There are some great exchange-traded funds (ETFs) on the ASX that could be worth owning in your portfolio for the long-term.

ETFs are a great way to get long-term exposure to the growth of an index or certain sectors over the long-term.

These two ideas could be some of the best ETFs to have over the next few years:

iShares S&P 500 ETF (ASX: IVV)

Buying an S&P 500 fund is one Warren Buffett’s preferred investment picks to say to people as advice.

It’s easy to see why. The long-term returns have been really good, the fees are low and it offers really good diversification.

The businesses in this portfolio are among the best in the world in their respective sectors. The largest 10 positions are: Apple, Microsoft, Amazon, Facebook, Alphabet, Berkshire Hathaway, Tesla, JPMorgan Chase, Johnson & Johnson and Visa.

As I’m sure you can guess, there is a total of 500 holdings inside this investment. Looking at the sector allocations of more than 10%, IT has a 26.4% weighting, healthcare has a 13% weighting, consumer discretionary has a 12.2% weighting, financials has a 11.3% weighting and communication has a 10.9% weighting.

It’s important to note that businesses like Facebook and Alphabet are classified as communication, not IT.

This ETF has an annual management fee of just 0.04% per year, which is one of the lowest on the ASX.

Over the last five years, this ETF has produced an average return per annum of 14.5%.

Betashares Nasdaq 100 ETF (ASX: NDQ)

This ETF features many of the same names that the S&P 500 fund does. However, the exposure is larger because there is a smaller number of holdings.

Apple, Microsoft, Amazon, Tesla, Facebook, Alphabet, NVIDIA and PayPal alone account for almost half of the portfolio.

There are also plenty of other quality US shares in the portfolio such as Netflix, Adobe, Broadcom, Texas Instruments, Qualcomm, Applied Materials, Advanced Micro Devices and Intuitive Surgical.

Despite the ETF have a higher annual management fee of 0.48% per annum, Betashares Nasdaq 100 ETF has delivered average returns per annum over the last five years of 23.7%.

The NASDAQ is tech-heavy – almost half of this ETF’s portfolio is weighted to IT, with another 19.2% invested in communication services. Remember, ‘communication’ includes businesses like Facebook, Alphabet and Netflix.

BetaShares says that this investment gives exposure to many of the world’s most revolutionary and innovative companies that are changing our lives, such as Zoom.

More reading

• Which is the better investment: An ASX share portfolio or an index fund?
• 3 stellar ETFs for ASX investors to buy
• 2 tech ETFs delivering strong long-term returns
• Afterpay and Zip were among the most traded ASX shares last week
• How to counter the ASX 200’s Achilles heel

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of BETANASDAQ ETF UNITS. The Motley Fool Australia has recommended BETANASDAQ ETF UNITS and iShares Trust – iShares Core S&P 500 ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Director buys can be a sign that those with the most insight into a company view its shares as undervalued. We take a look at four ASX shares with recent director buys. 

What is insider buying?

Insider buying is the purchase of shares in a company by an officer or executive of that company, such as a director. Insiders usually have insights into the companies they manage and are more likely to purchase shares when they view them as undervalued.

Insiders must only buy based on publicly available information and must inform the ASX of the trade by lodging an Appendix 3Y. Depending on the circumstances, the purchase by an insider of shares can be seen as a vote of confidence in a business. Buys by multiple insiders can act as a stronger signal, as can larger, rather than smaller, share purchases.

Which ASX shares have had recent director buys?

We have studied recent insider buys to bring you four ASX shares with recent insider buys.

Zip Co Ltd (ASX: Z1P)

Two Zip Co directors acquired shares in the company this month. Zip is a buy now, pay later (BNPL) provider with 5.7 million customers. The Zip share price was trading as high as $13.92 last month but has fallen by around 46% since and is currently trading around $7.35. The company released its half-year results in late February reporting record transaction volumes of $2,320.6 million, a 141% year-on-year increase. 

Zip Co earned revenue of $160 million for 1H FY21 with more than 38,500 merchants across the United States, Australia, New Zealand, and the United Kingdom. During the half, Zip completed its acquisition of Quadpay, accelerating growth in the US. The company also raised $176.7 million via an oversubscribed placement and share purchase plan. According to managing director and CEO Larry Diamond, the December half was transformational, and saw Zip position itself as a “truly global BNPL leader.”

