There are a few different ASX shares that Ophir High Conviction Fund (ASX: OPH) likes the most right now. 

What is Ophir?

Ophir is a fund management business that is headed by Andrew Mitchell and Steven Ng.

The fund manager runs a few different portfolios, but the one I’m covering is the Ophir High Conviction Fund.

This fund looks to provide investors with a concentrated exposure to high quality companies outside of the S&P/ASX 50.

Ophir uses an extensive investment process that combines a rigorous company visitation schedule and fundamental bottom-up analysis to find opportunities. It looks to identify businesses operating within structural growth sectors with the ability to meaningfully grow and compound earnings over time.

Typically, the majority of businesses within the portfolio will already have well-established business models with large or growing end markets and a clearly identifiable pipeline of future growth opportunities.

As a concentrated portfolio, the fund seeks to identify the very best of these opportunities in order to ensure each portfolio position delivers a meaningful impact on overall portfolio returns.

This strategy appears to have worked. Over the past year the Ophir High Conviction Fund portfolio has delivered a gross return of 19.7% per annum. Since inception in August 2015, the gross portfolio return has been an average of 23.2% per annum.

What are the ASX shares that Ophir likes?

Ophir listed its largest five exposures at the end of October 2020 in its most recent update. In alphabetical order those businesses are:

A2 Milk Company Ltd (ASX: A2M), which is an infant formula business with significant exposure to Chinese customers.

Afterpay Ltd (ASX: APT), which is a buy now, pay later business which is growing rapidly in the US.

Domino’s Pizza Enterprises Ltd. (ASX: DMP), which is a large franchisor of Domino’s outlets in Australia, New Zealand, Belgium, France, The Netherlands, Japan, Germany, Luxembourg and Denmark.

Nextdc Ltd (ASX: NXT), which is a data centre business which provides digital infrastructure for the cloud.

Xero Limited (ASX: XRO), which is a cloud accounting software business which has a presence in many countries including New Zealand, Australia, the UK, the US, Canada and South Africa.

Ophir’s recent overall thoughts on its portfolio

The fund manager doesn’t try to meaningfully time its allocations to investment styles, sectors or ASX shares off the back of ‘top down’ macroeconomic or political factors. It’s not that Ophir doesn’t think these have an effect, just that the fund manager doesn’t have an edge in timing allocations when lots of investors and analysts already look at these factors.

It also doesn’t help that there isn’t a model that is able to consistently and reliably assist with that process.

In recent times Ophir has been, at the margin, reducing how much underweight it is to ‘reopening theme’ companies as it became clearer that a COVID-19 vaccine was likely. This process was accelerated thanks to the Pfizer and Moderna vaccine news. That’s why Ophir increased its allocation to good quality companies that are growing faster than the market and likely to benefit from a relaxation in social distancing measures.

However, that doesn’t mean that Ophir has been involved in investing in ‘value’ or ‘cyclical’ type companies for the sake of it. The core of the funds remain in ASX shares that Ophir believes can grow and compound earnings largely regardless of the macroeconomic environment.

Its holdings of Afterpay, Xero and ResMed Inc (ASX: RMD) were strong performers in October. Ophir was particularly pleased that ResMed posted a strong quarterly result, although it was boosted by one-off ventilator sales.

More reading

• ASX 200 drops on Friday
• Why JPM just upgraded the beaten-down Appex (ASX:APX) share price to “buy”
• 2 outstanding ASX shares to buy and hold
• Why the Afterpay (ASX:APT) share price is surging higher today
• 3 ASX tech shares to buy for the long term

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 Xero. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Domino’s Pizza Enterprises Limited and ResMed Inc. 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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According to the latest Westpac Banking Corp (ASX: WBC) weekly economic report, the banking giant is expecting rates to stay low for a long time to come.

In fact, Westpac’s economic team are forecasting the cash rate to stay at the record low of 0.1% until at least December 2022.

That’s two more years that income investors and savers are going to have to contend with these ultra low rates.

In light of this, the Australian share market looks likely to remain the place to be for a source of income for some time.

Fortunately, there are a number of shares on the market with generous yields. Two with yields above 4% are named below:

BWP Trust (ASX: BWP)

BWP is a real estate investment trust which owns a collection of commercial assets. The majority of which are warehouses that are leased to home improvement giant, Bunnings.

