NEW STAR HIGHER INCOME FUND
Aim: Income and growth by investing in UK ordinary shares, fixed-interest securities, preference shares, convertibles
Minimum investment: Lump sum £1,000, monthly £50
Investment split: 100% invested in UK ordinary shares, fixed-interest securities, preference shares, convertibles
Yield: 4% gross a year
Isa link: Yes
Pep transfers: Yes
Charges: Initial 5.25%, annual 1.5 %
Special offer: Initial charge reduced to 4.25 %
Offer period: Until April 5, 2002
Commission: Initial 3%, renewal 0.5 %
Tel: 020 7225 9200
The panel: Stephen Spencer, Director, Phoenix Financial Services,
Peter Cox, Principal, James Tate IFS,
Eric Woodward, Managing director, EP Ward & Co.
Suitability to market 7.0
Investment strategy 7.7
Past performance 7.0
Company's reputation 7.0
Product literature 6.7
New Star higher income is an Oeic that aims to produce a rising level of income and capital growth by investing mainly in UK companies benchmarked against the FTSE All Share index. It will be managed by Toby Thompson, who joined New Star from Newton.
Woodward says: “Competition in this sector is quite strong. Nevertheless, the manager's reputation will do a lot to attract funds. I can see this being a popular choice for the Isa season.” Cox says: “It is a good time to launch a UK equity income fund, as well-managed funds have fared well during recent stockmarket volatility. This complements New Star's existing funds.”
Spencer says: “The fund fits into a growing sector of the market. As deposit interest rates fall, clients are seeking alternative investments to improve the income from their investments. Particularly people in retirement, where their standard of living depends on the income generated from their investments.”
Identifying the clients the fund could suit, Cox suggests a broad band of clients who want either growth or income with growth potential. Spencer says: “The fund is suitable for clients seeking to generate a relatively low level of income from their investments, with the prospect of either some capital growth or an improving income stream over time.
“The product is probably only suitable for people happy to accept an element of risk in their investment. As the product is equity-based, the unit price and income levels could fall.” Woodward goes for people who need a level of initial income and who are prepared to take some risk, with the hope of getting some capital growth.
Discussing the marketing potential of the fund Woodward says: “Income funds generally have had a good year because, in the main, they have been more defensive. On a total return basis, this fund might very well appeal to growth investors as well. I can also see retail pension fund clients being attracted to this fund.” Cox thinks a new fund managed by Toby Thompson will attract a lot of interest.
Spencer says: “The product adds to the growing number of products designed to tempt people away from the traditional deposit-based investments, where they are now generally receiving a poor return on their investments. The product could also be useful for clients who are in income drawdown. The client must be prepared to accept risk and will be looking for products that will generate income, but maintain its capital value.”
Highlighting the best features of the fund Spencer says: “The track record of Toby Thompson in managing the Newton higher income fund, has to be the strongest point. The fund is not being overly adventurous with its stated estimated yield of 4 per cent a year, which should give scope to achieve increasing income and capital growth.”
Woodward says: “The fund's strongest point is obviously the manager who had established a high reputation in the industry when he was at Newton. However, New Star is also doing a lot to gain name awareness and this looks like a powerful combination in the retail market.” Cox is in favour of recommending UK equity income funds at present. He feels the past and continuing performance of the Newton higher income fund cannot really be faulted and that New Star's similar strategy should be advantageous.
Assessing the investment strategy Woodward says: “It is probably a good time to have a fund like this. With equity returns being reduced, this fund should be ideally placed for the current market.” Spencer says: “The strategy would appear sound. Investing in companies that have a high dividend, a good management team and a good business plan with strong cashflow. This is particularly effective when market conditions are difficult, as they have been over the past two years. Hopefully the markets this year will not prove to be as poor and growth funds may perform better. Selling stock when it reaches target valuations and purchasing new will improve the likely performance of the fund.
Turning to the drawbacks, Cox thinks there are none except the costs and Woodward can see none. Spencer says: “The fund is equity-based and may be subject to fluctuations in the stock markets, and fluctuations in income. There are a number of corporate bond funds in the market, which will provide a higher level of income, with perhaps a lower risk to capital. But they will almost certainly have less opportunity of capital growth. Charges are taken from capital, which could compound on capital value if share prices are under pressure.”
Discussing New Star's reputation, Cox says: “For a new company, its reputation is very good.” Woodward says: “New Star is still relatively new but has spent a lot on advertising to make its name more familiar The quality of the managers it has attracted will do a lot to establish its credentials in the market place.”
Spencer says: “New Star has built a reputation very quickly, largely based on the reputations of John Duffield in building up Jupiter and also the high calibre fund managers, Alan Miller, Richard Pease, Tim Steer and now Toby Thompson, that he has recruited. The volume of funds invested in New Star since the launch are very impressive, and the strategy of launching a limited number of funds as and when they recruit the right fund manager has been very sound. It is still a little early to determine whether the fund managers will perform as well with New Star as they have in the past.” Woodward points out that the managers come with an outstanding record from elsewhere.
Considering New Star's past performance Spencer says: “New Star was only launched in July 2001, so there isn't a full year's statistics available yet. The past fund performance of the managers in their previous companies and roles is very impressive.” Cox says: “It is too early to say. Recent events were not very kind to the UK growth fund but the UK aggressive growth fund has done exceptionally well over the last three months to March 6, 2002.”
Looking at the likely competition Woodward says: “Income investors are generally more defensive. This sector has some good individual mangers in it. Anthony Nutt at Jupiter, Bill Mott at Credit Suisse, George Luckcraft at ABN Amro and Neil Woodford at Invesco Perpetual all have very strong reputations in this sector and are serious competition.”
Spencer suggests bond funds and Cox mentions UK equity income funds from Invesco Perpetual, Newton, Credit Suisse, Liontrust and Rathbone.”
Woodward thinks the charges are typical for this type of product but Cox feels the initial charge is high.
The panel agree that commission is fair and reasonable.
Looking at the product literature Spencer says: “The product literature is well put together, concentrating on the star fund managers which are its greatest asset. It is easily understood and not too technical.” Cox thinks it is very good, while Woodward says it is well-presented and in the same style as its other literature.
Summing up Woodward says: “New Star's team is impressive and it continues to attract new managers. It is pleasant to deal with and will attract good support from the IFA sector.”