Gartmore has unveiled the Gartmore monthly income fund, a unit trust that aims to produce income of 7.5 per cent a year.
The fund will initially invest 70 per cent in high yielding bonds and the remaining 30 per cent will go into investment-grade bonds. By including both types of bond, the fund strives to balance high income and the preservation of capital. It will also cover a range of sectors, including manufacturing, utilities, retail, media and healthcare.
The proportion of high yield and investment-grade bonds within the portfolio can be varied in line with changing economic conditions, but it is expected that the fund will favour BB-rated bonds. BB-rated bonds occupy the middle path between risk and reward, which ties in with the objectives of this fund.
Eran Peleg, who manages Gartmore's corporate bond and high yield corporate bond funds, will also run this fund. He has four years' experience with Gartmore's fixed interest team and he will work with Gartmore's head of credit research and equity research team when choosing bonds for the portfolio. Gartmore will use agency ratings such as Standard & Poor's, but its researchers will also visit companies themselves before applying their own credit ratings.
Investors who are not getting enough income from building society accounts may be looking to bond funds as an alternative. Within the present climate, there are plenty of buying opportunities, especially among high yield bonds. But the success of this fund will depend on the accuracy of risk assessment and getting the right blend of bonds within the portfolio, not just picking up bonds at bargain prices.
According to Standard & Poor's, the Gartmore corporate bond fund is ranked 15 out of 57 funds based on £1,000 invested on a bid-to-bid basis with net income reinvested over three years to January 11, 2002.