Over the past year and three years, the S&P/ASX 20 (Index: ^AXTL) (ASX: XTL) has underperformed the wider S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), despite the top 20 stocks comprising ~60% of the index.

In the past 12 months, the Top 20 index has dropped 10.7%, compared to the ASX 200’s fall of 8%. Over five years, the Top 20 is up just over 10%, while the broader index is up more than 13%.

That’s mainly due to falls in the big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) and the miners BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: BHP).

ANZ and NAB, in particular, have seen their share prices plunge 23% and 19% respectively over the past year, with concerns that these two banks are most at risk of earnings downgrades and cuts to their dividends.

BHP and Rio are down 33% and 23% respectively over the same period, as the iron ore price and other commodities tumbled.

An opportunity?

But State Street Global Advisors thinks the Top 20 are starting to look more attractive. Analyst Olivia Engel has told the Australian Financial Review (AFR) that State Street is not willing to give up on the Top 20 just yet, and “some of the names should still have a place in your portfolio”.

Ms Engel also notes that on forward price to earnings ratios, the top 20 were now cheaper than the rest of the market. Additionally, the analyst notes that there are some very attractive names in the Top 20, with decent valuations, are stable cash-generative, mature businesses with relatively low volatility. “This doesn’t sound too bad when they can be picked up at reasonable valuations”, she says.

Indeed, other analysts have similar views, with Pengana Capital’s Tim Schroeders noting that both BHP and RIO were looking ‘reasonable value’.

The Top 20 includes the big four banks, Telstra Corporation Ltd (ASX: TLS), BHP, CSL Limited (ASX: CSL), Wesfarmers Ltd (ASX: WES), Woolworths Limited (ASX: WOW), Scentre Group (ASX: SCG), Macquarie Group Limited (ASX: MQG), Transurban Group (ASX: TCL), Woodside Petroleum Limited (ASX: WPL), Westfield Corporation (ASX: WFD), Brambles Limited (ASX: BXB), Rio, QBE Insurance Group Ltd (ASX: QBE), AMP Limited (ASX: AMP), Suncorp Group Limited (ASX: SUN) and Insurance Australia Group Limited (ASX: IAG).

Foolish takeaway

Some companies in the top 20 may well be reasonable value today, but the reasons for their relative ‘cheapness’ may well have to do with the very real risks those companies face. There are certain other shares that look much better value.

 

Why these 5 dividend shares are better bets than the banks

Discover The Motley Fool's top 5 ASX dividend stock ideas for 2016 to get you started building a more diversified income portfolio that is paying you back!

The report is free! No credit card required.

HOT OFF THE PRESSES: Motley Fool’s #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our https://www.fool.com.au/financial-services-guide">Financial Services Guide (FSG) for more information.

Motley Fool writer/analyst Mike King owns shares in CSL, Telstra, Woolworths and Wesfarmers. You can follow Mike on Twitter @TMFKinga

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 Bruce Jackson.