Income-focused, lower risk: Centrica Centrica doesn’t always receive the best press and comes under pressure from consumers and watchdogs as a result of price increases.
In order to mitigate the volatility of open-market gas prices, Centrica has improved its own supply lines, with an increase in production of 12-15 per cent forecast for 2013. This could lead to other benefits if the UK government decides to use gas to shore up its medium to long term potential energy shortage.
Centrica is cutting costs in order to deliver £500m in savings for the business. Also, a share buy-back scheme was confirmed in February.
It’s a defensive choice with a yield of 4.4 per cent and, from an investment perspective, there is hope for some steady growth potential.
Performance of stock versus index
| Name | 1yr (%) | 3yr (%) | 5yr (%) | 10yr (%) |
| Centrica | 21.55 | 44.2 | 53.97 | 260.82 |
| FTSE 100 | 14.75 | 25.67 | 32.38 | 147.38 |
Source: FE Analytics
In spite of its defensive nature, Centrica has been a strong performer in recent years, outrunning the FTSE 100 over the short, medium and long-term.
It's a popular choice with UK fund managers, appearing in the top-10 holdings of 67 IMA portfolios in total. These include the Psigma Income and Newton Higher Income funds.
Balanced, medium risk: BHP Billiton
Investors looking for exposure to the commodities sector should look at BHP Billiton, due to its size and diversity.
The key factors to determine the firm’s share price performance in 2013 will be commodity prices, demand for those commodities, and ultimately, the health of the Chinese and global economy.
BHP, like many other basic resources companies, suffered in 2012 as a result of the weakening economic environment, with the level of Chinese GDP growth slowing to about 7 per cent. However, leading economic indicators from China released in the last few months of 2012 have painted a slightly better picture.
Performance of stock versus index over 3yrs
Source: FE Analytics
In recent years the company has, and continues to, rationalise its portfolio by making a number of significant disposals to streamline the business and it has invested in large, capital-intensive projects to expand capacity.
This makes the company well positioned to meet any potential increase in demand. Among the large cap miners, BHP is one of the least leveraged, with a competitive yield of 3.9 per cent.
In total 140 funds hold BHP Billiton in their top 10. These include income-focused portfolios such as Liontrust Macro Equity Income, and growth-focused portfolios like BlackRock UK Special Situations.
High growth, higher risk: Imagination Technologies
Imagination Technologies' half year group revenue increased by 27 per cent to £71.4m with most of the growth coming from its technology division where revenues grew 34 per cent compared to the same period last year.
According to industry analysts, smart phone shipments are expected to reach 1.5 billion units annually by 2015 – the company is optimistic that its intellectual property will be embedded in more than half that number.
Of concern to Imagination will be Arm Holdings’ ambitions in expanding its product range and the takeover battle for MIPS Technologies’ intellectual property.
However, having Apple as one of its backers and owning the ‘Pure’ brand of digital radios and other audio products, which have been well received at the latest Consumer Electronics Show in Las Vegas, strengthens Imagination’s position.
Ignis Cartesian UK Opps, AXA Framlington UK Select Opportunities and Newton UK Smaller Companies are the only three funds that hold Imagination Technologies in their top-10.