Small investors holding the popular stocks have done better than the Australian sharemarket overall in the past 12 months, but it may be time to diversify holdings.
While share prices, including dividends, are almost 8 per cent higher for the year to October 31, as measured by the All Ordinaries Accumulation Index, most small shareholders have done much better than that. An equally weighted portfolio of the nine popular stocks favoured by small investors - Telstra, Commonwealth Bank, Woolworths, Qantas, AMP, Tabcorp, Suncorp, IAG and Wesfarmers - produced a total return of almost 13 per cent.
The "mum and dad" stocks include those listed in the 1990s when mutuals, such as AMP, were privatised and government-owned businesses, such as the Commonwealth Bank, were sold.
The standout performers are Telstra, which produced a total return including dividends of 35.6 per cent over the past year for its 1.4 million shareholders, and insurer IAG, which produced a total return of almost 46 per cent.
The chief economist at CommSec, Craig James, says of the nine most popular stocks, all outperformed or were in line with the market, except for Qantas, which produced a total return of minus 17.5 per cent, and Tabcorp, which returned minus 3.4 per cent.
The everyday investors were helped by not generally holding BHP Billiton or Rio Tinto in their portfolios. The total return for BHP is down more than 9 per cent for the year and Rio Tinto is down almost 18 per cent. Analysis by CommSec shows if BHP Billiton and Rio Tinto are added to the nine-stock mum and dad portfolio, the total return falls to just under 4 per cent for the past year.
Some of the popular stocks have been doing well because they pay good dividends and have good market shares: for example, Telstra, Wesfarmers and Woolworths. Qantas is challenged by competition on international routes.
Tabcorp, the gaming and wagering company, is regarded as a growth play. It is not going to do so well when investors prefer to buy shares in companies with high degrees of earnings and dividends certainty.
Although investors have done well from holding the more defensive stocks, James says small investors should always be looking to the longer term. A one- or two-year time frame is too short a period for share investors to assess their portfolios' performance. The big miners have not done well, but perhaps the worst is over in terms of commodity price falls, James says. And the export volumes for miners will continue to rise with greater demand from China.
Small investors' portfolios should have some stocks that have reliable earnings and pay good dividends, with some growth stocks, such as BHP Billiton and Rio Tinto, to help kick along performance once global economic growth picks up, he says.
Frequently Asked Questions about this Article…
How did small investors’ favourite ASX stocks perform versus the wider market over the past 12 months?
Over the year to October 31 the All Ordinaries Accumulation Index was almost 8% higher (including dividends), while an equally weighted portfolio of nine popular 'mum and dad' stocks returned almost 13% in total, outperforming the market.
Which popular 'mum and dad' stocks were the best performers last year?
The standout performers were Telstra, which delivered a total return of 35.6% for its 1.4 million shareholders, and insurer IAG, which returned almost 46% over the past year.
Which popular stocks underperformed and what contributed to their weakness?
Qantas underperformed with a total return of -17.5% and Tabcorp returned -3.4%. The article notes Qantas is challenged by competition on international routes, while Tabcorp—seen as a growth play—struggles when investors favour companies with more certain earnings and dividends.
Why did everyday investors generally do better than the market?
Everyday investors were helped by not generally holding big miners such as BHP Billiton and Rio Tinto. Those miners fell sharply (BHP down more than 9% and Rio Tinto down almost 18%), and adding them to the nine-stock portfolio would have cut the total return to just under 4% for the year.
Should small investors add miners like BHP and Rio Tinto to their portfolios now?
The article suggests balance: CommSec’s chief economist says small investors should include some growth stocks such as BHP and Rio Tinto to boost performance once global growth picks up. Although the big miners have not done well recently, he notes the worst of commodity price falls may be over and export volumes could rise with stronger demand from China.
How important are dividends and market share in these popular stocks’ performance?
Dividends and strong market positions helped many popular stocks perform well. The article points to Telstra, Wesfarmers and Woolworths as examples of companies that benefited from reliable earnings, good dividends and solid market shares.
What timeframe should small investors use to assess their share portfolios?
A one- or two-year timeframe is too short, according to CommSec’s chief economist. Small investors should focus on the longer term when assessing portfolio performance.
How should small investors diversify their portfolios according to the article?
The article recommends a mix of stocks with reliable earnings and good dividend payouts alongside some growth stocks. That combination can provide defensive income now while positioning the portfolio to improve when global economic growth and commodity demand recover.
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