In order to maximise your potential returns and limit the damage of market shocks, I believe investors should ensure that their portfolio is diversified.

A good example of why this is important is the big four banks. The best performer in the group in 2020 has been the Commonwealth Bank of Australia (ASX: CBA) share price with a decline of 26% year to date. The other three big banks are each down approximately 38% since the start of the year.

While Commonwealth Bank’s decline may not look that terrible compared to the 18% decline by the benchmark S&P/ASX 200 Index (ASX: XJO), it is important to note that the big four banks are playing a major role in the ASX 200’s decline.

If you were to take out the banks from the index, the performance of the ASX 200 would be significantly better.

While I still think having exposure to the banks would be a good idea for diversification and dividends, I would suggest investors restrict this to just one bank. That way any weakness in the sector is cushioned by the rest of the portfolio.

There are other ways to diversify your portfolio as well. Buying a conglomerate such as Wesfarmers Ltd (ASX: WES) gives investors exposure to a number of industries through the one company.

Then there are exchange traded funds (ETFs) which give investors the option of investing in whole indices, countries, sectors, or even themes in a single investment.

With that in mind, two ETFs that I think would be great for diversification are summarised below:

iShares S&P 500 ETF (ASX: IVV)

As its name implies, the iShares S&P 500 ETF gives investors exposure to Wall Street’s famous S&P 500 index. This index is home to many of the largest companies in the world such as Amazon, Apple, Starbucks, and Warren Buffett’s Berkshire Hathaway. While 2020 looks likely to be a shaky year, I expect it to return to form once the crisis passes.

Vanguard MSCI Index International Shares ETF (ASX: VGS)

The Vanguard MSCI Index International Shares ETF is arguably as diverse as it gets. This ETF provides investors with exposure to many of the world’s largest companies listed in major developed countries. This allows investors to participate in the long-term growth potential of international economies outside Australia. Among its largest holdings are the likes of Apple, Microsoft, Amazon, Nestle, and Visa.

More reading

• 3 ASX 200 shares to watch this week
• ASX 200 Weekly Wrap: Gold miners help edge ASX ever higher
• 5 ASX 200 winners and 5 losers of the week
• Beat falling rates with these strong ASX dividend shares
• ASX 200 up 0.25% this week, CBA reveals Q3

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. 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 post The importance of diversifying your ASX portfolio and how you can do it appeared first on Motley Fool Australia.

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With plans in place to relax coronavirus restrictions across all the states and territories, things are feeling decidedly more optimistic than they were a few weeks ago. Australians are starting to get their first glimpse at what life will be like in a (slightly) less socially distanced world. Pubs are reopening, and both the AFL and NRL have announced that their seasons will resume within the next few weeks.

It’s that last development that is a scintillating prospect for online bookmakers that have suffered in a world essentially devoid of sport. So, here are some ASX shares to keep an eye on.

Tabcorp Holdings Limited (ASX: TAH)

Tabcorp shares had been trading more or less sideways for years prior to the COVID-19 pandemic, hovering just under $5, but rarely pushing above that psychological price barrier. However, they rarely threatened to fall below $4 either and paid out a dependable fully franked dividend – making Tabcorp a nice little earner for long-term shareholders.

However, that all changed when the coronavirus hit. Tabcorp shares plunged below $3 for the first time in years, falling as low as $2.09 by late-March. And while they have managed to recover since then, they are still well short of their pre-coronavirus highs.

The difficulty for Tabcorp – and a potential reason why its share price hasn’t rebounded as strongly as its shareholders may have hoped – is its large retail presence. According to its most recent annual report, Tabcorp operated in over 9,000 venues – all of which would have been forced to close during the pandemic.

Pointsbet Holdings Ltd (ASX: PBH)

ASX corporate bookmaker Pointsbet was shaping up as one of the best growth shares on the ASX prior to the COVID-19 pandemic. Investors seemed particularly enamoured with its aggressive expansion strategy targeting the US market.

After listing on the ASX for $2 in June 2019, Pointsbet shares raced to a high of $6.65 by January 2020. But the company’s shares plunged at the height of the coronavirus panic, plummeting all the way down to just $1.10 by mid-March.

Since then, the Pointsbet share price has rallied strongly and is within striking distance of $5 as at the time of writing. In its March quarter update, Pointsbet noted lower growth in active customers due to the suspension of major sporting codes, although revenue from Australian racing remained largely unaffected.