It has been a positive performer this year despite the pandemic and was able to pay a distribution as normal in FY 2020. It paid 18.29 cents per share to shareholders after reporting like-for-like rental growth of 2.4% and a 1% increase in profit (before gains on investment properties) to $117.1 million.

Management has guided to a similar distribution in FY 2021. Based on the current BWP share price, this represents a 4.2% yield.

Rural Funds Group (ASX: RFF)

Rural Funds is an agriculture-focused property group. It owns a total of 61 properties across five agricultural sectors. These quality properties are leased to some of the biggest operators in the industry such as almond producer Select Harvests Limited (ASX: SHV) and wine giant Treasury Wine Estates Ltd (ASX: TWE). 

One of the main attractions to the company for income investors is its long term leases, which have rental increases built in. At the last count, Rural Funds’ weighted average lease expiry (WALE) stood at 10.9 years.

This gives management great visibility on its future earnings and has allowed it to provide guidance even during the pandemic. In FY 2021, Rural Funds intends to increase its distribution by 4% to 11.28 cents per share. Based on the latest Rural Funds share price, this equates to a 4.6% yield.

More reading

• Westpac (ASX:WBC) tips Australian dollar to hit 80 US cents in 2021
• 5 ASX dividend shares to buy for income in 2021
• ASX 200 down 0.3%: CSL sinks, Zip’s Facebook deal, IGO rockets
• Westpac (ASX:WBC) share price lower on AGM update
• 2 ASX dividend shares with attractive yields

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED and Treasury Wine Estates 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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The S&P/ASX 200 Index (ASX: XJO) was able to continue its impressive run last week, but only just. The benchmark index rose just 0.1% over the five days to end the week at 6,642.6 points.

Another busy week is expected next week. Here are five things to watch:

ASX futures pointing slightly lower.

The Australian share market looks set to start the week ever so slightly in the red. According to the latest SPI futures, the ASX 200 is poised to open the week 1 point lower on Monday. This follows a mixed night of trade on Wall Street on Friday. The Dow Jones rose 0.15%, the S&P 500 fell 0.15%, and the Nasdaq dropped 0.2%. 

US approves Pfizer COVID-19 vaccine.

Investor sentiment could be given a boost next week following news that the US FDA has given its authorisation for the emergency use of Pfizer’s COVID-19 vaccine. According to CNBC, the FDA’s emergency use authorisation will allow the federal government’s distribution of the potentially lifesaving vaccine across the country immediately. In fact, on Friday night, the government revealed plans to distribute 2.9 million doses of the vaccine within 24 hours. This will be followed by an additional 2.9 million doses 21 days later for patients to get their second shot.

Kogan to join the ASX 200.

S&P Dow Jones Indices has announced its quarterly rebalance of the S&P/ASX Indices. Two new additions have been announced for the ASX 200, effective at the open of trading on December 21. Those companies are online retailer Kogan.com Ltd (ASX: KGN) and plumbing parts company Reece Ltd (ASX: REH). Heading out of the index are three shares, due to the index currently having 201 shares following a demerger. These are Avita Therapeutics Inc (ASX: AVH), Cooper Energy Ltd (ASX: COE), and Western Areas Ltd (ASX: WSA).

ANZ and NAB annual general meetings

The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price will be on watch on Wednesday when it holds its annual general meeting (AGM). The banking giant could provide investors with an update on current trading and its COVID-19 loan deferrals. This will be followed by the National Australia Bank Ltd (ASX: NAB) AGM on Friday.

More AGMs.

It isn’t just the banks that are holding their AGMs next week. A number of agriculture-focused companies will be holding their meetings as well. This includes Elders Ltd (ASX: ELD) on Thursday and then Incitec Pivot Ltd (ASX: IPL) and Nufarm Ltd (ASX: NUF) on Friday.

More reading

• These were the best performing ASX 200 shares last week
• These were the worst performing ASX 200 shares last week
• Will China’s tariffs cripple the Aussie economy’s 2021 recovery plan?
• ASX 200 drops on Friday
• Why JPM just upgraded the beaten-down Appex (ASX:APX) share price to “buy”

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 Avita Medical Limited and Kogan.com ltd. The Motley Fool Australia has recommended Avita Medical Limited, Elders Limited, and Kogan.com 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 Australian dollar has been a strong performer in recent months and climbed to a 30-month high against the U.S. dollar last week.

