This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

For some investors, especially those with limited funds, looking for stocks with the lowest share price may be tempting. After all, if a stock has a low price per share, you can buy more of it. But just because a stock appears to be cheap doesn’t mean it’s a good buy. In fact, some of the most expensive stocks in terms of price-per-share can be way better investments than almost any penny stocks, which have very low share prices but come with outsize risk.

And while it may have made sense in the past for investors to limit their purchases to companies with low share prices if they didn’t have much money to put into the market, that’s no longer the case. In fact, rather than looking for cheap stocks, you should look for companies you believe will perform well over time regardless of the price. You can do that thanks to fractional shares.

The first thing to remember when looking for stocks is that the share price shouldn’t matter to you; what matter are the risk and the potential for growth. A stock that costs $1 per share is cheap to purchase, but it’s not a very good buy if the company is on the verge of insolvency and has no plans to fix its financial problems. On the other hand, a stock that costs $5,000 a share is “cheap” in terms of presenting a great value if there’s solid reason to believe shares may be worth $10,000 next year. 

Many investors used to be limited by the size of their bankrolls to buying companies with low-priced shares simply because brokerages required you to buy at least one full share. That’s not the case anymore because a growing number of brokers allow you to buy fractional shares.

These are just what they sound like: fractions of full shares (in some cases as low as 0.001 of a share). Many big-name brokers have opened the door to buying these partial shares through a process called “dollar-based investing.” You specify how much to invest in a company and you’ll get whatever part of a share your cash can buy. So if you want to buy Tesla even though it’s trading at $1,650 a share and you only have $20, you can become the proud owner of 0.0121 of a share. 

It doesn’t matter that you’re purchasing such a small stake; if the stock price rises, your percentage gains will be the same as any other investors’ are. But, thanks to fractional shares, you won’t have to be restricted to looking for companies with low share prices, such as the untested NIO, if you want to invest in an electric vehicle maker. You’ll have the chance to buy the industry leader with the higher per-share price if you think it presents a better balance between potential risk and possible gains. 

How to pick companies to invest in

Since you’re no longer limited by your pocketbook, you have a vast pool of potential investments. To find the right ones, you’ll want to consider factors including:

• The company’s track record and potential for growth.
• Its competitive advantage.
• Its leadership team.
• Whether the stock is being sold at a fair price.

It can take time to research which stocks to buy, especially when you don’t have to restrict yourself to stocks you can afford to buy one or more shares of. But if you put in the work, learn how to make informed choices, and invest for the long term, your efforts can often pay off in the end. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Christy Bieber 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 Tesla. 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 Sorry, cheap stocks aren’t the best stocks. Here’s why appeared first on Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Kogan.com Ltd (ASX: KGN) share price will be on watch on Wednesday.

On Tuesday the ecommerce company’s shares surged a massive 12% higher to end the day at a record high of $22.99.

However, within minutes of the company’s shares closing at this record high, its CEO and CFO were selling down their stakes in the company.

What is happening?

According to the AFR, the company’s founders Ruslan Kogan and David Shafer are selling down their stakes by a sizeable $163 million.

The report reveals that Citi’s equities desk was in the market with the block trade of 7.3 million shares, which represents approximately 6.9% of Kogan’s total shares.

One positive is that these shares have an underwritten floor price of $21.60 and bids were being taken in 5 cent increments up to $22.25, according to terms sent to funds. This means the discount will only range from 6% to 3.2% compared to Kogan’s last close price.

Once the sale completes, Mr Kogan will have reduced his stake down to 15.3 million shares. This represents a 15% stake in the company, which I believe means his interests remain firmly aligned with shareholders.

It’s a similar story with co-founder and CFO David Shafer. Following the completion of these sales, Mr Shafer will own 6.1 million shares. This represents a 5.8% stake in the growing company.

This morning the company confirmed that this report is accurate.

Chairman, Greg Ridder, commented: “Following the significant increase in shareholder value, Ruslan and David have taken the opportunity to balance a portion of their investments while continuing to remain Kogan.com’s largest shareholders. Ruslan and David continue to love building the Business and are excited about the opportunities ahead. I take this opportunity to welcome some new shareholders to the Company, and also to recognise the ongoing interest of many existing shareholders to increase their ownership levels.”

