With this in mind, Chris Murphy (pictured), manager of the UK Equity Income fund at Aviva Investors, selects his stock picks for the three main racing jerseys.Compass Group
“My Yellow Jersey goes to Compass Group. Like the pre-Dave Brailsford British cycling team, Compass had strong underlying potential and component parts that had yet to be unlocked.”
“It took the arrival of chief executive Richard Cousins in 2006 to create the consistent and robust business that we see today.”
“Both Brailsford and Cousins implemented the philosophy of "marginal gains" to turn their respective teams into winners – by breaking something down into parts and working on the small details you create significant improvements when you put them all back together again. Simple, but effective.”
Performance of stock and index over 3yrs
Source: FE Analytics
“Compass has not been a sprinter, nor will it storm up those mountain climbs, instead it has delivered consistent returns and a healthy dividend yield. The outlook is bright and with structural growth starting to come though, it most definitely has a long-term place in my team.”
Compass Group has a 3.1 per cent weighting in Aviva UK Equity Income, making it Murphy’s sixth biggest holding.
Fifty-one IMA funds hold the FTSE 100 stock in their top-10, including Schroder UK Alpha Income and Evenlode Income.
Rio Tinto
“I am awarding the King of the Mountains Polka Dot Jersey to the often unloved Rio Tinto.”
“Understandably controversial, given its history of poor capital discipline, value destructive acquisitions and questionable governance; however this mining giant appears to be turning a corner.”
Performance of stock and index over 2yrs
Source: FE Analytics
“New chief executive Sam Walsh has set about implementing a series of efficiency improvements and cost cutting initiatives last year and these are starting to bear fruit.”
“Structurally, Rio has world-leading technology and tier one assets and regardless of short-term demand trends, China is still massive and will continue to demand commodities from those who can access it more efficiently.”
“Commodity prices and news from China will continue to create challenging ups and downs over the short term, but I believe that quality players like this will power through the market noise over the long term.”
Rio is Murphy’s third biggest holding, making up 3.8 per cent of his portfolio. In total 150 funds hold the company in their top-10, including BlackRock UK Special Situations and Old Mutual UK Equity Income.
British Sky Broadcasting (BSkyB)
Finally, my nomination for the newcomer's White Jersey goes to a recent addition to my portfolio, British Sky Broadcasting.
The media and telecom sectors have become more interesting, as our friends in Europe move more towards the quad-play model where one provider delivers mobile, broadband, landline and TV services.
Under this guise I had been looking at Sky for a while, and then the wrangling with BT over sports rights presented a well-priced entry point. The market appears to believe that BT, which I also own, and Sky are mutually exclusive when it comes to issues such as sports rights, but I don't agree.
Performance of stock and index over 3yrs
Source: FE Analytics
I think that there could be convergence in the media and telecoms sector further down the line, and believe that both companies are well positioned to benefit and could well be the new contenders for my Yellow Jersey in the future.
BSkyB is not yet a top-10 holding for Murphy. Among its biggest fans are FE Alpha Manager Crispin Odey, who holds it in his CF Odey Opus fund. Thirteen IMA fund hold it overall.
Chris Murphy has headed up the £998m Aviva Inv UK Equity Income fund since April 2009.
It has returned 116.4 per cent over the period, beating both its IMA UK Equity Income sector average and FTSE All Share benchmark.
