Are blue chip companies really safe havens?

20 July 2010

Investors shouldn't be lured into thinking that blue chip companies are safe havens just because of their reputation for being robust during turbulent times.

For example, when Sir Terry Leahy, Tesco's chief executive of nearly 14 years, recently gave notice of his shock departure, Tesco shares instantly went down by nearly 3% – showing how sensitive share prices can be.

A similar situation arose at Marks & Spencer, when Stuart Rose announced he was stepping down.

Rebecca O'Keefe, head of investments at broker Interactive Investor, says: "Investors are often faced with significant changes affecting stocks they own, and blue chip stocks face these challenges too."

But she warns against a knee-jerk reaction: "Explore whether such changes affect your rationale for owning the stock. If it has, then certainly try and pick your exit timing. If not, stay invested."

While large caps aren't immune to changes, they still offer the best way to weather turbulent markets, according to experts.

Despite a 12.7% fall in the FTSE 100 since mid-April (as at mid-June), analysts from fund manager Sarasin & Partners continue to favour blue chips.

They say large cap companies with solid balance sheets and a widely accepted product or service base won't suffer from the impending belt-tightening by governments and consumers.

An additional benefit of investing in such companies – or in funds that hold them – is they tend to provide exposure to consumer trends in emerging markets.

Peter Kirkman, manager of JPM Global Consumer Trends fund, says: "As emerging markets continue to see an increasing trend towards higher living standards and urbanisation, their consumption patterns are changing.

"Western brands are benefiting greatly from this because they have already established business models and distribution channels."

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