The Lincoln corporate bond trust is a unit trust that invests mainly in investment-grade bonds. It is designed to produce an income yield of 6.77 per cent and is managed by Goldman Sachs Asset Management.
Assessing how the fund fits into the market, Webster-Smith says: “With recent volatility in the stockmarkets, the Lincoln corporate bond fund provides a low-risk investment with secure income. There is also a minimal capital gains tax risk with this type of bond fund.”
Milton thinks the fund is an acceptable entrant into the market. Bulgin says: “It is designed for clients looking for a steady, high level of income with a relatively low level of risk to capital. It will join a large number of established funds.”
Moving on to the type of client the fund is likely to attract, Bulgin says: “It is suitable for clients seeking income, who are relatively risk-averse and not too concerned about capital growth.”
Webster-Smith says: “It is suitable for those requiring low-risk investment to balance a portfolio and for cautious investors who want a return on their investment with minimal risk of capital loss.”
He says it is also suitable for lower-band taxpayers or non-taxpayers and investors who want a regular income return. Milton identifies lower-risk clients who appreciate little change to capital values and reasonable income.
Discussing the marketing opportunities the fund might provide, Milton says: “They are reasonably limited. There are no unique selling points.”
Webster-Smith says: “The fund will enable Lincoln to attract investors at a time when many cautious investors may not consider the stockmarket as the right place to put their money. It may also increase the profile of other Lincoln funds.”
Bulgin says: “It is particularly good for Pep transfers and Isas. There is some scope for new Isa and unit trust business.”
Turning to the strong points and useful features of the fund, the panel point to it being managed by Goldman Sachs.
Webster-Smith says: “It can be bought through an Isa or Pep transfer. It invests in government securities and a high percentage of funds in investment-grade bonds with good Standard & Poor's ratings. But it can also invest in riskier bonds with higher returns. And it is linked to Goldman Sachs.”
Bulgin says: “It has a relatively high level of income and is managed by Goldman Sachs.”
Milton points to the sense of security and the management by Goldman Sachs.
Moving on to the investment strategy, Milton says: “The investment strategy is okay but it invests too much in government bonds, which are overvalued in our view. A greater emphasis on corporate bonds would be our preference. Currency opportunities exist too, for example, by investing in Eurobonds now.”
Bulgin thinks the investment strategy appears to be good, with a concentration on investment-grade bonds.
Webster-Smith says: “It is a safe, low-risk investment strategy backed by Goldman Sachs, which has the longest record of bond investment.”
Discussing the drawbacks of the fund, Webster-Smith says: “Lincoln is not very well known compared with other players in the corporate bond market. The fund has a high initial charge and high annual management fees. There are higher yields available from other bond funds and the capital growth this fund offers is very limited.”
Bulgin suggests that there are some corporate bond funds that produce higher levels of income.
Examining Lincoln's reputation, Bulgin says: “Lincoln is not a big name in the IFA market. Also, it is not well known by the investing public.”
Webster-Smith says: “Lincoln's main reputation is within the insurance market. It has an average reputation when compared with M&G, Threadneedle and Aberdeen.”
Milton says: “Lincoln's reputation is acceptable but the connection with a direct salesforce may leave it languishing with the independent sector for some years.”
Analysing Lincoln's past performance record, the panel are on the whole not impressed. Webster-Smith says: “It has a relatively poor performance record. The funds are all very small and any large redemption will have a stormy effect on the fund. Lincoln also has a small range of funds, for example, no main UK equity unit trust. Small funds also reflect that inves-tors are reluctant to support Lincoln funds.”
Milton says: “Lincoln's past performance is acceptable but it is nothing to write home about either.”
Bulgin says: “Lincoln will have some funds that have performed well but within the Lincoln stable there is a vast amount of funds that were formerly managed by companies taken over by Lincoln.”
Identifying the likely competitors for the fund, the panel are unanimous in opting for M&G's corporate bond funds.
Milton cites the Aberdeen high-yield bond, M&G European high-yield bond and Henderson European high-yield bond.
Webster-Smith goes for Threadneedle's corporate bond funds and high-yield bond unit trust. He also highlights corporate bond funds from M&G and Old Mutual.
Bulgin says: “The M&G high-yield corporate bond, ABN Amro high-income and Legal & General fixed-interest could provide competition for the Lincoln fund.”
Turning to the charges, the panel agree that they are high compared with similar funds.
Milton says: “The annual management charge is a bit high for bonds.”
Webster-Smith says: “The 5 per cent initial charge is higher than the competition but the discount offer is good.”
Bulgin says: “The initial charge is on the high side for a bond fund. The annual charge is about average. It is interesting to see that the ann-ual charge is split between income and capital.”
Moving on to the commission, the panel agree it is average for this type of fund.
Looking at the literature, the panel have a mixed response. Webster-Smith says: “The product literature is good. It outlines what corporate bonds are and highlights the fund's link with Goldman Sachs. However, the charges and commission are not clear. It is also unclear who will be running the fund.”
Milton says: “The literature is acceptable but very wordy. It is not very pretty either.”
Summing up, Bulgin says: “There is a lot of competition in the sector. Unless Lincoln's performance is above average it will struggle. For investors looking for higher income levels, there are other funds available, albeit with greater levels of risk.”