New Star has unleashed its fourth fund, the New Star higher income fund, in time for the Isa season.
The fund aims to produce a rising level of income and capital growth by investing mainly in UK companies, using the FTSE All Share as its benchmark index. It is expected to contain between 55 and 75 stocks and can invest in ordinary shares, fixed-interest securities, preference shares and convertibles.
Toby Thompson, who joined New Star in 2001 from Newton Investment Management, will manage the fund. He was responsible for the Newton higher income fund between April 1, 1996, and July 2, 2001. This fund was ranked 3 out of 76 funds based on £1,000 invested on a bid-to-bid basis with net income reinvested during Thompson's tenure, according to Standard & Poor's,
Thompson will run the New Star fund in a similar style to the way he managed the Newton fund. He will buy shares when the companies are out of favour and their yields are high, then sell them when they are back in favour and their yields have fallen.
To generate a high yield, Thompson will only buy companies with yields that are at least 20 per cent higher than the yield on the benchmark, which could isolate more stocks than he needs. To narrow the options down further, he will look at cash flow, management and business strategies and potential earnings.
Investors looking for income at a time when interest rates are low could be attracted to this fund, especially as the income is set to increase as time goes on. But much depends on Thompson's ability to transfer his successful stockpicking style from Newton to New Star.
According to Standard & Poor's, the New Star UK growth fund is ranked 46 out of 297 funds based on £1,000 invested on a bid-to-bid basis with net income reinvested on a bid-to-bid basis with net income reinvested over six months to January 21, 2002.