For the last 10 years to 8 June 2016, the S&P/ASX 100 has returned just 1.1 per cent per annum. Why has a portfolio of so called ‘blue chip’ companies delivered such poor returns? Putting aside the individual industry themes that might currently be impacting banks, resource companies and supermarkets, there is a simple arithmetic reason that many large companies are failing to grow the wealth of their shareholders.
Most of the large cap companies in Australia are mature businesses, and investors have their equity portfolio’s heavily skewed to the largest companies. In this paper Roger Montgomery reviews the economics of the top 10 largest companies listed on the ASX.
Roger Montgomery comments “A portfolio of conventional blue chips, many that dominate the major Australian stock market indices, will only ever provide investors with mediocre long-term returns unless they speculate successfully on an expansion of the price to earnings ratio.”