As of December, Zip was annualising over $7.5 billion in transaction volume with strong momentum as it expands in the US and launches in the UK. Diamond says global BNPL adoption remains in its infancy, with penetration of global e-commerce spend only 1.6%. Zip is looking to accelerate growth across the globe in FY21 with a strong pipeline of retail partnerships. 

Ardent Leisure Group Ltd (ASX: ALG)

Two Ardent Leisure directors bought shares in the company early this month. Ardent Leisure is the company behind Dreamworld and White Water World and also runs a bowling entertainment business with 43 venues in America. The Ardent Leisure share price has bounced in March, gaining 49% over the month to trade above 90 cents. The company released its half-year results at the end of February which were significantly impacted by COVID-19. But the roll-out of the COVID-19 vaccine, which is gathering pace, offers cause for optimism. 

During 1H FY21 revenue fell 44.3% as trading and travel restrictions resulted in reduced visitation to venues. Dreamworld and WhiteWater World were closed until mid-September 2020. They have since reopened and seen a shift in sales in favour of annual passes as access to international and interstate markets remains restricted. Attendance between reopening and late January was approximately 70% of the prior corresponding period, which is considered a good result given the restrictions. Nonetheless, Ardent Leisure finished 1H FY21 with a net loss after tax of $83.6 million.

The company has warned that 2H FY21 trading is expected to be challenging due to ongoing uncertainty associated with COVID-19 and the end of the JobKeeper subsidy. But the vaccine program has improved the outlook and Ardent says it is ready to accept the challenges of the changing landscape. 

Sonic Healthcare Limited (ASX: SHL) 

Three Sonic Healthcare directors have acquired shares in the company this month. Sonic Healthcare is a healthcare provider with specialist operations in pathology and laboratory medicine, radiology, general practice and corporate medical services. The Sonic Healthcare share price hit a low of $30.55 on 10 March, but has since rallied and is now trading above $35. 

Sonic Healthcare released its half-year results in mid-February which revealed revenue growth of 33% for the year ended 31 December 2020. The healthcare provider reported a statutory net profit for the half-year of $678 million on revenues of $4.4 billion. The strong financial results reflect the millions of COVID-19 tests performed as part of combating the pandemic. The laboratory division achieved organic revenue growth of 39% while the imaging division grew revenue by 14%, higher than long-term industry averages. 

Prospa Group Ltd (ASX: PGL) 

Two Prospa Group directors have acquired shares in the company this month. Prospa Group is an online small business lender that listed on the ASX in 2019. The Prospa share price has been largely flat this year although the lender reported strong growth in originations in 1H FY21. This is a recovery from FY20 when loan originations fell due to the challenging economic conditions brought on by the COVID-19 pandemic. 

FY20 loan originations were $450.9 million, down from $501.7 million in FY19. But volumes have since picked up with originations increasing 265.3% from 4Q20 to 1Q21 and a further 25.9% from 1Q21 to 2Q21. 1H21 loan originations of $180.7 million remain below pre-pandemic levels, down 41.1% on the prior corresponding period. Prospa, however, says recovery is accelerating with December and January origination volumes reaching 69% and 75% of the prior corresponding periods.

Foolish takeaway

While a single director buy may not be telling, several can provide a good indication that those best placed to know consider shares good value. These four ASX shares all had multiple director buys in March which could indicate an optimistic outlook. 

More reading

• Airtasker and Zip were among the most traded ASX shares last week
• BlueScope (ASX: BSL) share price could get cut of Biden’s US$3tn boost
• ASX growth shares will be VERY slow to recover. Here’s why
• Brokers think these ASX 200 shares will outperform the market
• 5 things to watch on the ASX 200 on Tuesday

Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia has recommended Sonic Healthcare Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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More reading

• Here’s why the Macquarie (ASX:MQG) share price is attractive
• 2 high yield ASX dividend shares to buy right now
• 5 things to watch on the ASX 200 on Wednesday
• 2 stellar mid cap ASX shares to buy in April
• Can the Aristocrat Leisure (ASX:ALL) share price smash the market in 2021?

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Kate O’Brien owns shares of Apple and Rio Tinto Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Macquarie Group Ltd (ASX: MQG) share price is looking attractive at the moment, despite its strong run up in recent months.

