If you take the time to look at many portfolios run by fund managers you'll notice that their largest positions are often familiar names such as Commonwealth Bank of Australia (ASX: CBA) and BHP Billiton Limited (ASX: BHP).
There's no coincidence that these large blue-chip stocks form the foundations of so many portfolios.
While there are a multitude of explanations, perhaps the biggest factor in this top heavy concentration in a few names is that many fund managers "hug" the index. Given the influence and weighting a small handful of blue-chips have, it's not surprising they show up as the largest positions in many funds.
For individual investors, while they may not actively consider their portfolios' exposure relative to an index they do regularly choose to own blue-chip stocks which in general have a more certain earnings profile, a defensive market position, are dividend paying and offer less risk of permanent capital loss.
In the current low interest rate environment, there has been a particularly heavy demand for solid dividend-paying stocks. This has led investors to clamour for shares in all of the major banks and of course "dividend darling" Telstra Corporation Ltd (ASX: TLS).
For investors looking to hold bank shares which one might be best to own today?
While just a few months ago I would have said National Australia Bank Ltd (ASX: NAB). Given share price movements, today I'd suggest Australia and New Zealand Banking Group (ASX: ANZ). In the past three months, while the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has slipped 5.3%, NAB has fallen 7% but ANZ has slumped a whopping 14%.
Given the similarities amongst the 'Big Four' banks, relative valuation has its place. Based on forecast data from Morningstar, ANZ is currently trading on a two-year forward price-to-earnings ratio of 10.4 times and with a fully franked dividend yield of 6.7% which gives ANZ the most appealing metrics relative to its three major peers.
