Aegon Asset Management is targeting its optimum income fund at investors looking for a high level of income without too much risk.
This Oeic, which can also be held within an Isa wrapper, aims to produce income and growth by investing equally in investment grade and high yield corporate bonds mainly in the UK. It also has the flexibility to invest in Government bonds, preference shares and convertibles.
The target yield is 8.5 per cent a year, which the company feels is achievable, without taking on too much risk through a greater proportion of high-yield bonds.
Stephen Snowden, who also runs the extra income fund for Aegon will manage the optimum income fund. He has been with Aegon since 1994.
Combining high yield and investment grade bonds to balance the need for a high level of income, with concerns for capital preservation is nothing new. It appears to be a bandwagon that many providers have jumped on already. Scottish Widows recently unveiled its strategic income Isa, which also uses high yield bonds to boost the yield. However, it invests 70 per cent in investment grade bonds with the remaining 30 per cent in high-yield bonds, giving a lower yield than the Aegon product at 6.33 per cent.
The Aegon fund may appeal to investors who are turning away from building society accounts because of the low interest rates on offer and also those who are looking at bond funds because of volatility in equities.
But prospective investors should be aware that high-yield bonds can be risky. Keeping this risk to a minimum will depend on the fund manager's ability to select the right blend of bonds.