The Liontrust distribution fund will favour gilts over corporate bonds to avoid default risk.
The portfolio, set to launch in early December, is targeting a 65/35 per cent asset split in favour of gilts, with the balance invested in a mirror portfolio of the Jeremy Lang-managed Liontrust first income fund.
Liontrust believes the lower risk profile of such a portfolio, which qualifies for Isa investments, will differentiate it from rival firms' distribution portfolios, which typically favour corporate bonds as their fixed-interest quotient.
New Star managed distribution fund has a 36 per cent exposure to high yield and Framlington managed distribution fund a 73 per cent exposure to equities, so Liontrust is targeting the more cautious end of the market.
Liontrust head of distribution Mickey Morrisey says the gilt portfolio, managed by Statestreet, will initially track the Citigroup UK Government bond index, becoming more active as the portfolio builds scale. The index has returned 33.1 per cent over five years compared with 29 per cent from the IMA corporate bond sector.
Hargreaves Lansdown senior fund analyst Meera Patel says: “There is demand for this type of product, which avoids default risk, from more cautious investors wanting a safe haven. I am not sure you can get excited about gilts but the time of the launch could be good with interest rates peaking.”