New Star Investment Funds has established the New Star distribution fund, which is designed to deliver high income and capital growth over the long term.
The fund invests 60 per cent to 65 per cent in bonds, with the remainder in equities. Initially, there will be 60 holdings in the portfolio, but this may increase to 100.
The target yield is 5 per cent gross a year and investors can take this income on a quarterly basis or reinvest it.
Theodora Zemek will be the lead manager of the new fund. She joined New Star from M&G, where she worked closely with James Gledhill. Gledhill will assist Zemek at New Star by managing the fixed-income element of the distribution fund, while Toby Thompson will manage the equity side.
Zemeks role is to allocate money to Thompson and Gledhill. She also has the discretion to manage some of the portfolio herself by investing in other assets, such as emerging markets debt and derivatives.
Gledhill will take a top-down approach to the fixed-interest element, looking first at sectors, then examining the individual companies within those sectors. Thompson will buy shares on the equity side when companies are out of favour and their yields are high, then sell them when they are back in favour and their yields have fallen.
The fund could suit cautious investors who are looking mainly for income when the UK economy is likely to produce modest investment returns. However, it will need to compete with Jupiters distribution fund, which has a similar structure and the same target yield.
According to Standard & Poors the New Star higher income fund is ranked 44 out of 82 funds based on £1,000 invested on a bid-to-bid basis with net income reinvested over one year to January 13, 2003.