Yesterday we posted out a quick note to clients. One of the matters covered in the note was the performance of 5 investor favourite companies - the big 4 banks and Telstra. We thought that readers of our blog may also be interested in the analysis so here it is.
Amongst the most broadly held companies are the 'big 4' banks and Telstra; Telstra because of their 3 floats and the big 4 banks because of their reputation as reliable, dividend paying companies.
However, recent returns from all 5 of these companies have been poor. Over the past 5 years all 5 of these typical 'investors friends' have underperformed the market. The following link to a graph of all of these widely held companies compared against the index return - 5 Year Price Movement Chart - 4 Banks & Telstra. The red line that finishes on top of the others is the return from the index. The other returns are colour coded. This only looks at the price movements of the companies and the overall index. It is true that all five of the companies would have paid dividends slightly higher than the market average, although over 5 years this would have been a difference of only 5% or so - still leaving the companies underperforming the overall market. (the closest company to the average market return is Commonwealth Bank - lagging by about 30% over the 5 year).
The reason for this underperformance is pretty simply - BHP. It is the largest company in the index and has returned more than twice the return of the average market. Being the largest company in the index it has pushed overall market returns along (together with other resource stocks such as Rio Tinto).