New Star Investment Funds – New Star High Yield Bond Fund
Aim: Income by investing in high yield and investment grade bonds
Minimum investment: Lump sum £1,000, monthly £100
Investment split: High yield bonds 55%, investment grade bonds 45%
Yield: 7% gross
Isa link: Yes
Pep transfers: Yes
Charges: Initial 4.25%, annual 1%
Commission: Initial 3%, renewal 0.3%
Tel: 0845 6088704
Simon Clements, director, S & G Financial Management
John Hill, IFA, Positive Solutions
Shane Fox, partner, Investment Management Services
Nick Rogers, principal, Lauren Charles Financial Management
Suitability to market 8.0
Investment strategy 7.3
Past performance 6.3
Company's reputation 8.0
Product literature 8.5
New Star Investment Funds has introduced its first bond fund, the New Star high yield bond fund. The fund invests in high yield and investment grade bonds and aims to provide income of 7 per cent gross a year, with some opportunity for capital growth.
Looking at how the fund fits in to the market Fox and Hill feel that it fits in well in today's volatile climate. Fox goes on to say: "In six months' time, I don't know." Clements says: "It is well positioned with a reasonable 7 per cent yield which should not require over-investment in riskier sub-investment grade bonds. Rogers thinks it is a good strategic fit at a time when income and returns are under close scrutiny.
Analysing the clients the plan is suitable for, Rogers suggests those that are financially aware, the more sophisticated investor. Hill says clients looking for relatively high income that is stable, while Fox says those looking for income, capital growth or both. Clements agrees. He says clients seeking higher income than available on deposit or growth in a less volatile environment than equity markets.
Discussing the marketing opportunities the fund will provide, Clements says: "This fund will appeal to investors who are coming to terms with low inflation, low deposit rates and the unreliability of equities, but who are still seeking better than deposit returns. There could be some demand for Pep and Isa transfers in to this type of fund." Fox feels it provides very good marketing opportunities because of the current state of the market, the asset class mix and that it does not invest directly into the market as other funds do. Hill thinks it will fit in with people who are unhappy with existing poor performing funds and people coming up to retirement. Rogers says it is not a groundbreaking product and thinks it will not create new opportunities by itself.
Turning to the main useful features and strong points of the fund, Hill points to its fair charging structure and stability - potentially. Clements says: "The pedigree of the managers. James Gledhill and Theodora Zemek should attract investors. New Star claim to offer few restrictions to the expertise of its fund managers, but this is coupled with fair diversification of holdings, size limits on individual holdings and a minimum of 10 sector holdings to provide overall control of risk." Fox also points to the fund managers and their good history. Rogers says: "Growing sector awareness has meant clients are seeing corporate bonds as good alternatives and worth investigating."
Fox and Rogers think the fund has a good investment strategy. Rogers says: "Generally spot on, however I would like to have seen a more positive benchmark statement." Hill feels the fund has a broad spread with no overlapping and this should produce stability. Clements thinks given the size and increasing economic security of the bond market, especially in respect of high yield bonds, the proximity of equity fund managers at New Star and the flexibility of the investment strategy should help James Gledhill to pick reasonable value.
Clements cannot see any specific disadvantages of this fund, while Hill points out that the investors' capital can be eroded when taking income. Rogers says there is no benchmark worth the name and he also raises the recent poor press regarding New Star and safety barriers. Fox says: "The fund is not actively managed on a weekly or monthly basis. Changes can only be made on an annual basis and too much can happen in a year."
The panel agree that New Star has a good reputation. Fox says it is excellent. Clements thinks New Star has built up a good brand very quickly, majoring on the acquisition of well-known fund managers and freedom of investment strategy. He says: "So far it has lived up to its billing." Rogers feels it is generally very good, but highlights the recent cause for concern regarding breach of safety barriers and alternative analysis of whether this is worrying or not. Hill says: "Its reputation is very high but you are only as good as your last returns. In today's world you are not allowed to fail."
Turning to New Star's past performance, Clements says it generally sits in the second quartile, so that is an encouraging start, albeit with a fairly limited number of funds and only a short period of measurement. Rogers thinks it is generally very good. Hill says past performance was good but it took some big hits in the last two years.
Looking at which funds will provide the main competition, Hill and Fox list Newton, Sterling, ABN Amro, Fidelity, F&C, M&G and distribution funds. Clements lists Threadneedle, Invesco, Henderson and Fidelity in both the corporate bond sector and the high yield/other bond sector. Rogers says: "A wide choice here but, the financially aware client may see this is a good time to dip back into the equity market."
Hill thinks the charges are fair and reasonable, whereas Rogers feel they are fair but not as low as to seem competitive. Fox says the charges are middle-of-the-road although he feels the 1 per cent switching charge is a bit expensive. Clements says: "At 4.25 per cent initial plus 2.25 per cent initial on automatic re-investments, the initial charges are certainly not the lowest and 1 per cent per annum is about par. However, in view of the active management and fund manager expertise, the charges are reasonable."
The panel agree the commission is fair and reasonable, but Rogers would only consider this type of scheme on a fee basis.
Analysing the product literature, Rogers thinks it is good but requires in-depth analysis and comparison to get to the bullet points. Clements says: "The product literature is of a consistently high standard. In particular, the complementary guide to corporate bond investing is clear and informative and should be well received by investors." Fox feels it is easy to read, straightforward and to the point. Hill sums it up as very good.
Summing up the fund, Clements says the corporate bond market is likely to show continued growth and this is certainly one fund well worth considering. Hill thinks it is a potentially good product for today's climate and Rogers says: "This fund is a worthwhile addition to the fastest growing, only growing, sector of the market."