Scottish Widows has introduced the strategic income Isa, which invests in investment grade UK corporate bonds and non-investment grade European bonds.
The Isa follows the middle path between the two existing Scottish Widows income Isas, the higher-risk high income bond Isa and lower-risk corporate bond Isa. The target income yield of the new product is 7.14 per cent, which is 1.14 per cent lower than that of the high income bond Isa and 1.66 per cent higher than that of the corporate bond Isa.
Gareth Quantrill, the fund manager, joined the company in 2000 after spending nine years as an investment manager with Norwich Union's fixed-interest team. He currently manages Scottish Widows' corporate bond fund.
With the strategic income Isa, he will take a top-down approach to the selection of bonds looking first at economic factors, then sectors, then finally which bonds to buy and sell. Examples of possible holdings include British Aerospace on the investment-grade side and Gala Bingo on the non-investment grade side.
The results of a survey by Gartmore in January 2002 show that 42 per cent of investors are looking for income, so the Scottish Widows product is well placed to meet this demand. It may appeal to medium-risk investors seeking medium returns, but as the Isa season hots up, so will the competition.
According to Standard & Poor's, the Scottish Widows high income bond fund is ranked 10 out of 33 funds and the Scottish Widows corporate bond fund is ranked 11 out of 73 funds based on £1,000 invested on a bid-to-bid basis with net income reinvested over three years to February 25, 2002.