While this is great news for importers and international travellers (when they can travel), it is the opposite for exporters like Graincorp Ltd (ASX: GNC) and those that generate the majority of their sales in U.S. dollars such as Appen Ltd (ASX: APX).

The bad news for the latter group is that the economics team at Westpac Banking Corp (ASX: WBC) is tipping the Australian dollar to continue to strengthen.

What is Westpac saying?

According to the latest Westpac Weekly economic report, its team believe the Australian dollar is on track to hit 80 U.S. cents in 2021.

Westpac’s Chief Economist, Bill Evans, commented: “The steady rise in the AUD since mid–year, when it was trading around USD0.68 has been due to rising iron ore prices (up from around US$80/t to US$145/t); ongoing momentum in China as the government seeks to restore positive growth for the year; Australia’s success in containing the virus; a boost to global optimism with the advent of successful vaccines; and positive surprises around Australia’s recovery and lift in consumer and business confidence since the recession.”

“There is understandable uncertainty about iron ore prices but the other factors seem set to roll into 2021 supporting our long– held USD0.80 target for AUD by end 2021,” he added.

Mr Evans points out that nearly all cycles in our currency are two to four years in length and generally are linked to global growth and particularly China’s growth and policy cycle.

Even higher in 2022?

Mr Evans believes 80 cents in 2021 is a safe bet and suspects the Australian dollar could go even higher in 2022.

He commented: “The question is whether this momentum can extend into 2022. With the AUD having bottomed out in March 2020, a ‘normal’ two year plus cycle sees the upswing lasting well into 2022.”

Furthermore, Westpac believes policy tightening in China and the developed world is unlikely, which rules out “an abrupt downward adjustment to the AUD.”

“For now, we are comfortable to project the upward momentum in AUD into 2022 reaching a high of USD0.82 before flattening off in the second half although there are clear upside risks to this scenario,” he concluded.

More reading

• 3 ASX growth shares to add to your portfolio in 2021
• These were the worst performing ASX 200 shares last week
• Why JPM just upgraded the beaten-down Appex (ASX:APX) share price to “buy”
• Australian wheat exporters retreat amid trade dispute with China
• Brokers name 3 ASX shares to buy right now

James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Appen Ltd. 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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If you’re looking at investing at the small side of the market, then the two small caps listed below could be worth considering.

While there is certainly still a lot of work to be done, they both appear to be carving out bright futures for themselves.

Here’s why they are rated highly right now:

Serko Ltd (ASX: SKO)

Serko is an online travel booking and expense management provider behind the Zeno Travel and Zeno Expense platforms. Zeno Travel provides AI-powered end-to-end travel itineraries, cost control and travel policy compliance to corporate customers. Whereas the latter platform allows its users to automate and streamline the expense administration function, identify out-of-policy expense claims, and prevent fraud.

Although Serko’s growth has been hit hard by the pandemic, it is starting to see transaction volumes recover. Earlier this month, Serko revealed that volumes increased to 44% of prior year volumes for the month of November. This was up from 35% of prior year volumes for the month of October.

Analysts at Morgans are positive on its prospects, particularly given its major deal with travel giant Booking.com. Its analysts have a buy rating and $6.55 price target on the company’s shares. This compares to the latest Serko share price of $4.99.

Whispir (ASX: WSP)

Whispir is a software-as-a-service communications workflow platform provider. Its high quality software platform allows companies to deliver actionable two-way interactions at scale using automated multi-channel communication workflows.

This helps make operations more efficient and can cut down the number of service desk support calls. It counts a number of blue chips as customers such as AGL Energy Limited (ASX: AGL), Disney, and Foxtel. This underpinned strong annualised recurring revenue (ARR) growth in FY 2020, with more of the same expected in the new financial year.

Analysts at Ord Minnett currently have a $4.40 price target on the company’s shares. This compares to the current Whispir share price of $3.19.

More reading

• 3 leading ASX tech shares to buy
• 3 ASX tech shares that have delivered strong returns in 2020
• 2 exciting small cap ASX shares to watch
• 2 exciting small cap ASX shares to watch in 2021
• ASX 200 rises on Thursday

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 Whispir Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Serko Ltd. The Motley Fool Australia has recommended Serko Ltd and Whispir 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 low interest rate environment hit a new low last week when the Federal Government was effectively paid to borrow money.

The government has just successfully undertaken a $1.5 billion traunch of three-month bonds with a negative interest rate of -0.01%.

