‘Sure things' for the future

Investors’ favourite Aussie blue-chip companies are having trouble living up to their name

- DAVID THORNTON

Blue-chip stocks have long been viewed as a sure bet for investors wanting to play it safe in the sharemarket. But as the economic impacts of Covid-19 reverberate through global sharemarkets, do blue chips still qualify as a safe investment?

For a label that’s bandied about as much as any other in the investing world, “blue chip” is without a common definition. As Jamie Nicol, chief investment officer and director at DNR Capital, points out, “the definition of ‘blue-chip’ can be in the eye of the beholder”.

The term is derived from the game of poker, where the blue chips are traditionally the most valuable. For investors, it usually means companies that are best in class.

“The term in investment parlance conjures up characteristics such as being a market leader, immune to economic cycles, financially secure with a long track record of success,” says Max Cappetta, chief executive at Redpoint Investment Management.

Jun Bei Liu, portfolio manager at Tribeca Investment Partners, believes blue-chip stocks exhibit enduring business models and competitive advantages. “Their earnings growth will be supported by structural and cyclical drivers, and will be run by an astute management team with a consistent track record in execution and delivering strong cash flows,” she says.

But the Australian definition of a blue-chip company goes a step further, with added importance given to a company’s brand heritage.

Hamish Tadgell, portfolio manager at SG Hiscock, says the Australian notion of a blue-chip stock draws undue attention away from the more important features that should define them.