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Newton plugs into tech market

Roberts says: "This product will provide opportunities to market it to retired clients who are struggling on the income received from building societies and other deposit accounts. It may also be of interest to investors with Tessas maturing, many of which will be coming to the end of their second five years from January 2001 onwards and who may now require income from the investment. There are also possibilities for Pep transfers for the same reasons."

Gaunt says: "There are opportunities for clients requiring a higher level of income where risk to capital is not a problem. Also the newly retired who are investing tax free cash for income, rather than losing the capital to purchase an annuity offering a lower income."

Looking at the advantages that the product offers, Lewis says: "One useful feature is the monthly income, as many others are paid quarterly. Newton also has a good record of solid performance in this area."

Gaunt points out the fact that it has high income with an investment strategy designed to reduce risk, while Graham says: "The fund manager is highly regarded and the charges are reasonable. The timing may also be very good if the Euro strengthens. It has a high yield and capital growth is likely."

Roberts adds: "The useful features are that it offers monthly income payments and that it is available for Pep transfers as well as Isas."

Examining the drawbacks that the product offers, Gaunt says: "The disadvantages include the risk to capital and the potentially bad press surrounding the lower grade bonds which may unsettle some clients."

Roberts says: "The main disadvantage, as with all corporate bond funds, is that the returns are very cyclical and if you enter into the market when interest rates are increasing you may have to wait a long time to get any capital growth or erase any erosion of capital. The product is entering the market at a time when European interest rates are creeping up and increasing worries over levels of debt within sectors such as the European telecoms sector. I would also prefer the annual management charge not to be taken from the capital."

Graham says: "Inevitably there is a heavy concentration on telecommunications issues and there is the obvious risk of being too heavily into one sector. However that is inevitable in Europe at present. Clearly the future health of the Euro is crucial."

Turning to the investment strategy, the panel has mixed feelings. Gaunt says: "It is clearly trying to balance risk and performance to maximum effect," while Roberts says: "The investment strategy is reasonable as long as investors understand the risk and are not sold the product on just the headline rate. It is a strategy that is increasingly being implemented by other companies corporate bond funds in order to obtain a very high yield."

Graham says: "The investment strategy replicates what some other excellent funds have done. If the risk assessment in the fund is properly done the default rate should be modest in view of the yield gap."

However Lewis is more positive. He says: "The strategy is generally impressive in terms of risk, with very little exposure to BB and below corporate bonds. There is a good selection of funds which should deliver income, although capital value may not rise in the present market."

The panel are positive about Newton’s reputation. Gaunt feels that it is very good over a number of different sectors, while Graham has a high regard for the company.

Roberts says: "Newton has an excellent reputation, gained over a long period of time with good past performance, especially in income sectors."

Identifying the main competition that the product will face, Roberts points to the Aberdeen high yield bond fund and the Threadneedle corporate bond fund, while Lewis identifies the Mercury high income fund and the Aberdeen fixed interest funds.


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