Getting diversification right for your ASX portfolio is one of the best ways to deliver strong returns. Diversification can mean spreading your investments across industries and geographies.
It's a good idea to expand your portfolio into companies that operate in different industries. If you invest like everyone else, then you'll get similar results.
Here are two ASX shares that I think would help diversify a portfolio:
BetaShares NASDAQ 100 ETF (ASX: NDQ)
Many of the best businesses in the world are not found on the ASX. A lot of them are actually found on the US-based NASDAQ. I'm talking about shares like Microsoft, Alphabet, Facebook, Amazon and so on.
The ASX is lacking in mega-cap technology shares, so it would be a good idea to get exposure to the US ones. Sure, there are some international exchange-traded funds (ETFs) that can give you exposure to the FAANG shares, but this ETF gives bigger exposure – it's invested in 100 of the biggest shares on the NASDAQ rather than 500 US shares or thousands of international shares.
There are new areas of growth that each of the tech shares are looking at which could continue to drive returns higher. For example, Alphabet is looking at automated cars, Facebook is looking at virtual reality, Microsoft is working on artificial intelligence and so on.
Despite their strong performances, I think it would be a mistake to miss out on their future returns and new services.
Webjet Limited (ASX: WEB)
The Webjet share price has gone up 36% over the past three months but I think 2020 could continue to be strong for the travel company. B2B division WebBeds is a fast-growth business which could send profit flying higher in the coming years.
In the FY20 half-year result the company is expecting underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of at least $80 million, which excludes one-off revenues & costs and the impact of AASB16. This would be growth of more than 37%.
For the full FY20 result underlying EBITDA is expected to grow organically by between 16% to 23% with total growth of 26% to 34%. Underlying EBITDA is expected to come in between $157 million to $167 million.
Not many ASX businesses are growing as quickly as Webjet is. It looks pretty cheap at just 16x FY21's estimated earnings. The view of private equity is that it's cheap too, there is speculation that a takeover offer may come in soon if the share price stays around this level.
Foolish takeaway
At the current prices I'm much more drawn to Webjet. Even at 20x FY21's estimated earnings I think Webjet would be a good price, so that would be the one I'd pick to diversify my portfolio today and hopefully beat the market.