Unfortunately for income investors, this appears to be a sign that it will be a long time until interest rates return to “normal” levels again.

But don’t worry, because there are plenty of dividend shares that offer investors generous yields.

Two to consider buying are listed below. Here’s why they are rated highly:

BHP Group Ltd (ASX: BHP)

This mining giant has been tipped to reward its shareholders with some very generous dividends in the coming years. This is due to its world class operations, low costs, and favourable commodity prices. The latter is certainly the case for iron ore, which is trading north of US$150 a tonne at present.

Last week, Macquarie reiterated its outperform rating and $46.00 price target. The broker is also forecasting a ~$3.09 per share fully franked dividend in FY 2021. Based on the current BHP share price, this represents a 7.2% dividend yield.

Telstra Corporation Ltd (ASX: TLS)

This telco giant has underperformed over the last few years after struggling with a massive earnings gap caused by the NBN rollout. The good news is that the NBN headwind is now easing and its outlook is becoming significantly more positive. Especially given its T22 strategy, which is cutting costs and simplifying its business. The latter could include splitting its business into three in an attempt to monetise some of its assets.

Analysts at UBS believe now is an opportune time to invest and have recently put a buy rating and $3.70 price target on its shares. They are also forecasting a 16 cents per share fully franked dividend for the foreseeable future. Based on the current Telstra share price, this means a fully franked 5.3% dividend yield.

More reading

• 5 ASX dividend shares to buy for income in 2021
• Brokers name 3 ASX shares to buy right now
• UBS just downgraded these outperforming ASX mining stocks
• 5 things to watch on the ASX 200 on Friday
• Why the Adbri (ASX:ABC) share price has dipped in trading today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra 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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Investing money regularly in cheap shares could produce a generous passive income in older age. The stock market crash has caused many high-quality companies to trade at prices that are substantially below their long-term averages. Buying and holding them over the long run may produce impressive returns that create a worthwhile nest egg for retirement.

Certainly, there are risks facing the stock market in the short run. However, through buying a diverse range of companies and allowing them the time they need to grow, an investor may experience a greater amount of financial freedom in older age.

Buying cheap shares for a passive income

The stock market crash means there is the potential to obtain attractive capital growth from today’s cheap shares that could ultimately provide a passive income in retirement. For example, some stocks face the prospect of difficult operating conditions in 2021. Risks such as Brexit and a weak global economic outlook may hinder their capacity to generate growing profit. However, their financial strength and competitive advantages may mean that they have the potential to recover in the coming years. In doing so, they may help an investor to build a large nest egg for retirement.

Of course, not all cheap shares will deliver impressive returns in the coming years. As such, it is crucial for any investor to understand the businesses they are purchasing. For example, companies with low debt, an economic moat and a sound strategy to deliver growth may be better able to produce rising share prices over the coming years. This may mean they make a bigger contribution to the size of an investor’s nest egg, thereby offering the prospect of a larger passive income in older age.

Investing money on a regular basis

Investors who do not have a lump sum to invest today can make regular purchases of cheap shares to build a nest egg that offers a passive income in retirement. Indeed, even modest amounts of money invested regularly in undervalued stocks can add up to a surprisingly large portfolio over the long run.

For example, the stock market has historically delivered an 8% annual total return. Investing $25 per week at that rate of return could produce a portfolio valued at $380,000 over a 40-year working life. From that, a 4% annual withdrawal would equate to an income of over $15,000.

Clearly, a larger passive income could be achieved by investing a greater amount on a regular basis. Meanwhile, many investors may have a shorter investment horizon than 40 years. However, the example shows that even achieving the market rate of return on a regular investment can lead to a worthwhile retirement income. And, through buying cheap shares after a market crash, an investor could beat the market and build an even larger portfolio by the time they retire.

More reading

• 2 blue chip ASX shares Warren Buffett would love
• 2 ASX shares to buy that are growing rapidly
• 3 little-known small cap ASX shares rated as buys by fundie
• 5 ASX dividend shares to buy for income in 2021
• 3 ASX growth shares to add to your portfolio in 2021

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. 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.

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One notable believer in buy and hold investing is legendary investor Warren Buffett.

In fact, Mr Buffett has famously quipped that his favourite holding period is forever. And given the success he has had over the last six decades, it certainly can pay to listen to his advice.

The Oracle of Omaha also has a penchant for blue chip shares and countless can be found in his portfolio.