What now?

Given their past history of selling once trading windows reopen following results releases, this selling may not come as a surprise to many investors.

However, large insider selling rarely goes down well with investors and can often weigh on a share price. In light of this, I wouldn’t be surprised if its shares dropped lower today.

More reading

• Kogan share price rockets 12% to a record high: Is it too late to invest?
• Why Cochlear, Kogan, Megaport, & Northern Star shares are charging higher
• New investors should do this before investing in ASX shares
• Why Kogan and these ASX shares just hit record highs
• ASX 200 drops 0.8%, JB Hi-Fi jumps 4.5%

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Kogan.com 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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Many consider Warren Buffett to be the most successful share investor of all time.

He is the fourth wealthiest person on the planet, so it’s hard to disagree.

But you may be surprised to learn that Warren Buffett considers buying his investment company Berkshire Hathaway Inc. (NYSE: BRK.A) the biggest mistake of his life.

Where did it all begin?

Buffett started purchasing shares in Berkshire in 1962, eventually taking a controlling stake by 1965. 

At the time, the company was a textile manufacturer, losing money in a sector that was in steep decline in 20th century United States.

“Though I knew its business – textile manufacturing – to be unpromising, I was enticed to buy because the price looked cheap,” Warren Buffett said in a letter to shareholders in 1989.

The idea is that if you buy something at a bargain price, any sort of temporary jolt in the company’s fortunes allows the shareholder to sell at a profit.

However, the problem with that is that unprofitable companies in unprofitable sectors will bleed money before that opportunity comes along.

“Unless you are a liquidator, that kind of approach to buying businesses is foolish,” Buffett said.

“In a difficult business, no sooner is one problem solved then another surfaces. Never is there just one cockroach in the kitchen… Second, any initial advantage you secure will be quickly eroded by the low return that the business earns.”

The gift of diversification

Buffett was forced to pivot Berkshire Hathaway into other sectors, such as insurance. This diversification has taken it to where it is today, where it acts as a holding company for its own investments.

These days, Warren Buffett and his right-hand man Charlie Munger do things differently.

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price,” he said.

“Charlie understood this early – I was a slow learner. But now, when buying companies or common stocks, we look for first-class businesses accompanied by first-class managements.”

He’s done okay. 

Berkshire Hathaway has gone from a share price of US$7,100 in June 1990 to about US$318,000 this month. That’s a 44-fold increase in 30 years.

More reading

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Motley Fool contributor Tony Yoo 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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The CSL Limited (ASX: CSL) share price will be in focus this morning following the release of the biotherapeutics company’s full year results.

How did CSL perform in FY 2020?

During the 12 months ended 30 June 2020, CSL delivered a 7.2% increase in reported sales revenue to US$8,797 million. This was driven by solid growth from both its CSL Behring and Seqirus vaccines businesses during the year.

The CSL Behring business delivered an 8% increase in constant current sales to US$7,661 million. The key driver of this was demand for its immunoglobulins, which reported a 22% lift in sales to US$4,014 million. It was supported by solid Haemophilia and Specialty sales, which offset a sharp reduction in Albumin sales. The latter was caused by its transition to a new direct distribution model in China.

Seqirus sales increased 11% in constant currency terms to US$1,297 million. This was driven by a 21% lift in seasonal influenza vaccine sales during the 12 months.

Thanks to margin improvements, CSL’s earnings grew at an even quicker rate. The company’s net profit after tax came in at US$2,103 million, up 17% in constant currency terms and 9.6% on a reported basis. Earnings per share was US$4.63 per share.

This strong form led to the CSL board declaring a final dividend of US$1.07 per share, up 17% on the prior corresponding period. This lifted its full year dividend to US$2.02 per share. In Australian dollar terms this is A$2.95 per share, up 11% year on year.

Plasma collections.

There has been a lot of speculation that CSL will struggle in FY 2021 because of COVID-19 related impacts on plasma collections. This is an essential raw material used in the production of many of its therapies.

Management revealed that FY 2020 plasma collection volume was down ~5% versus FY 2019, with additional collection costs incurred.

CEO Paul Perreault commented: “The COVID-19 pandemic does, however, present a challenge for the global plasma industry. The collection of plasma has been adversely impacted in the past few months as communities respond to shelter-in-place orders, extended lockdowns and other government actions.”

