The companies, many former nationalised industries, tend to be big and indestructible. Some are in cyclical businesses but that should be a positive factor given my belief that we are at an early stage of an economic upturn that will develop into a full-blooded global boom. There are a surprising number of companies that are world leaders in their industries. Overseas investors looking to diversify their international portfolio also tend to focus on these stocks.
I have chosen 13 shares to create a British portfolio. Yields range between 1.3 per cent on British Steel at 1441 5 p and 5.2 per cent on British Gas at 341p. But overall income can be boosted by buying convertibles where they are available. This lifts the return on British Airways from 2.9 per cent on the equity at 472p to 4.5 per cent; on British Aerospace it goes from 1.7 per cent on the equity at 526p to 7.8 per cent; and on British Land from 2.0 per cent on the shares at 432p to 5.1 per cent. Others in the mini portfolio are BAT Industries at 488p to yield 4.8 per cent, British Polythene at 514p to yield 2.5 per cent, British Petroleum at 361p to yield 2.9 per cent, British Telecom at 449p to yield 4.5 per cent, British Vita at 291p to yield 3.2 per cent, Associated British Ports at 625p to yield 1.8 per cent, BAA at 1007p to yield 2.0 per cent and Britannic Assurance at 511p to yield 2.9 per cent.
One way of looking at this collection of shares is to imagine that they were all part of one vast corporation called Associated British Holdings. Annual turnover would be around pounds 100bn with profits of some pounds 6.5bn. Nobody would doubt that there was huge scope for efficiency gains and higher profit margins, especially as demand improves.
In a world of low inflation, turnover gains are hard to come by, so it helps to start with a huge turnover and then use all possible techniques (selling off loss-makers, contracting out non-core activities, reducing labour costs and exploiting the latest information and production technology) to wring more profit from that turnover.
An attraction of this portfolio is that it involves companies that nearly all have market leadership in a key area of British commerce. It may not seem so wonderful to dominate the UK steel market and be far and away the most efficient producer in Europe when there is a structural surplus of steel capacity and a lack of will to deal with subsidised producers - particularly after the pounds 25m fine imposed on the company last week by the European Commission. But reality has a habit of intruding eventually and when it does British Steel will have its reward. Look at how well British Airways is doing in a not dissimilar position.
The British portfolio also has many characteristics of a classic recovery portfolio. Most obviously that applies to British Steel, BP and British Aerospace but it also applies to British Vita, a leading Manchester supplier of foam and plastic to the automotive, home furnishing and packaging markets with 70 per cent of sales in mainland Europe, and British Polythene, Europe's leading industrial polythene concern.
There are many special factors boosting prospects for these companies. A streamlined British Aerospace seems likely to end up merging its defence interests with GEC's Marconi, to create a potentially world- beating business.
BAT Industries is facing the greatest growth opportunities in its history, as huge Third World and previously state- controlled markets open up to imported products. New management at BP is rationalising the business and should do even better when the oil price recovers as it must do eventually.
BAA is developing a high- quality income stream based on the new boom business of airport retailing. British Land, under John Ritblat, bought more than pounds 1bn of cheap property through the recession and is continuing its buying into the early stages of recovery with additional financing through a joint venture with the global financier George Soros.
British Telecommunications is still growing and generating vast quantities of cash despite increased competition. It is also test marketing a plan for supplying videos on demand down telephone lines and has scope for additional growth from other new toys, such as domestic fax machines.
AB Ports has benefited from the revolution in dock working practices and should see strong profits growth as UK trade recovers.
Britannic Assurance is a highly successful life assurance company well placed to benefit from the increased savings of an older and richer population.
One attraction of this group of companies is that they are mostly giant businesses that will not go bust. This makes them suitable for pound-cost averaging programmes to even out the ups and downs in the stock market cycle. As a group, they have already proved successful investments despite a bumpy ride in profits and - in some cases - dividends through the recession. Investors who buy the group at current prices should also do well given the benefits that most of the companies stand to receive from the strengthening world economy and from management action to further improve efficiency and profitability.
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