Liontrust has unveiled the Liontrust distribution fund, its first new fund for five years.
This unit trust combines a lower-risk portfolio of gilts with an actively managed equity income portfolio. Up to 40 per cent of the fund will be invested in UK stocks selected for their high income characteristics and reasonable growth potential. This part of the portfolio will aim to achieve a yield of around 5 per cent and be benchmarked against FTSE All Stocks 5-15 year index. The fund manager is Jeremy Langmead, manager of the Liontrust first income fund.
Between 60 per cent and 75 per cent will go into an index-tracking gilt portfolio managed by State Street Global Advisors. This is benchmarked against the Citigroup UK Government Bond index.
Combining a portfolio of UK equities with a gilt portfolio means that investors get diversity within one fund and the lower-risk nature of gilts keeps the higher risks of equities in check to some degree.
The difference between this fund and the array of other available distribution funds is that the fixed-income element is focused on gilts. At the start of the year gilts did not look a good prospect, especially with uncertainty about interest rate rises which would reduce the value of gilts. But now, with many commentators suggesting interest rates have peaked, the outlook for gilts appears brighter.
Data from the UK Debt Management Office, which issues gilts on behalf of the Treasury, shows that monthly average yields for short, medium and long-dated gilts rose during the first four months of 2004 and have been falling since May, indicating that prices are rising.
However, a lack exposure to corporate bonds will mean this fund misses out on any gains to be had in that part of the bond market.