper price compared to its inferred value of its assets less debt. Its expansion into the huge US market could also be an excellent move over time, particularly if Brickworks can make a few more bolt-on acquisitions.
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Disclosure: Jaz owns shares of Magellan Global Trust and Washington H. Soul Pattinson and Co. at the time of writing, but this could change at any time.
