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Deutsche goes for corporate bonds

Deutsche Asset Management

Deutsche Corporate Bond + Fund

Aim: Income by investing in investment and non-investment grade
bonds.

Minimum investment: Lump sum £1,000 class A shares, £500,000
class B shares, monthly £25 class A shares.

Investment split: Investment grade bonds 80 per cent,
non-investment grade bonds 20 per cent.

Yield: 5.85 per cent.

Isa link: Yes.

Pep transfers: Yes.

Charges: Initial 4 per cent class A shares, 1 per cent class B shares,
annual 1 per cent class A shares, 0.5 per cent class B shares.

Commission: Initial 3 per cent, renewal 0.5 per cent class A shares,
none class B shares.

Tel: 0800 9170005.

Suitability to market 7.3

Investment strategy 6.3

Past performance 6.3

Company&#39s reputation 6.3

Charges 7.3

Commission 5.6

Product literature 6.6

Deutsche Asset Management has introduced the corporate bond +
fund, an open-ended investment company (Oeic) that aims for
income by investing in investment grade and non-investment grade
bonds.

Looking at how the fund fits into the market Lakey says: “This is a
timely launch for a product that will have greater appeal given the
current volatile state of the markets.”

Moseley says: “The Deutsche fund joins a list of around 100 existing
corporate bond funds and it seems to have the right credentials.”

Meadows says: “With a further reduction in interest rates and
possibly further cuts still to come, there is an ever insatiable demand
for lower-risk income producing products.”

Identifying the type of client that the fund is suitable for Moseley says:
“This is for those investors who are currently nervous about equity
investment, or who are looking to diversify a portfolio to spread the
risk about.”

Meadows says: “Ideally it would be for semi-retired and fully retired
building society types who may need their income topped up, as the
fund only pays quarterly. They also have to take into account the
difference between class A and B shares as well as understanding
the fact that not all of the fund is invested within the UK.”

Lakey says: “The fund is for those close to or in retirement, or indeed
for investors looking for relative stability and a worthwhile level of
income.”

Isolating any marketing opportunities that the fund will offer Moseley
says: “I will not recommend a product fund without three Standard &
Poor&#39s fund stars. However, in three year&#39s time this fund could well
be on my buy list.”

Lakey says: “It offers plenty of opportunities to alert clients to its
ground-floor potential.”

Meadows says: “Deutsche&#39s reputation will ensure that brokers
should at least take notice of the product launch. Whether it should
be one for everyone&#39s portfolio depends upon future performance. For
those with underperforming Peps, the transfer charges are not too
onerous and could represent a good business opportunity.”

Identifying the main strong points of the fund Lakey says: “The fund
has low charges and low minimum investment levels, allied to the
strong Deutsche name.”

Moseley says: “The main strong point is the low minimum investment
level, which makes it suitable for children&#39s investments. It can also
be put within an Isa.”

Meadows says: “The brand name is a plus. The charges are at the
lower end of the scale as well, at 3.25 per cent for Isas, 3 per cent for
pep transfers and 4 per cent for Oeics.”

Looking at the drawbacks of the fund Moseley says: “The only real
disadvantage is the lack of real long-term growth when compared
with equities.”

Meadows says: “There is the currency hedge, which most funds with
an overseas exposure must suffer. There is also the fact that you
have to make the distinction between A and B shares and you also
have to make investors aware that firstly it is not a direct alternative to
a bank or building society investment and that secondly capital is at
risk.”

Lakey says: “There is potentially high risk due to the 20 per cent
exposure to US bonds.”

Turning to the investment strategy Meadows says: “As with all
corporate bond funds the earnings potential remains all well and
good. But with the slowing down of the economy and possible
recession on both sides of the Atlantic, stock selection can always go
wrong.”

Lakey says: “This is higher risk than many similar funds, mainly due
to US participation and the currency risk. The capital may fluctuate
more than a similar UK denominated fund.”

Moseley thinks the investment strategy is pretty standard for this sort
of product.”

Appraising the reputation of Deutsche Asset Management Lakey
says: “Deutsche is a sound company which appears to know where it
is going.” Moseley thinks it has an excellent reputation.

Meadows says: “It has a good strong reputation, but is surprisingly
not that well used amongst all the IFA sector. This is a company that
quietly goes about its business, so that most IFAs will have heard of
the name but perhaps can&#39t tell you much more about either the
company or the funds offered.”

Examining Deutsche&#39s past performance record Moseley says: “It
has an excellent record in equities, but a mixed one with fixed
interest.”

Meadows says: “As a company its longer term performance tends to
be better than short to medium term, but perhaps unlike Fidelity,
which will highlight its funds, you have to pick your way through some
of the funds.”

Lakey says: “Its reputation is generally above average, although its
funds do display above average volatility. Perhaps revealingly its high
income fund displays an appalling consistency of below-average
returns.”

Identifying the funds that provide the main competition, Meadows
points to Legal & General fixed interest, the M&G corporate bond,
Credit Suisse monthly income and the Clerical Medical monthly direct
income funds.

Lakey thinks the competition will come from products provided by Old
Mutual, Credit Suisse and Henderson, while Moseley identifies the
Henderson long corporate bond, HSBC corporate bond,
Threadneedle UK corporate bond and the Aberdeen sterling bond
funds.”

Looking at the charges Lakey thinks these are fair and reasonable
while Meadows thinks they are good. Moseley says: “The charges are
not too bad, but why is the Isa charge 3.25 per cent when the Oeic
charge is 4 per cent?”

Moving on to the product literature Meadows says: “The literature is
fair and well laid out, though the application forms are a bit in your
face as they are so large. Although if they are aiming this fund at older
investors they shouldn&#39t have a problem filling in the boxes.”

Moseley thinks the literature is clear and attractive, while Lakey says:
“The literature is excellent. For once a fund manager has had the
nous to include application forms for Oeics, Isas and Peps transfers
within the same booklet. However the description of the intended
holdings is somewhat short on detail.”

Summing up, Moseley thinks the fund will do well because of the
Deutsche name, while Meadows says: “It could maybe do with
different colours for the application forms for Oeics, Isas and Pep
transfers.”

Miles Moseley, Managing director, Miles Moseley Financial
Management, Alan Lakey, Partner, Highclere Financial Services,
Stephen Meadows, Consultant, Ashgates Accountants & Business
Advisers.

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