The large cap companies space
If you're like many investors, you're likely to have invested in large-cap stocks. Large caps are a popular choice because they're generally seen as a stable investment with reduced risk and consistent returns over time.
A large-cap company is defined as having a market capitalisation of more than USD 10 billion. Large caps tend to be in established industries and are seen as dominant players in their field.
On top of this, large-cap share prices are likely to be steadier than many mid and small caps. But if you invest in these companies, you're unlikely to see short-term gains. Investing in large caps is often part of a long-term strategy. The main appeal is that they usually pay regular dividends.
5 unique advantages of investing in large-cap stocks
Being large in size offers the investor a more stable investment opportunity than directing funds into small or mid-caps.
Because large caps are well-established, they're far less likely to go out of business, so they're not considered a risky investment.
Steady dividend payments to shareholders can quickly add up, providing impressive returns.
Large caps are completely transparent in their reporting, so you can easily make an informed decision from the wealth of information available to you.
Many large caps are also blue-chip stocks, which are considered the cream of the crop. Blue chips represent well-known, diversified businesses, which makes them less vulnerable to market changes.
What to look for in a large-cap company
Large caps have proven their performance in good times and bad, so they're generally considered a high-quality and reliable investment.
However, if you're thinking of investing in a large-cap, it's just as important to focus on the quality of a company as it is with small and mid-cap stocks. That's why we always choose managers with a strong emphasis on the following:
A global brand
An industry leader
A strong balance sheet
Distribution of dividends
Steady growth
Large-cap companies add diversification.
Most investors understand that diversifying your portfolio through an asset allocation will balance out risks and rewards. That's why investing in large-cap stocks is very common among both growth and value investors because they're seen as a mature investment.
Some fund managers concentrate investments in large-cap companies, holding a small number of stocks in which they have high conviction. Others are broad in their approach, keeping a more significant number of stocks and diversifying funds across countries such as the US, the UK and Canada, regions like Europe and Eastern Europe, and continents including Asia and Australia.
You'll be familiar with the top global large caps such as Apple, Johnson and Johnson, Amazon and Toyota, while Australian large caps include:
The big four banks
Woolworths and Coles
Telstra and Optus
Buy Now Pay Later (BNPL) platform Afterpay
Real estate player realestate.com
Fast Moving Consumer Goods (FMCG) companies like Fisher and Paykel
QBE Insurance Group
The global large-cap companies' opportunity
You'll often find that investors opt for large-cap stocks because of the familiarity of big names and industries and the associated perception of lower risk. In fact, you'll often find that many investors flock to large caps during a contraction. That doesn't mean the stocks are untouchable in a recession, but they're definitely more likely to handle a downturn.
Investing in large-cap companies is a steady and long-term option. However, you won't get the same kind of returns as you would with a riskier investment. And you should be prepared for returns to lag when the economy is on the rise and there's a bull market swing.
That said, it can be rewarding to invest in large caps if you're looking for a reliable investment and the possibility of a passive income stream. But be aware that dividends are a way of compensating investors for slow increases in share prices.
We always look to include big caps in our investment portfolios. But we'll always take our time to research a suitable manager before determining an appropriate asset allocation.
You can rely on us to carefully monitor the performance of our managers as part of our rigorous review process.