“To mitigate this, we have a number of initiatives in place to sustain plasma collections. It is our view that, at some point, the pandemic will recede and, with that in mind, we continue to invest in plasma collection and manufacturing facilities as well as our hallmark research and development programs,” he added.

Outlook.

In FY 2021 the company expects continued strong demand for plasma and recombinant products. It also expects Seqirus’ product differentiation and COVID-19 to drive strong demand for influenza vaccines and for albumin sales to normalise following its transition in China.

And while plasma collections will be tough and additional costs are expected, management is forecasting another strong result.

In constant currency, subject to a number of variables, it is forecasting revenue growth of 6% to 10% and a net profit after tax of US$2,100 million to US$2,265 million. The top end of its profit guidance range represents 8% growth year on year.

More reading

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• The Starpharma share price jumps on new partnership deal

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 CSL 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.

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The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price is likely to find support today after it did what some of its peers couldn’t – pay a dividend.

The bank released its quarterly update that will stand in contrast to the one provided by Westpac Banking Corp (ASX: WBC) yesterday.

Dividend and provisioning surprise

ANZ Bank gave the green light to pay a 25 cents a share interim dividend as it unveiled a 30% increase in cash profit from continuing operations to $1.5 billion in the third quarter.

What’s more, it lowered its provision charge (a buffer it set aside to deal with the impact of COVID-19) by more than $1 billion to $500 million.

Westpac the worst of the big banks

The tone of the results could not be any different from Westpac. The bank decided to scrap its interim dividend as it lifted provisions to deal with the pandemic and posted a big quarterly loss.

Westpac’s results triggered a more than 2% drop in the WBC share price yesterday and dragged its peers lower even as the S&P/ASX 200 Index (Index:^AXJO) rallied 0.8%.

Investors were likely bracing for similar bad news from ANZ Bank today, and that’s why I think the stock will rally.

Dividend cut is good news

Nevermind that the 25-cent payment is a big cut from the 80-cent interim dividend it paid last year. Investors will still be pleased as it shows management is confident enough about its future to distribute one, and confidence is in short supply.

The interim dividend represents 46% of ANZ’s 1H20 statutory profit, well within APRA’s latest guidelines for banks to pay no more than 50% of their profit as dividends.

“We know many of our shareholders rely on dividends,” said ANZ’s chair David Gonski.

“We’ve been able to build on our strong capital position this quarter, and this has enabled us to pay a dividend that balances the needs of our shareholders with the uncertain economic environment.”

Don’t count your dividend chickens

Both Westpac and ANZ Bank were meant to declare an interim dividend when they handed in their half year results in May. But they decided to postpone the decision till this month to see how the COVID-19 crisis unfolded.

Bendigo and Adelaide Bank Ltd (ASX: BEN) is another that just reported its results and decided to kick the dividend can down the road to November to see if it can afford to pay one.

Investors will also be pleased that ANZ’s CET1 ratio stands at a reasonably healthy 11.3%. This ratio is the amount of cash the bank sets aside to cover its loan book.

More reading

• 5 things to watch on the ASX 200 on Wednesday
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• The latest 3 ASX stocks to be hit by a broker downgrade today
• Top brokers are urging investors to buy these ASX stocks today

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited and Westpac Banking. Connect with me on Twitter @brenlau.

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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The A2 Milk Company Ltd (ASX: A2M) share price will be on watch on Wednesday after the release of its highly anticipated full year results this morning.

How did a2 Milk Company perform in FY 2020?

The fresh milk and infant formula company was on form again in FY 2020 and delivered further strong top and bottom line growth.

For the 12 months ended 30 June 2020, a2 Milk Company delivered a 32.8% increase in revenue to NZ$1,730 million. This compares to its revenue guidance range of NZ$1,700 million to NZ$1,750 million.

Also coming in on target was its earnings before interest, tax, depreciation, and amortisation (EBITDA) margin. The company finished the period with an EBITDA margin of 31.7%, compared to its guidance range of 31% to 32%.

This was despite the company investing NZ$194.3 million in marketing in FY 2020 targeting opportunities in China and the USA, which was an increase of 45.1%.

