ASX blue chips have attracted investors for decades. But are they even worth investing in these days?
What’s going on with ASX blue chips?
Everyone knows that COVID-19 is going on at the moment. In the global share market it’s the technology sector that has recovered strongly.
But the ASX doesn’t really have any technology giants. Let’s look at some of the biggest businesses on the ASX:
There are financial businesses: Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ) and Macquarie Group Ltd (ASX: MQG).
Resource businesses are a feature too: BHP Group Ltd (ASX: BHP), Newcrest Mining Limited (ASX: NCM), Rio Tinto Limited (ASX: RIO), Woodside Petroleum Limited (ASX: WPL) and Fortescue Metals Group Limited (ASX: FMG).
There’s insurance representation with Insurance Australia Group Ltd (ASX: IAG) and Suncorp Group Ltd (ASX: SUN). The other big ASX shares are: Aristocrat Leisure Limited (ASX: ALL), Brambles Limited (ASX: BXB), CSL Limited (ASX: CSL), Goodman Group (ASX: GMG), Scentre Group (ASX: SCG), Transurban Group (ASX: TCL), Telstra Corporation Ltd (ASX: TLS), Wesfarmers Ltd (ASX: WES) and Woolworths Group Ltd (ASX: WOW).
Many of the businesses that I’ve named are facing economic difficulties. The miners are holding up quite well but they’re probably at their peak.
CSL, Goodman and Wesfarmers are probably the only three in my mind that have a clear path to solid growth. A couple of others – like Aristocrat Leisure – may return to growth once COVID-19 fades into history. Brambles could be one that keeps growing quite well but I’m not sure.
Look to other ASX shares
Over the longer term I can’t see many of the ASX blue chips generating market-beating growth, or compound returns of 10% (or more).
When you look a bit further down the market capitalisation list I think you see ASX shares with better growth opportunities. Businesses like A2 Milk Company Ltd (ASX: A2M), Pushpay Holdings Ltd (ASX: PPH), Magellan Financial Group Ltd (ASX: MFG), Premier Investments Limited (ASX: PMV) and Pro Medicus Ltd (ASX: PME) are the ones that are continuing to grow.
Smaller businesses have much better growth potential over the long term. All of the shares I’ve mentioned have exposure to international earnings. Whereas ASX blue chips are largely focused on Australia (and New Zealand).
I don’t think investors are necessarily are going to get ‘safer’ returns by choosing blue chips. Just look at where the share prices of the big ASX banks are compared to their February 2020 highs. Dividends are not guaranteed either. The board of a company are going to be guided by the direction of their company’s earnings.
Over the coming years I’d much rather fill my portfolio with shares that are outside of the ASX 50 than focused on the ASX blue chips. There are plenty of ASX growth shares and ASX dividend shares that could deliver better longer-term returns than ASX 20 shares.
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