Legg Mason Investors has established the UK active income Isa, which invests in the Legg Mason UK income and Monthly income unit trusts.
Both funds are managed by Chris White, who joined Legg Mason in 1995. The monthly income fund invests in corporate bonds, convertible preference shares and other fixed-interest securities. The portfolio is made up of around 100 companies including Halifax, Carlton and Rank Organisation.
The UK income fund aims to produce income and capital growth by investing in UK companies. It consists of around 50 stocks in a range of sectors including financials and consumer goods. It includes companies such as Vodafone, Lloyds TSB and Lex Service. The target yield is around 6.61 per cent a year.
With both funds, White initially selects prospective stocks and bonds using a bottom-up approach, looking at individual companies in terms of management, cash flow and whether they are market leaders. Then a top-down analysis is applied to filter the companies further.
Low inflation and low interest rates are good news for UK bonds, while the strong UK economy makes equities in the home market attractive compared to other European countries which weaker economies, such as Germany.
Investors who need income rather than growth have found their options limited recently as falling interest rates have bitten into building society accounts and tough times in the stockmarket have affected dividend payments. This Isa could be useful for those who want to balance their investments between UK bonds and equities in this period of uncertainty. But less experienced investors may prefer to invest in with-profits bonds as an alternative income source.
According to Standard & Poor's, the Legg Mason UK income fund is ranked 40 out of 79 funds and the Legg Mason monthly income fund is ranked 2 out of 12 funds based on £1,000 invested on a bid-to-bid basis with net income reinvested over three years to January 14, 2002.