Over the last six months, Macquarie shares have risen by 25% over the last six months. But there could be more to come as the business benefits from the recovery.

Macquarie is one of the most global ASX blue chips at the moment, with around two thirds of its earnings coming from international sources.

These are a few reasons why Macquarie could be one to watch:

Stronger near-term profit outlook

One of the most important ways to judge a business is by its profit-making potential and profit actual results.

Macquarie has had a volatile last 12 months, but it’s now reporting that the profit is getting stronger

Despite giving the market profit guidance on 9 February 2021 saying that the FY21 result was likely to be slightly down, Macquarie came back to the market a few weeks later to say that it was now expecting net profit after tax for FY21 to be up 5% to 10% compared to the last financial year.

Macquarie explained that extreme winter weather in North America had significantly increased short-term client demand for Macquarie’s capabilities in maintaining critical physical supply across the commodity complex and particularly in relation to gas and power.

The global investment bank’s commodities and global markets (CGM) business physically ships gas on the majority of major pipelines across the US and over time has built capacity to support clients by delivering power and physical commodities to help them meet the unexpected needs of their customers.

Recovering global economy

A year ago things were looking pretty bleak for the global economy as the COVID-19 pandemic ravaged the world and caused massive market volatility and dislocation.

As a global investment bank, Macquarie needs a decent operating environment to generate profit growth. Macquarie is seeing improving trading conditions in certain areas, though it did admit that market conditions are likely to remain challenging.

The ASX share was confident enough to pursue the acquisition of NYSE-listed Waddell & Reed Financial a few months ago, which had US$68 billion of assets under management (AUM) at the time of the announcement.

This acquisition is expected to push Macquarie Asset Management’s AUM over A$650 billion, making it one of the 25 largest actively managed, long-term, open-ended US mutual fund managers by AUM.

The deal will add scale and diversification to the business.

Diversified earnings

Macquarie has the ability to invest and grow anywhere in the world that it wants to.

It’s generating profit from right across the world and it can put further resources into segments like green energy, infrastructure or any other trend that it sees as a long-term opportunity.

The business has changed a lot since the GFC and it’s now a much more stable, reliable business. The ‘annuity-style’ businesses provide a particularly defensive amount of annual earnings for the business.

What’s the Macquarie share price valuation?

According to Commsec, Macquarie shares are priced at 19x FY22’s estimated earnings.

It has a forecast partially franked dividend yield of 3.6% for FY22.

More reading

• Why the South32 (ASX:S32) share price is outperforming today
• ASX 200 Weekly Wrap: ASX 200 gets its mojo back
• How do brokers rate the Fortescue (ASX:FMG) share price?
• The ANZ (ASX:ANZ) share price is Macquarie’s top big four bank pick
• Macquarie sees near-term pain for the Afterpay (ASX:APT) share price

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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If you’re an income investor on the lookout for new additions to your portfolio, then you might want to look at the shares listed below.

Here’s why these ASX dividend shares could be in the buy zone:

Australia and New Zealand Banking GrpLtd (ASX: ANZ)

The first ASX dividend share to look at is ANZ Bank. It hasn’t been an easy couple of years for the big four banks with the Royal Commission, the housing market downturn, and the pandemic hitting them hard.

However, things are looking significantly better for the banks now. This is due to the housing market recovery, the relaxing of responsible lending rules, and the COVID-19 vaccine rollout. This could make it a good time to consider gaining exposure to the sector.

Positively, analysts at Morgans believe the ANZ share price is trading at a very attractive level. They have recently reiterated their add rating and lifted their price target on its shares to $31.00. The broker is also forecasting a $1.45 per share dividend in FY 2021 and then a $1.61 per share dividend in FY 2022.

Based on the current ANZ share price, this will mean fully franked yields of 5.15% and 5.65%, respectively.

Aventus Group (ASX: AVN)

Another ASX dividend share to look at is Aventus. It is the largest fully integrated owner, manager, and developer of large format retail centres in Australia.

Thanks to its exposure to everyday needs and the household goods sector, Aventus has been performing very positively during the pandemic. Which is quite a contrast to how some of its retail landlords have been performing.

Last month Aventus released its half year results and reported a modest increase in revenue and a 43% lift in net profit to $103.4 million. The latter includes a $25.7 million increase in the net fair value of its property.