With that in mind, listed below are two shares that could be top blue chip buy and hold options. Here’s what you need to know about them:

CSL Limited (ASX: CSL)

CSL is one of the world’s largest biotechnology companies and regarded by many as the highest quality company on the Australian share market. It has consistently grown its sales and earnings at a solid rate for many years and has been tipped to continue this positive form in the future.

This is thanks to its leading therapies, growing plasma collection network, and its burgeoning research and development (R&D) pipeline. This pipeline contains a number of therapies that have the potential to generate billions of dollars in sales over the next decade if their trials are successful.

UBS is positive on its R&D pipeline and notes that it has underpinned the majority of its growth in the past few years. Pleasingly, it appears to believe this can continue and has put a buy rating and $346.00 price target on its shares.

SEEK Limited (ASX: SEK)

SEEK is the dominant job listings company in the ANZ region and has a number of growing businesses around the world. Chief among them is the Zhaopin business in China. It has been growing at a very strong rate in recent years and is quickly becoming an integral part of the SEEK business.

Zhaopin, combined with its investments in growth opportunities, is expected to play a key role in the company achieving its aspirational revenue target of $5 billion later this decade. This will be a material increase on the revenue of $1,577.4 million it reported in FY 2020.

Analysts at Credit Suisse are positive on the company’s future and have recently put an outperform rating and $28.50 price target on its shares.

More reading

• ASX 200 drops on Friday
• Why CSL, Lovisa, Lynas, & Syrah shares are dropping lower
• ASX 200 down 0.3%: CSL sinks, Zip’s Facebook deal, IGO rockets
• Why the IGO (ASX:IGO) share price shot up 18% in early trade today
• CSL (ASX:CSL) share price on watch after terminating COVID-19 vaccine trial

James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has recommended SEEK 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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This article is about two ASX shares that are growing rapidly.

Here are those names:

Redbubble Ltd (ASX: RBL)

According to the ASX, Redbubble has a market capitalisation of $1.6 billion.

Redbubble has two online artist-produced marketplaces for various items like clothes, stationery, housewares, bags, wall art and so on. Those two marketplaces are Redbubble.com and TeePublic.com.

The ASX share is one that was recently named by Montgomery Investment Management’s Joseph Kim as potential winner. He said: “While Redbubble has clearly been a “stay-at-home” trade, we believe the business has the opportunity to emerge a longer-term structural winner from COVID-19 should it capitalise in the recent spike in user and customer interest as a result of recent lockdown measures.”

In FY20 it generated marketplace revenue of $349 million, which represented 36% growth. Gross profit went up 42% to $134 million and operating earnings before interest, tax, depreciation and amortisation (EBITDA) grew 141% to $15.3 million.

The growth has continued into the first quarter of FY21. The first three months of FY21 saw marketplace revenue grow 116% to $147.5 million, gross profit went up 149% to $64.5 million and it generated $22.1 million of earnings before interest and tax (EBIT). Redbubble also made $27.1 million of operating cashflow.

At the time of that quarterly update, Redbubble CEO Martin Hosking said: “The strategic priority for the group now is to ensure we extend the market leadership we have established. We intend to invest in the customer experience to improve loyalty and retention and ensure long-term higher levels of growth. The company has the resources to undertake the anticipated investments and the margin structure to ensure it can do so while remaining profitable.”

Temple & Webster Group Ltd (ASX: TPW)

According to the ASX, Temple & Webster has a market capitalisation of $1.1 billion.

Temple & Webster is a leading online retailer of furniture and homewares. It has over 180,000 products on sale from hundreds of suppliers. The products are sent directly from suppliers to the customer, which enables faster delivery times and reduces the need to hold inventory and also allowing a larger product range. The ASX share also has a private label range which is sourced directly by Temple & Webster from overseas suppliers.

In FY20 the company delivered revenue growth of 74% to $176.3 million. The growth accelerated during the year, with second half revenue jumping 96% and fourth quarter revenue rising 130% compared to the prior corresponding period.

Temple & Webster also said that it achieved accelerated operational leverage with 483% growth of EBITDA to $8.5 million and the adjusted EBITDA margin improved from 2.5% to 5.3% in FY20.

