The FTSE 100 index of leading shares is up 54% in the last 10 years. By comparison the FTSE 250 mid cap index has enjoyed gains of 160%.
On the face of it those numbers might put you off investing in a mega cap like HSBC (LSE: HSBA) (NYSE: HSBC.US). I’m sure you’ve had a number of blue-chip companies in your portfolio and have often wondered: when will I make more than a pittance from this investment?
Or even worse: when am I going to get my money back?!
It’s can pay, however, to follow a multi-cap strategy. I’ll tell you why.
Market rally
Since mid April the FTSE 100 has rallied from around 6,540 points to 6,826 points. HSBC, however, has lagged the wider market’s gains, falling by half a percentage point.
The shares trade at reasonable 11 times earnings, and for that you get a business with a number of attractive qualities, not least exposure to rapidly-growing emerging markets.
In recent years a whole host of blue-chip companies have set their sights on Asia and elsewhere in the hope of touching upon extrastellar growth. When it comes to investors, however, these markets are highly sentiment driven.
HSBC has been among the companies in the firing line as the goodwill dried up. Instead, developed markets have enjoyed strong inflows as economies have strengthened in Europe — including the UK — and the US.
A dividend kingpin
The Chinese economy expanded 7.4% in the first quarter of 2014, against 7.7% growth in the final quarter of last year. Analysts will hope that the Chinese economy has finally bottomed out, and while there are challenges, we should see sustainable long-term growth as the private sector assumes a greater role and the country creates well-paying new jobs.
Asia-focused HSBC, in that case, could be a value opportunity.
At the top of the article I mentioned how the FTSE 250’s gains have outpaced the blue-chip FTSE 100 index. What I neglected to mention was that FTSE 100 companies presently pay over a third extra in dividends than their smaller cap brethren.
HSBC is one of the top dividend payers around. While HSBC isn’t as cheap as some other UK banks — Lloyds and Barclays trade at less than 10 times 2015 earnings — its forward 5.7% yield is unsurpassed, and HSBC was the only UK bank to pay a final dividend in 2008 in cash.
We’re in a bull market, and have been since 2009. But in the event of a market crash, mega caps like HSBC have traditionally outperformed.