Goldman Sachs is positive on the company and currently has a buy rating and $3.04 price target on its shares. The broker is also estimating that it will pay a ~16.6 cents per share distribution this year. Based on the current Aventus share price, this represents a 5.85% yield.

More reading

• ASX banks are facing millions of cyber attacks each day
• Retail shares: buy what you know, but who owns what you buy?
• ASX 200 Weekly Wrap: ASX 200 gets its mojo back
• Top broker urging investors to take profit now on this outperforming ASX share
• What moved the Commonwealth Bank (ASX:CBA) share price this week

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended AVENTUS RE UNIT. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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On Tuesday the S&P/ASX 200 Index (ASX: XJO) gave back its morning gains and more and finished the day deep in the red. The benchmark index fell 0.9% to 6,738.4 points.

Will the market be able to bounce back from this on Wednesday? Here are five things to watch:

ASX 200 expected to rebound

The Australian share market looks set to rebound on Wednesday despite a weak night of trade on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open the day 55 points or 0.8% higher this morning. In late trade on Wall Street, the Dow Jones is down 0.1%, the S&P 500 is down 0.1%, and the Nasdaq is flat.

Oil prices lower

Energy producers such as Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) could come under pressure today after oil prices dropped. According to Bloomberg, the WTI crude oil price is down 1.8% to US$60.46 a barrel and the Brent crude oil price has fallen 1.5% to US$64.02 a barrel. The reopening of the Suez Canal was behind the decline.

Gold price sinks

It looks set to be a tough day for gold miners Evolution Mining Ltd (ASX: EVN) and Newcrest Mining Limited (ASX: NCM) after the gold price sank lower overnight. According to CNBC, the spot gold price is down 1.85% to US$1,683 an ounce. This leaves the price of the precious metal trading at a three-week low.

PointsBet rated as a buy

The Pointsbet Holdings Ltd (ASX: PBH) share price will be on watch today. This morning analysts at Goldman Sachs initiated coverage on the sports betting company with a buy rating and $17.50 price target. The broker commented: “We see PBH as well-placed to carve out a niche share of the burgeoning US sports betting market, which we forecast to reach US$39 bn at maturity, implying a robust 40% CAGR out to 2033.”

Shares going ex-dividend

The shares of auto retailer Eagers Automotive Ltd (ASX: APE) and retail giant Harvey Norman Holdings Limited (ASX: HVN) are going ex-dividend this morning and could trade lower. Eligible shareholders can look forward to receiving Eagers Automotive’s 25 cents per share dividend on 20 April and Harvey Norman’s 20 cents per share dividend on 3 May.

More reading

• ASX 200 dips, AGL to split in two, NAB’s neobank acquisition approved
• ‘A COVID sized shock every year’. What climate change could mean for the Australian economy
• ASX stock of the day: Moneyme (ASX:MME) shares in the spotlight
• Are red-hot house prices good for ASX 200 shares?
• BlueScope (ASX: BSL) share price could get cut of Biden’s US$3tn boost

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Pointsbet Holdings Ltd. The Motley Fool Australia has recommended Pointsbet Holdings Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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If you’re looking for some investment options for April, then you might want to take a look at the mid cap space.

At this side of the market, there are a number of companies with the potential to grow materially over the next decade or two. This could lead to their shares generating outsized returns for investors if everything goes to plan.

With that in mind, here are two mid cap ASX shares to consider buying:

Nearmap Ltd (ASX: NEA)

The first mid cap ASX share to look at is Nearmap. It is a $990 million aerial imagery technology and location data company with operations in Australia and North America.

Nearmap’s leading products give businesses instant access to high resolution aerial imagery, city-scale 3D datasets, and integrated geospatial tools. The beauty of this, is that users can undertake virtual site visits anywhere there is coverage without leaving the home or office. The company notes that this enables informed decisions, streamlined operations, and meaningful cost savings.

Another positive is that Nearmap has recently bolstered its offering with the launch of several new products and add-ons. This includes an artificial intelligence product which has significant potential.

Goldman Sachs is positive on the company and believes Nearmap can grow its revenue by a CAGR of 15% per annum between FY 2020 and FY 2023. In light of this, the broker has placed a buy rating and $2.95 price target on its shares.