It led to a2 Milk Company reporting a 32.9% increase in EBITDA to NZ$549.7 million in FY 2020.

On the bottom line, the company posted net profit after tax of NZ$385.8 million and earnings per share of 52.39 NZ cents. This represents an increase of 34.1% and 33.5%, respectively, year on year. The former is roughly in line with consensus estimate of NZ$389 million.

A2 Milk Company’s free cash flow was strong once again. It generated operating cash flow of NZ$427.4 million, which led to the company ending the period with a closing cash balance of NZ$854.2 million.

The company also had inventory worth NZ$147.3 million on hand at the end of the period. Management notes that this was higher than prior years. This reflects its growing business and its decision to carry a higher level of inventory as a safety buffer given the uncertainties of COVID-19.

What were the drivers of its growth?

The biggest generator of revenue for the company was of course its infant nutrition business. It reported a 33.8% increase in infant nutrition revenue to NZ$1,420 million in FY 2020.

This was driven by strong growth in China label infant nutrition, with sales more than doubling to NZ$337.7 million. During the year the company’s distribution network expanded to ~19.1k stores in the key market. Despite this strong growth, a2 Milk Company ended the period with just a 2% mother and baby value share in China. This was up from 1.7% at the end of the first half and 1.3% at the end of FY 2019.

Management commented: “It was pleasing to see our expanded market share in this strategically important sales channel given heightened competitive activity across 2H20 and we continued to invest in driving demand across e-commerce platforms. There has been a concerted effort throughout the year to better track and understand the effectiveness of our digital marketing tools with an increased focus on data analytics to further refine and optimise our approach. This will continue in FY21.”

Also supporting its top line growth was its USA milk business, which reported revenue growth of 91.2% after its distribution expanded to ~20.3k stores.

Outlook.

Management notes that there continues to be uncertainty resulting from COVID-19 and the potential for moderation of economic activity. It warned that this could impact consumer behaviour in its core markets.

Nevertheless, it continues to anticipate strong revenue growth in FY 2021, supported by its sustained investment in marketing and organisational capability.

However, due partly to higher raw material costs, increased marketing investment, and non-repeating foreign exchange and COVID-19 benefits, the company expects its EBITDA margin to soften slightly to between 30% and 31% in FY 2021.

Looking further ahead, the board believes this level of EBITDA margin is appropriate for the medium term.

It commented: “the Board considers it appropriate that the Company target an EBITDA margin in the order of 30% in the medium-term. This assumes the market performance and mix of our products remains broadly consistent and the competitive environment evolves as anticipated. We will keep the balance between growth and investment under constant review.”

More reading

• 5 things to watch on the ASX 200 on Wednesday
• Where to invest $20,000 into ASX shares immediately
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• How to turn $20,000 into $900,000 in 5 years with ASX shares

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. 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 a2 Milk Company share price on watch after delivering more strong growth in FY 2020 appeared first on Motley Fool Australia.

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On Tuesday the S&P/ASX 200 Index (ASX: XJO) was back on form and stormed notably higher. The benchmark index rose 0.8% to 6,123.4 points.

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

ASX 200 to edge lower.

The benchmark ASX 200 is expected to edge lower on Wednesday morning. According to the latest SPI futures, the benchmark index is poised to open the day 6 points of 0.1% lower. This follows a mixed night of trade on Wall Street which saw the Dow Jones fall 0.25%, but the S&P 500 rise 0.2% and the Nasdaq storm 0.7% higher.

A2 Milk Company FY 2020 results.

The A2 Milk Company Ltd (ASX: A2M) share price will be on watch today when it releases its full year results for FY 2020. The infant formula company has provided revenue guidance of NZ$1,700 million to NZ$1,750 million. According to CommSec, the market is expecting the company to report a net profit after tax of NZ$389 million. This will be a 35% increase on FY 2019’s net profit after tax of NZ$287.7 million.

CSL to hand in its results.

Another big result release on Wednesday comes from CSL Limited (ASX: CSL). According to CommSec, the market is expecting the biotherapeutics giant to post a net profit after tax of US$2.11 billion. However, the main focus is arguably going to be on management’s outlook for FY 2021. This is because there are concerns that COVID-related disruptions to plasma collections could weigh heavily on its performance this year.

Oil prices soften.

