Most of 2019 has been dominated by hot ASX growth stocks like Afterpay Touch Group Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P). In fact, over the last 2 to 3 years, it’s growth stocks that have been giving investors more bang for their buck. Growth-orientated fund managers like Magellan Financial Group Ltd (ASX: MFG) have been dominating the return tables – at the expense of value-focused funds like Platinum Asset Management Ltd (ASX: PTM).
But according to reporting from the Australian Financial Review (AFR), the tables seem to have turned over the past few months.
Lower interest rates and lower risk tolerance from investors has seen blue-chips like Commonwealth Bank of Australia (ASX: CBA), Wesfarmers Ltd (ASX: WES) and Transurban Group (ASX: TCL) quietly climb throughout 2019 as investors seek safety and yield.
Take something like Coles Group Ltd (ASX: COL). Coles only hit the markets in November last year – floating at a price of $12.49. Fast forward to today, and COL shares are asking $15.68 – a difference of over 25%. Coles’ growth prospects have slightly improved since the demerger, but I wouldn’t say the intrinsic value of this business has risen by a quarter. More likely is that yield-hungry investors are flocking to ‘safer’ shares like Coles.
Why are blue-chips feeling the love?
With interest rates at record lows, we are all investing in uncertain times. The AFR reporting places the appeal of blue-chips to a feeling of safety in the companies we know, but the tendency of the large ASX companies to pay generous fully franked dividend yields is also a likely contributor (in my opinion). With other assets like bonds and cash offering little real returns these days, ‘safe’ blue-chips are many investors’ next best choice.
There is a lot to like about many of the highest-quality dividend shares, even at the higher prices we’ve been seeing. I understand why investors are choosing to buy Transurban or Sydney Airport Holdings Pty. Ltd (ASX: SYD) over a term deposit or bond – it’s a rock/hard place type situation.
5 stocks under $5
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Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Transurban Group. The Motley Fool Australia owns shares of Wesfarmers 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.
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