New Star Investment Funds has unveiled its first bond fund, the New Star high yield bond fund.
This Oeic aims to provide income of 7 per cent a year, plus some scope for capital growth. Income will be paid quarterly, but this can be reinvested for growth.
The portfolio will contain between 50 and 100 holdings, which are made up of 45 per cent investment-grade bonds and 55 per cent bonds that are below investment-grade. The fund can diversify across government and corporate bonds in the UK and overseas.
The fund will be managed by James Gledhill, who joined New Star from Morley Fund Management last month. From November 2002, he will be assisted by Theodora Zemek, who worked with Gledhill during his five years at M&G.
Gledhill managed the M&G corporate bond fund between January 1996 and April 2000, and the M&G high yield corporate bond fund between October 1998 and September 2000. When selecting bonds for the New Star fund, Gledhill will take a top-down approach, looking first at sectors, then examining the individual companies within those sectors.
The current environment of low inflation and interest rates may make bond funds attractive to investors who are worried about volatile equity markets. However, the difficulty lies in selecting a mix of bonds that do not expose investors to too much risk, but which are also able to meet the target income yield.
According to Standard & Poor's, the New Star higher income fund is ranked 20 out of 89 funds based on £1,000 invested on a bid-to-bid basis with net income reinvested over six months to September 6, 2002. This fund was introduced in January 2002, so a longer past performance record is not available.