Energy producers such as Beach Energy Ltd (ASX: BPT) and Santos Ltd (ASX: STO) could come under pressure today after oil prices softened overnight. According to Bloomberg, the WTI crude oil price is down 0.7% to US$42.58 a barrel and the Brent crude oil price is down 0.6% to US$45.10 a barrel. This appears to have been driven by a spot of profit taking after solid gains the day before.

Gold price breaks through US$2,000 mark again.

It could be a positive day for gold miners Evolution Mining Ltd (ASX: EVN) and Resolute Mining Limited (ASX: RSG) after the gold price broke through the US$2,000 an ounce mark again. According to CNBC, the spot gold price is up 0.7% to US$2,012.30 an ounce. Weakness in the U.S. dollar and Warren Buffett’s investment in the space are supporting the precious metal.

More reading

• Where I would invest $10,000 in ASX shares right now
• These 2 exciting ASX 200 shares soared higher today
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• The latest 3 ASX stocks to be hit by a broker downgrade today

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 CSL Ltd. The Motley Fool Australia owns shares of A2 Milk. 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 5 things to watch on the ASX 200 on Wednesday appeared first on Motley Fool Australia.

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If you’re looking for some generous dividends next year, then I think you ought to consider buying the two ASX dividend shares listed below.

Here’s why I think they are well-positioned to pay generous dividends in FY 2021:

Aventus Group (ASX: AVN)

Aventus is a retail property company which owns a portfolio of 20 large format retail parks across Australia. Although the retail industry is a difficult place to be right now, I’m optimistic that Aventus will be less impacted by the pandemic than many of its peers due to its high weighting towards everyday needs. This includes leases to The Good Guys, Officeworks, Bunnings, and Aldi.

Furthermore, I believe its portfolio is well positioned for the longer term because of low vacancy rates, sustainable rents, low expenditures, and its ability to re-mix tenants. I’m expecting a distribution of at least 16 cents per unit in FY 2021. Based on the current Aventus share price, this represents a forward ~7.8% distribution yield

Dicker Data Ltd (ASX: DDR)

A second ASX dividend share I would buy for income in 2021 is Dicker Data. It is Australia’s leading locally owned and operated distributor of IT hardware, software, cloud, and Internet of Things solutions for reseller partners. It has been growing its sales, profits, and dividends at a consistently solid rate over the last few years.

Pleasingly, this positive form is continuing in FY 2020 despite the pandemic. Dicker Data recently released a first half update which revealed exceptionally strong profit growth. In light of this, management advised that it plans to lift its full year dividend by 31% to 35.5 cents per share. This represents a very attractive 4.6% fully franked dividend yield. Given its positive outlook, I expect further growth in its dividend in FY 2021. This could make it one of the best dividend shares to buy right now.

More reading

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Dicker Data Limited. The Motley Fool Australia has recommended AVENTUS RE UNIT. 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 Buy these generous ASX dividend shares for income in 2021 appeared first on Motley Fool Australia.

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If your risk profile allows you to invest in small cap ASX shares, then you might want to take a look at the ones listed below.

I believe all three of these small cap ASX shares have strong growth potential and could be well worth adding to your watchlist. Here’s why I like them:

Clover Corporation Limited (ASX: CLV)

Clover is a producer of specialist ingredients that are designed to deliver science-based benefits to the global infant children and medical food markets. It has been growing its sales at a strong rate over the last few years thanks largely to increasing demand for omega-3 oils from infant formula manufacturers. Given favourable changes to ingredient requirements in a number of key markets, I expect this positive form to continue over the coming years.

Nitro Software Ltd (ASX: NTO)

Nitro Software is a software company aiming to drive digital transformation in organisations around the world across multiple industries. Its core product offering is the Nitro Productivity Suite. It provides integrated PDF productivity and electronic signature tools to customers through a horizontal, software-as-a-service, and desktop-based software solution.

Volpara Health Technologies Ltd (ASX: VHT)

Volpara Health Technologies is a provider of software that leverages artificial intelligence imaging algorithms to assist with the early detection of breast and lung cancer. Demand for its software continues to grow at a rapid rate, leading to stellar market share gains and recurring revenue growth. Given the quality and stickiness of its software and management’s aim of generating higher and higher revenues per user, I believe it is well-positioned for growth over the next decade.