Nuix Limited (ASX: NXL)

Another mid cap ASX share to consider is Nuix. It is a growing provider of investigative analytics and intelligence software.

The company’s Discover, Workstation, and Investigate platforms allow users to transform huge amounts of data from various sources (such as emails, social media, and communications) into actionable intelligence. This is proving particularly important in investigations where there can be hundreds or thousands of files to comb through.

One broker that believes Nuix has a bright future ahead of it is Morgan Stanley. As a result, earlier this month the broker put an overweight rating and $10.75 price target on its shares.

More reading

• 2 great value ASX growth shares to buy today
• Airtasker (ASX:ART) share price cools after explosive IPO
• 2 exciting ASX growth shares to buy now
• 5 of the best ASX shares to buy next week
• Why the Nuix (ASX:NXL) share price is surging higher today

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Nuix Pty Ltd. The Motley Fool Australia owns shares of and has recommended Nearmap Ltd. The Motley Fool Australia has recommended Nuix Pty Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Aristocrat Leisure Limited (ASX: ALL) share price may have been out of form on Tuesday but it is still outperforming the market in 2021.

Since the start of the year, the gaming technology company’s shares have risen a sizeable 7%.

This compares to a 0.8% gain by the S&P/ASX 200 Index (ASX: XJO).

Can the Aristocrat Leisure share price go higher?

According to analysts at Goldman Sachs, they believe the Aristocrat Leisure share price can go higher from here.

Although, admittedly, based on the broker’s current price target, the upside may be somewhat limited.

Nevertheless, this morning Goldman Sachs reaffirmed its buy rating and $34.80 price target on the company’s shares. This compares to the latest Aristocrat Leisure share price of $33.61.

What did Goldman Sachs say?

Goldman Sachs was in attendance at Aristocrat Leisure’s recent virtual investor round table.

A few takeaways from the event include:

“Management spoke in a lot of detail to the recovery of ALL’s land based business, and highlighted recent results from a third party survey going to showcase ALL’s superior cabinet while also noting that the recovery across various regions is tracking ahead of their own internal expectations.”

“Further, they noted i) ALL continues to take share across the land based business, ii) in ANZ, a fraction over 90% of machines are active while they also watching the recovery closely, iii) in N/A, 75-85% fleets are activated, and they believe ALL is tracking around 5-7% above these levels, demonstrating success of their tactical recovery plan and higher coin in.”

Things were just as positive for its Digital business.

“Management flagged that they continue to take share in digital against major competitors, and are comfortable that the step up in digital is more permanent in nature than temporary.”

“RAID is now the No.1 western title in the casual genre, EverMerge is No. 2 in the merge category and overall, ALL is a top 5 mobile gaming company in the western world.”

What do other brokers think?

Goldman Sachs isn’t the only broker that is positive on Aristocrat Leisure.

Last week Morgan Stanley put an overweight rating and $38.00 price target on its shares. Whereas Citi currently has a buy rating and $40.60 price target.

Based on the latest Aristocrat Leisure share price, this means potential upside of 13% and 21%, respectively, over the next 12 months.

More reading

• Compared! How are ASX gaming share prices performing?
• 3 of the best ASX shares to buy this month
• Brokers name 3 ASX shares to buy right now
• Aristocrat (ASX:ALL) share price surges as it finds a sweet spot
• 3 highly rated ASX growth shares to buy now

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Warren Buffett and Charlie Munger are two of the most successful and revered investors of all time. They have delivered market-beating returns on a consistent basis over a long period of time.

Although following their strategies may not guarantee high returns, it could have a positive impact on an investor’s portfolio in the long run.

As such, by focusing on industries that an investor understands, looking beyond short-term market movements and holding some cash, it may be possible to earn relatively attractive returns from equities.

Warren Buffett and Charlie Munger’s limited knowledge

Despite their track record of high returns, Warren Buffett and Charlie Munger do not invest in every industry available to them. In fact, many of their most successful investments over the years have been in the consumer goods and banking sectors. They have often overlooked technology businesses, as well as other sectors that many investors have profited from.

The main reason for this is that Buffett and Munger prefer to focus their capital on sectors that they fully understand and where they may have a competitive advantage versus other investors.

This may reduce the risk of their investments since they fully comprehend the potential threats that may be ahead. Similarly, it may mean higher return potential because they are able to identify the most appealing investments in an industry at a given point in time.

