UK large-cap, or large-capitalisation, stocks are some of the most common in investors’ portfolios. These are the largest companies on the stock market by market capitalisation.
Large-cap shares are named as such because they’re the largest among other market capitalisation categories, such as:
- Mid-cap
- Small-cap
- Micro-cap
They are also sometimes referred to as big cap or blue-chip stocks, in reference to the high-value chips used when playing poker.
But are they good investment options for you? Let’s break it down.
What are large-cap stocks?
For a stock to be considered “large cap”, the underlying company needs to have a total market capitalisation greater than £10bn. All such UK shares can be found in the FTSE 100 index, which makes up 80% of the total market capitalisation of the London Stock Exchange.
Investors often consider large-cap stocks to be “safe” investments. While no investment is ever risk-free, the established nature and grand scale of these enterprises do give them an inherent advantage over most of their competition.
There is a caveat. These stocks aren’t known for providing a lot of growth and tend to underperform mid- and small-cap stocks during a bull market.
However, having a large pool of financial resources can be invaluable in weathering economic storms when times get tough. As such, during a bear market, a large-cap stock is more likely to outperform other categories.
To compensate for the lack of growth, these businesses utilise their reliable and consistent cash flows to pay dividends. And as their mature status grants them the flexibility to offer a high payout ratio without compromising the balance sheet, they’re popular with income investors.
Top large-cap stocks in the UK
Here are a few of the top UK large-cap stocks by market cap:
| Name | Industry | Description |
| Shell (LSE:SHEL) | Oil & Gas | One of the biggest energy companies in the world transitioning from oil & gas to renewables |
| AstraZeneca (LSE:AZN) | Pharmaceuticals | One of the largest pharmaceutical companies in the world, specialising in a diverse range of diseases |
| Unilever (LSE:ULVR | Consumer Staples | One of the larger consumer staple retailers in the world offering food, personal care, and home care products |
| HSBC Holdings (LSE:HSBA) | Banking | The seventh-largest commercial and retail bank in the world by total assets |
| BP (LSE:BP) | Oil & Gas | The sixth-largest oil company in the world transitioning to renewable energy technologies |
Shell
Shell started out as a seashell importer back in 1907. Today it’s one of the biggest independent energy companies in the world, operating in more than 70 counties.
Its portfolio primarily consists of oil and gas assets. These are used to fuel global transportation, aircraft freight, and electricity generation. However, as the push for decarbonisation gets stronger, management has begun transitioning its assets into the renewable energy space.
AstraZeneca
AstraZeneca is one of the largest pharmaceutical companies and healthcare stocks in the world. Given its access to vast resources, the group develops new treatments for a wide range of diseases. The list includes cancer, cardiovascular, renal, respiratory, immunology and other rarer conditions.
The company already has a diverse portfolio of products on the market, and its vaccine against Covid-19 made it a household name. Looking at the current project pipeline, AstraZeneca is researching 183 drug candidates, with 16 in late-stage development and two under regulatory review
Unilever
Unilever is a fast-moving consumer goods company that offers food, personal care, and home care products. Since being established in 1894, the firm has expanded into one of the largest branded consumer staple businesses within the UK.
Its products can be found in almost all major supermarkets and include items such as Hellmann’s mayonnaise, Ben & Jerries ice cream, Dove shampoo, Peril washing-up liquid, and Cif surface cleaner, among hundreds of other brands.
HSBC Holdings
HSBC is one of the largest banking and financial services companies in the world, serving over 40 million customers. The group offers a wide range of tailored services, for personal and commercial clients, such as insurance products, credit and lending, investment and asset management, and international trading services. HSBC also works with institutional, corporate and government clients worldwide.
BP
BP is a leading energy company operating worldwide to provide heating and electricity through its various products to households and businesses. Today, the group’s primary assets are in the oil and gas industry in both the upstream and downstream segments of the stock market sector.
Following the Russian invasion of Ukraine, management has begun disposing of its Russian Rosneft operations. This represented a third of the group’s existing production capacity.
Like other oil giants, the group has begun transitioning its asset portfolio towards renewables with a goal to generate 50GW of clean electricity by 2030 and hit net zero by 2050.
Benefits of investing in large-cap stocks
While large-cap stocks may not provide much growth, they offer some alternative advantages.
Stability
Being large, established enterprises, most large caps have easy access to a pool of existing or external capital. As a result, the risk of insolvency is much lower than for a smaller business. It also provides them with a better buffer against external economic turmoil. That’s why large-cap stocks rarely experience volatility.
This level of stability isn’t as common in mid-cap and small-cap companies.
Research and coverage
Most large-cap businesses have a multi-decade history that has been covered by professional analysts countless times. This makes finding information and research on these shares far easier, allowing for more informed decision-making on the part of investors.
This high level of coverage means large-cap shares often trade close to their intrinsic value. This makes it more difficult to capitalise on mispricing events. However, it also means greater stability in the stock price.
Dividends and buybacks
Because large-cap companies are often in the mature stage of their business cycle, growth is difficult to come by. With fewer projects available to drive meaningful growth for shareholders, excess cash flows are typically returned through dividends and/or buybacks.
Over the long term, steadily increasing dividends paired with a reduction in the number of outstanding shares can generate meaningful wealth for patient investors.
Are large-cap stocks high-risk?
No business is without its fair share of risks. Large-cap stocks are often considered to be low-risk investments, but they’re not immune to external threats.
A common cause of failure among larger operations comes from complacency in the management team. A lack of innovation or efficiency improvements can create opportunities for young disruptive firms to steal market share.
Should you invest in large-cap stocks?
Deciding whether to invest in large-cap stocks is ultimately a personal decision and one that should reflect the investor’s financial goals and risk tolerance.
These businesses can take years to deliver meaningful returns through dividends and buybacks. But with compounding being a slowly accelerating process, in the long term, it’s possible to enjoy some lucrative results without exposing a portfolio to a high degree of risk.
A portfolio dominated by volatile growth stocks could benefit from adding a few large-cap businesses to provide stability. Similarly, a portfolio largely consisting of large caps may benefit from having a few volatile growth stocks to try and accelerate the wealth-building process.
In either situation, careful research and due diligence are required before committing to any investment decision.