More reading

• Investors wanting safe income should own these 3 ASX shares
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• These small cap ASX healthcare shares could be destined for big things
• Volpara share price on watch as strategy update announced
• 3 exciting small cap ASX shares to put on your watchlist immediately

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 Clover Limited and VOLPARA FPO NZ. The Motley Fool Australia has recommended Nitro Software Limited and VOLPARA FPO NZ. 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 you should add these small cap ASX shares to your watchlists appeared first on Motley Fool Australia.

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I think that ASX shares are a great way for beginner investors to build their wealth.

Don’t go thinking that you’re going to double your money in a few weeks. That’s not how normal investing works. The long-term average returns of shares has been around 10% per annum. If you manage to beat that then I think you’re doing well.

One of the main things I’d suggest for beginner investors is that you could look for diversified investment options away from the ASX. Sadly, many of the businesses that feature heavily on the ASX, like the big banks, don’t have much long-term growth potential in my opinion.

So that’s why I’d suggest buying these ASX shares for a beginner’s portfolio:

BetaShares Global Quality Leaders ETF (ASX: QLTY)

Here’s an explainer about exchange-traded funds (ETFs). You can buy a fund on the ASX, giving you exposure to lots of businesses in a single investment.

There are lots of different types of ETFs. But I only think it’s worth investing in an ETF which has good underlying holdings. An ETF will only perform as well as its investments.

The ETF I’ve named doesn’t invest in ASX shares, it invests in quality global businesses that rank well on four key attributes: return on equity (ROE), debt to capital, cash flow generation ability and earnings stability.

What that means is that the ETF is aiming for specific types of businesses that are highly profitable for how much money the shareholders have had to contribute, those businesses have healthy levels of debt, that they’re generating real cash profit (not just from accounting tricks) and that the earnings are generally reliable year to year.

So what shares count as quality? Nvidia, Apple, Accenture, Adobe, Facebook, Intuitive Surgical, Nike and Intuit are some of the biggest names featured.

The ETF has performed strongly in its short life – since inception in November 2018 it has returned an average of 18.8% per annum.

Clearly the stocks in this ASX share’s portfolio can produce strong returns. It’s invested heavily in the technology sector – around a third of the ETF is made up of IT businesses. Another 26.5% is allocated to healthcare shares. Healthcare shares are very defensive.

The ETF has an annual management fee of just 0.35%, which is cheap compared to active managers. The lower the fees the higher the net returns for investors.

Future Generation Global Invstmnt Co Ltd (ASX: FGG)

Future Generation Global is an ASX share that operates as a listed investment company (LIC). The job of a LIC is to invest in other shares on your behalf.

This LIC is quite different to most other LICs. It actually invests into the funds of Australian fund managers who invest in global shares. The special thing is that there are no management fees or performance fees involved with the LIC. All of the fund managers work for free so that the ASX share can donate 1% of its net assets per annum to youth mental health. Mental health support is particularly important during these difficult times.

Future Generation Global’s portfolio has produced impressive returns. The gross portfolio return has outperformed the MSCI AC World Index (AUD) over the past month, six months, twelve months, three years and since inception in September 2015.

Over the past six months, Future Generation Global’s return has outperformed by 5% and over the past year it has outperformed by 4.8%.

Some of the largest fund management allocations include 12.4% to Magellan Financial Group Ltd (ASX: MFG), 11% to Cooper Investors and 9.9% to Caledonia.

I think it’s a particularly good time to invest today because Future Generation Global’s pre-tax net tangible assets (NTA) was $1.505 at 31 July 2020. That means at the current Future Generation Global share price it’s trading at a 15% discount to the NTA. You can buy $1 of assets of the ASX share for $0.85. Not bad at all, considering Future Generation Global has shown long-term outperformance.

Foolish takeaway

I think both of these ASX shares would be great options for beginner investors. I think they can outperform the ASX’s overall return. At the current prices I would probably go for the Future Generation Global LIC because of the large NTA discount, but the quality ETF is likely to keep doing well too.

More reading

• Future Generation LICs grow dividends in June result
• 3 ASX shares I’d buy to quickly add diversification

The post Here are 2 ASX shares perfect for a beginner appeared first on Motley Fool Australia.

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