Although following a similar approach means that an investor may miss out on some attractive buying opportunities, the success of Warren Buffett and Charlie Munger shows that investors do not necessarily need to be experts in all industries to outperform the stock market.

Looking beyond short-term market movements

Warren Buffett and Charlie Munger also look beyond short-term market movements when investing. This allows them to avoid becoming too fearful in a market downturn, enabling them to buy stocks when other investors are selling them.

Equally, in a bull market, they rarely become excited about a stock market rally. This helps them avoid overpaying for shares when other investors allow their optimism to cloud their judgment.

By taking a long-term view, it is possible to capitalise on the stock market cycle more easily. It shows that gains and losses for the market have never previously lasted in perpetuity. By understanding this cycle and seeking to profit from it, it may be possible to earn higher returns in the long run.

Holding cash

Warren Buffett and Charlie Munger also hold relatively large amounts of cash at all times. They do not rely on its returns but rather use it to be able to respond quickly to short-term market movements that can create temporary buying opportunities. Holding some cash may also provide peace of mind during uncertain periods.

As the 2020 market crash showed, stock markets can recover quickly from their downturns. By being able to react quickly, it may be easier to take advantage of short-term mispricings.

More reading

• Why an AGL Energy (ASX:AGL) demerger might be a problem
• Saxo’s chief economist warns ASX investors of “galloping inflationary risks”
• 3 of the best ASX shares to buy in April
• The Mincor (ASX: MCR) share price slid today despite new mine
• Why Saxo’s global outlook favours ASX commodity shares

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The AGL Energy Limited (ASX: AGL) share price has been on a bit of a rollercoaster today. AGL shares initially opened more than 2% higher this morning and climbed all the way to $10.43 soon after open. But then a case of cold feet seemed to set in, and AGL shares spent the rest of the day in freefall. The AGL share price closed at $9.81, down 3.54% for the day, and down close to 6% from the morning’s high watermark.

AGL set the investing world abuzz this morning when it announced a new structural separation plan. As we reported at the time, AGL will split into ‘New AGL’ and ‘PrimeCo’.

New AGL will house the company’s retailing arm, whilst PrimeCo will hold the company’s electricity generation assets (power plants and the like). AGL does not yet have an end date for these plans yet, but told investors that it hopes to have one by the end of the financial year. It’s still unclear whether this plan will result in a full-scale demerger with an ASX spinoff.

So why the two-faced reaction from the market? Well, the initial positive reaction is understandable. The ASX tends to love a demerger (even a potential one), seeing as it often unlocks value for shareholders. We discussed this earlier today in regards to the Telstra Corporation Ltd (ASX: TLS) share price.

Are two AGLs better than one?

We have also seen this play out in real time with the Wesfarmers Ltd (ASX: WES) share price over the past few years. Wesfarmers split off Coles Group Ltd (ASX: COL) from its stable back in November 2018. Both companies now trade independently on the ASX. This move has been almost universally positive for anyone who held Wesfarmers shares before the split. Since November 2018, Coles shares are up more than 22%, and Wesfarmers shares are up more than 60%. That’s not including the generous dividends from both companies that have been paid out since either.

But here’s where AGL might run into some issues if it does decide on a demerger.

ESG (ethical, social and governance criteria) investing has never been a more powerful force on the ASX than it is today. Now AGL may tout its ‘New AGL’ as “leading the transition to a low carbon future“. But the reality is that PrimeCo will still house Australia’s largest portfolio of coal-fired power plants. These include Loy Yang A and Bayswater, as well as the ageing Liddell plant, which will soon be shuttered anyway.

How many investors, managed funds and exchange-traded funds (ETFs) with ESG in mind will want a slice of this new company? That’s a question AGL investors might want to ask themselves. And perhaps they are already asking it, judging by the performance of AGL shares this afternoon.

More reading

• ASX 200 dips, AGL to split in two, NAB’s neobank acquisition approved
• Is the Amaysim (ASX:AYS) share price really tumbling 70% today?
• Telstra (ASX:TLS) share price gains: Is the 52-week high next?
• AGL Energy (ASX:AGL) share price slides after latest announcement
• ASX 200 down 0.15%: AGL to split into two, NAB’s 86 400 acquisition receives ACCC approval

Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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