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.