Scottish Widows has created three unit-linked corporate bond funds for its Investment Solutions range of funds for its life and pension products.
The funds are available through Scottish Widows' flexible options bond, regular savings plan, personal pension, group personal pension, and executive pension plan and income drawdown products. The corporate bond assurance/pension fund and strategic income bond assurance/pension funds are also available through stakeholder, but the high-income bond assurance pension fund is not.
The funds each invest in an underlying Scottish Widows fund. The underlying asset allocation for the high-income bond assurance/pension is 65% high yield bonds and 35% Government bonds. The bonds are selected on a bottom-up approach and are screened in terms of yield, cash flow and other factors that may enhance a company's future prospects.
The strategic income bond assurance/pension fund invests mainly in investment-grade UK and European corporate bonds selected on a top-down basis. Finally, the corporate bond assurance/pension fund works in a similar way but is biased towards the UK.
Low yields and high prices have led to concerns that the bond market is starting to look unattractive compared with equities, despite the strong performance of high-yield bonds. However, it is still early days and bond funds may still be popular with investors until equity markets fully recover.
According to Standard & Poor's the Scottish Widows corporate bond fund is ranked 10 out of 64 funds and the Scottish Widows high income bond fund is ranked eighth out of 27 funds over three years based on £1,000 invested on a bid-to-bid basis with net income reinvested over three years to August 11, 2003. There is no three-year past performance for the Scottish Widows strategic income fund but it ranks 20 out of 48 funds over one year on the same criteria.