Many SMSF or mum and dad type private investors prefer to buy shares in the biggest companies on the ASX as there’s a popular belief that a bigger company offers more security, with less risk that its share price will fall substantially.
So let’s take a look at how the ASX’s top 10 shares by market capitalisation performed over 2018 to see if bigger businesses really do offer more secure returns compared to the market’s return of -7.6% over the past year.
All data accurate over past year according to Market Index.com, with returns not adjusted for any dividends paid.
The Commonwealth Bank of Australia (ASX: CBA) share price is down 10.1% as investors hit the sell button due to the fallout from the Royal Commission and falling house prices in Sydney and Melbourne.
The BHP Group Ltd (ASX: BHP) share price is up 10% as investors enjoy an upcoming special dividend of around A$1.40 per share and the benefits of a share buy-back after BHP sold its onshore US shale assets for more than US$10.4 billion. While the BHP share price is up over the past year, over the past 10 years it’s gone sideways while debt has grown.
The Westpac Banking Corp (ASX: WBC) share price is down 19.5% in a poor result for its many retail shareholders. Worse news is that the share price falls may not be finished if rising regulatory costs and slowing credit growth take their toll on the banks’ bottom lines.
The CSL Limited (ASX: CSL) share price is up 33% as it produces double-digit profit growth and retains a bright outlook.
The ANZ Bank (ASX: ANZ) share price is down 15% and facing the same generic problems as other banks like Westpac.
The NAB (ASX: NAB) share price is down 19% and could also have another tough year.
The Woolworths Group Ltd (ASX: WOW) share price is up 8.2% in a decent result as investors warm to its return to same-store sales growth.
The Macquarie Group Ltd (ASX: MQG) share price is up 9.6% with the bank forecasting profit growth around 15% in its financial year to March 31 2019. This is an impressive result given the backdrop of a Royal Commission and bank tax, which shows the benefits of Macquarie’s overseas exposure.
The Wesfarmers Ltd (ASX: WES) share price is up 1.5% (adjusting for the Coles spin-off) and this investment conglomerate has a strong long-term track record.
The Telstra Corporation Ltd (ASX: TLS) share price is down 21% in a poor return after the business slashed its dividend payout by 30% with many professional analysts expecting another dividend cut ahead. This would likely be further bad news, especially if any dividend cut is worse than expected.
As can be seen 5 of the top 10 companies in 2018 delivered negative returns, with the only compensation for investors being the healthy dividends paid by all of these companies.
One key lesson for investors is that bigger doesn’t always equal better, with Telstra’s poor returns and 30% dividend cut a good example of how just relying on big businesses can seriously hurt your wealth via big share price falls in short periods.
The poor returns from the banks have also probably hurt many investors in 2018, although over the longer term their secure competitive positions and business models are likely to lead to reasonable returns.
You can find Tom on Twitter @tommyr345
The Motley Fool Australia owns shares of and has recommended Telstra Limited and Wesfarmers Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. 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.