Should you invest?

The return of the major Australian sporting codes presents some welcome good news for these 2 major ASX bookmakers. But the full benefit won’t be felt until the September quarter, meaning that investors may still have to weather some short-term volatility.

However, both companies also present a different set of risks. Tabcorp’s extensive retail network has been a heavy burden during these lockdowns. But the uncertainty around US sport in the near-term is a concern for Pointsbet.

Neither bookmaker is a sure bet. But they are still ones to watch as global sporting codes try to resume in a post-coronavirus environment.

More reading

• 3 ASX shares I should have bought last month
• Are ASX shares about to surge higher in 2020?
• Why I’m holding onto my Pointsbet shares
• Is Pointsbet on a winning streak after its solid Q3 result?
• Why these 3 ASX tech shares are surging higher today

Rhys Brock owns shares of Pointsbet Holdings Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Pointsbet Holdings Ltd. The Motley Fool Australia has recommended Pointsbet Holdings Ltd. 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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China is rattling its trade war sabre at Australia and is threatening to bar imports of a range of products into its country.

But the market is brushing aside such fears when it comes to Australian iron ore. You can tell how relaxed investors are with the Fortescue Metals Group Limited (ASX: FMG) share price surging 6% to a record high of $13.30 in after lunch trade.

Its two bigger competitors are outperforming the S&P/ASX 200 Index (Index:^AXJO) too. The BHP Group Ltd (ASX: BHP) share price jumped 4.3% to $33.04 while the Rio Tinto Limited (ASX: RIO) rallied 6.2% to $90.64 at the time of writing.

Trade war comes to Australia

Investors are less confident about soft commodities and Chinese visitors. China is moving closer to slapping a up to 80% tariff on Australian barley and there’s speculation that beef and wine exports might be next.

China’s ambassador to Australia, Jingye Cheng, also threatened to stop his fellow countrymen from coming over for holidays or to study.

But experts believe China cannot afford to alienate our iron ore producers even though China is their only customer.

No one else to dance with

The problem facing the Chinese is replacing Australian ore, which UBS estimates account for 60% of the country’s supply. This contrasts to Brazil’s 23% market share, the only other country with the potential to make up the shortfall from Australia in any meaningful way.

However, it’s unlikely that Brazil can step up to the plate.

“Channel checks suggest absenteeism in Brazil is driving weak production ahead of any [government] enforced mobility restrictions,” said UBS.

“In the week to 11 May 20, Brazilian iron ore shipments were 4.2Mt [million tonnes], with YTD shipments at 87.1Mt, down 12% y/y.”

Brazilian production not up to the task

At the going rate, Brazil’s annual production volume is likely to be around 240Mt a year, or nearly a third below 2019.

Even if demand in Europe and other major markets like Japan were to drop due to COVID-19, the iron ore market is forecast to remain tight unless Brazil finds a way to significantly crank-up production.

But UBS thinks this will be a long shot for the Latin American (LATAM) country.

“The UBS LATAM team have [sic] taken a look at Brazil in terms of the spread of Covid-19 suggesting the spread from large cities to small towns may be increasing,” explained the broker.

“New Google Mobility data shows adherence to stay-at-home measures remains low in Brazil.”

High iron ore price in good and bad times

What’s more, one of the coronavirus hotspots is the Para State, which is the second largest iron ore producing states in the country.

On the demand side, China’s inventory of the mineral is low and that explains why the price of the commodity is holding up despite the looming global recession.

“On balance we expect the iron ore market to remain tight and support an iron ore price above US$80/t through 2020e,” added UBS.

“Substitution away from Australia at the current time appears difficult, but we note China has begun to invest in iron ore in Guinea, albeit 5+ years from first production.”

Looks like China needs our iron ore majors as much as they need China.

More reading

• 3 top Warren Buffett quotes to start off your week
• How is the ASX 200 soaring despite rising unemployment?
• Is it time to buy ASX 200 gold shares?
• Fortescue share price hits a record high: Is it too late to invest?
• The 5 ASX shares that were last week’s biggest fallers

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. 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.

The post Why ASX iron ore miners like BHP aren’t afraid of the China trade war appeared first on Motley Fool Australia.

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