Are ASX blue-chip shares actually safe investments?

Are these true blue ASX companies the most reliable stocks?

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ASX blue-chip shares have a reputation for being goliaths of their industry. But does being bigger mean better in recessions and bear markets?

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What ASX blue-chip shares are there?

There is no definitive definition of how big an ASX blue chip should be. But, we're certainly talking about many tens of billions of dollars in terms of market capitalisation.

ASX mining and financial shares are the two biggest market sectors on the ASX. Retail shares also make up a sizeable portion.

Some of the biggest miners include BHP Group Ltd (ASX: BHP), Fortescue Ltd (ASX: FMG) and Rio Tinto Ltd (ASX: RIO).

Financial blue chips include the big four banks — Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ) — and Macquarie Group Ltd (ASX: MQG).

Big names in the retail, health care and energy sectors include CSL Ltd (ASX: CSL), Wesfarmers Ltd (ASX: WES), Woodside Energy Group Ltd (ASX: WDS), Goodman Group (ASX: GMG), Telstra Group Ltd (ASX: TLS), Woolworths Group Ltd (ASX: WOW) and Transurban Group (ASX: TCL).

According to the ASX, the miner BHP has a market capitalisation of $237 billion, and Transurban has a market capitalisation of just over $40 billion.

Some risks

These blue-chip stocks may be huge, but they are not immune to large swings in their share prices.

We've got to expect share price volatility because current events are always popping up, which can be worrying. If people sell during widespread market volatility, it results in a permanent loss from temporary volatility.

When the related commodity price falls, names like BHP, Fortescue, Rio Tinto and Woodside can suffer heavily.

Just because they're large doesn't mean they're not susceptible to challenges. For example, CSL is facing an increasing amount of competition from other biotechnology businesses. Banking competition sent the share prices of the banks downwards in February last year. Worries about household finances can hurt banks and retailers.

Why ASX blue-chip shares can provide stability

There is typically more liquidity with ASX blue-chip shares. This means more shares being sold and bought, making it easier for investors to buy and sell shares at close to the last market price.

Blue chips are the biggest companies in their industries, so they are likely to have the strongest balance sheet and the most well-known brands. Combined with the liquidity benefits, that usually means ASX blue-chip shares fall less in bear markets compared to smaller businesses on the ASX (particularly smaller competition).

The strongest balance sheets of ASX blue-chip shares can also mean larger companies are able to acquire distressed, smaller competition. During the GFC, the big banks acquired smaller banks, helping entrench their position.

Many of these businesses have been around for many decades. I think there's a good chance they will continue for many more years. In my mind, a large decline in share prices across the board is often the best time to think about investing.

Motley Fool contributor Tristan Harrison has positions in Fortescue. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, Goodman Group, Macquarie Group, Transurban Group, and Wesfarmers. The Motley Fool Australia has positions in and has recommended Macquarie Group, Telstra Group, and Wesfarmers. The Motley Fool Australia has recommended CSL and Goodman Group. 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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