Experts say investors should avoid these blue chip shares

It has been a reasonably disappointing year so far for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO). Year to date the benchmark index has gained just a paltry 2.5%.

By comparison the S&P/ASX SMALL ORDINARIES (Index: ^AXSO) (ASX: XSO) has gained a solid 10.5%. It would appear as though small caps have been the place to be invested in 2016, rather than the traditional blue chips.

Despite this underperformance a panel of five experts clearly aren’t expecting the S&P/ASX 200 to play catch up any time soon.

Roger Montgomery, Marcus Padley, Angus Nicholson, Julian Beaumont, and Brigette Leckie were all asked by the Fairfax media to nominate the companies which they felt were most likely to underperform. Large cap shares dominated the picks.

As you might have predicted 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) were a popular choice.

Koda Capital’s Brigette Leckie believes the banks face “weaker earnings, reduced return on equity and lower dividends.” Whilst it is hard to argue against this, I do feel ANZ and Westpac would still be reasonably good picks for income investors today.

It has been a tough 12 months for ANZ in particular, but I feel it has emerged from its troubles as a much stronger bank. As a result I feel the bank will be able to grow its dividend over the next few years.

Another popular choice was Telstra Corporation Ltd (ASX: TLS). Although I do agree that Telstra’s growth looks challenged, I personally believe that its expansion into Asia and the healthcare sector will allow it to at least grow earnings in the low-to-mid single digits.

IG’s Angus Nicholson was one of the experts that picked Telstra. He also picked out AGL Energy Ltd (ASX: AGL). Once again, I wouldn’t expect above-average earnings growth from the energy company, but I expect it to be able to grow at a similar rate to Telstra.

With the company’s new dividend policy underway, this should provide income investors with generous and growing dividends moving forward.

Finally Julian Beaumont from Bennelong picked out AMP Limited (ASX: AMP) and QBE Insurance Group Ltd (ASX: QBE). He believes both companies are struggling to find business momentum and I would have to agree.

Whilst both companies may get things right eventually, I think investors would be better served looking at an investment in Suncorp Group Ltd (ASX: SUN) instead. Its relatively cheap price and strong fully franked dividend make it a standout pick in my eyes.

Overall, although the majority of large caps are underperforming this year, I believe if you choose wisely, you’ll do just fine.

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Motley Fool contributor James Mickleboro has no position in any 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 Bruce Jackson.

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