The management pointed out that while online sales went up 57% during the April to July period, Temple & Webster grew 150%. Management explained that it’s gaining increasing benefits of scale as it gets larger. It’s forging closer relationships with its suppliers as it becomes a more significant part of their business, which allows it to obtain stock security, better terms and exclusive product ranges. The ASX share is also investing in areas like technology and data, brand awareness and its private label products. Management said that the bigger it becomes, the better and stronger its proposition becomes, which is a virtuous cycle.

In FY21 year to date to 19 October, Temple & Webster said that it grew revenue by 138% and the FY21 first quarter EBITDA was $8.6 million, which was larger than the whole of FY20’s EBITDA. At the time of the update, October revenue growth was still above 100%.

Temple & Webster said that it’s committed to a high growth strategy to take advantage of the structural shift towards online, capitalising on both organic and inorganic opportunities.

According to Commsec, Temple & Webster is valued at 32x FY22’s estimated earnings.

More reading

• Redbubble (ASX:RBL) share price jumps 12% to record high
• Is the Temple & Webster (ASX:TPW) share price a buy?
• ASX 200 falls on Thursday
• 2 leading ASX growth shares to buy that are falling
• The 13 ASX shares that could have doubled your money in 2020

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 Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group 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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There are some ASX small cap shares worth buying and owning according to fund manager Naos Asset Management.

What is Naos Asset Management’s investment approach?

Naos is led by chief investment officer (CIO) Sebastian Evans. NAOS Small Cap Opportunities Company Ltd (ASX: NSC) is one of the listed investment companies (LIC) operated by Naos.

That particular LIC looks at businesses with market capitalisations between $100 million and $1 billion.

The fund manager has a number of investment focuses. It looks for businesses that are good value with long term growth potential. With its portfolio, Naos believes it’s better to have a quality portfolio rather than numerous holdings. That’s why it only holds around 10 positions in each fund, with each ASX share representing a high-conviction position.

Naos invests in the small cap ASX shares for the long-term. It considers the performance and the liquidity of its positions whilst ignoring the index. Performance can sometimes be quite variable when compared to the index.

It looks to invest purely in industrial companies whilst also considering the ESG factors (environmental, social and governance).

Eureka Group Holdings Ltd (ASX: EGH)

Naos says that Eureka Group is a provider of quality and affordable rental accommodation for independent seniors within a community environment. Eureka owns 30 villages and manages a further nine villages with a total of 2,147 across Queensland, Tasmania, South Australia, Victoria and New South Wales.

The ASX small cap share recently held its annual general meeting (AGM) and gave a market update in early November which included FY21 earnings before interest, tax, depreciation and amortisation (EBITDA) guidance of $9.8 million to $10.2 million. This would be an increase of 21% to 26% compared to the prior corresponding period. Occupancy has remained above 95% and the business continues to sell non-core assets, which will provide the funding for organic growth and acquisition opportunities.

The fund manager believes Eureka has multiple levers that can be pulled to help earnings growth at a significant rate going forward, and when overlaid with the current industry tailwinds, Naos thinks Eureka will be highly attractive to investors, particularly in this low interest environment.

COG Financial Services Ltd (ASX: COG)

The financing business also held its AGM and gave an update about its strategy going forward. It’s still focused on its broking and aggregation business, particularly the insurance broking, as COG brokers have a close relationship with clients and have the ability to meet their financing needs.

The ASX small cap share also provided disclosure about the software that allows COG brokers to have real time data on their entire client base together with real-time quoting and application functionality. Naos believes this is key for COG as some of the brokers it owns may have 10,000 active SME clients that will have a number of financing and insurance needs in any given year.

Naos also thinks that a merger with Earlypay Ltd (ASX: EPY) – formerly CML Group – would also be beneficial if done at the right time.

Big River Industries Ltd (ASX: BRI)

This is a business that’s a diversified manufacturer and distributor of timber and building products. It sells softwood and hardwood formply and structural plywood products, consumable formwork products and it’s a national merchant of timber and associated building products to local trade, medium sized and enterprise sized companies.

Naos pointed out that Big River Industries was recently successful in applying for a $10 million grant for recovering from the bushfires. The grant will allow the ASX small cap share to close the manufacturing facility in Wagga Wagga and move this capability into the newer facility in Grafton.

The fund manager likes this because it will reduce the exposure to more commodity-type manufactured goods and allow the company to continue to focus on the distribution model with a focus on higher value products. The closure in the site could lead to a significant reduction in working capital and potential upside from land sale proceeds.

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Motley Fool contributor Tristan Harrison owns shares of NAO SMLCAP FPO. 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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