View more on these topics

High Yeilding New Star

New Star Investment Funds – New Star High Yield Bond Fund

Type: Oeic

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

Broker panel:

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

Broker ratings:

Suitability to market 8.0

Investment strategy 7.3

Past performance 6.3

Company&#39s reputation 8.0

Charges 6.3

Commission 6.0

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&#39s volatile climate. Fox goes on to say: &#34In six months&#39 time, I don&#39t know.&#34 Clements says: &#34It 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: &#34This 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.&#34 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 &#45 potentially. Clements says: &#34The 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.&#34 Fox also points to the fund managers and their good history. Rogers says: &#34Growing sector awareness has meant clients are seeing corporate bonds as good alternatives and worth investigating.&#34

Fox and Rogers think the fund has a good investment strategy. Rogers says: &#34Generally spot on, however I would like to have seen a more positive benchmark statement.&#34 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&#39 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: &#34The 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.&#34

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: &#34So far it has lived up to its billing.&#34 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: &#34Its reputation is very high but you are only as good as your last returns. In today&#39s world you are not allowed to fail.&#34

Turning to New Star&#39s 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: &#34A wide choice here but, the financially aware client may see this is a good time to dip back into the equity market.&#34

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: &#34At 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.&#34

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: &#34The 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.&#34 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&#39s climate and Rogers says: &#34This fund is a worthwhile addition to the fastest growing, only growing, sector of the market.&#34


AA closes down its IFA business

The AA has quietly closed the doors on its IFA business less than a year after becoming fully operational, blaming September 11 and plunging stockmarkets.AA Financial Services shut up shop in April after just seven fully operational months but the firm remained tight-lipped about the closure until now.It opened on an executiononly basis in January […]

FSA must take action on PI

The professional indemnity crisis is becoming a very real threat to many IFA businesses.Nearly all are facing huge increases, in many cases, up to double or three times normal premiums and, in one exceptional case, up to 750 per cent more than last year.Others are finding it virtually impossible to access compliant cover, often through […]

Downing Corporate Finance – Pennine Aim VCT

Monday, 21 October 2002 Aim: Growth by investing initially in fixed interest securities then in Aim and unquoted companies Minimum investment: Lump sum £2,000 Opening-closing date: October 7, 2003-April 4, 2003 for 2002/2003 tax year, April 30, 2003 for 2003/2004 tax year Charges: Initial 5.5%, annual 1.8% Commission: Initial 2.5% Tel: 020 7411 4700

Prudential debuts drawdown plan

Prudential has established its first income drawdown plan for people who want to take tax-free income from their pension instead of buying an annuity.The plan is available for people with pension funds of at least £100,000 and has a similar structure to Prudential&#39s flexible lifetime annuity account. It provides three investment strategies — cautious, standard […]


Case study: administration — managing group life schemes

Our client leads the global market in high-tech electronics manufacturing and digital media. The trustees of the company’s final salary pension scheme insure death-in-service lump sum and dependants’ pension death benefits for active employees, as well as dependants’ pension benefits for deferred members (those who have left service).


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm