Optimum Income fund, run by steve snowden, will invest exclusively in UK-issued bonds
Aegon is to launch a higher yielding bond Oeic subfund in March offering 8% per year to investors.
The Optimum Income fund adds to two other bond funds, which the group is promoting with a three-month campaign entitled Aegon for Bonds.
The new product will be managed by Steve Snowden, who also manages the Extra Income and Socially Responsible bond funds included in the campaign.
The portfolio will invest exclusively in UK-issued bonds and is aiming at having an approximately even split between investment-grade debt and high-yield paper.
Helen McGill, head of product strategy at Aegon, said there would be a degree of flexibility in the split but that it would not exceed 70:30 in either direction.
A 1% discount will be offered on all three of Aegon's bond funds for the duration of the campaign. The initial charge on Optimum Income is typically 5.5% and it has an annual management charge (AMC) of 1% with no exit penalty. Intermediary commission will be up to 3%.
The minimum investment is £500 or £50 per month for retail 'A' Share investors. Those with more than £250,000 to invest will be entitled to the institutional 'B' Shares. For these investors, the initial charge will be 4.5%, with an annual fee of 0.5%.The fund is seeking to provide relatively high returns without going too far down the quality curve. Danny McKernan, head of fixed interest at Aegon, said: 'A lot of funds seem to be buying very low-quality paper in a bid to push up yields. I don't think there is a full understanding about the level of risk attached to the highest yielding bonds.'
Jon Bennett, director of the retail fund business at Aegon, also stressed the shortcomings of other fixed interest products on the market. He said: 'There is not much stock in the investible universe, so those funds with a yield of above 10% have to rely on convertibles or preference shares, which are not transparent, or overseas bonds, which are subject to currency fluctuations.'
The group is to publicise its bond offerings with an extensive marketing campaign, which will include consumer advertising for the first time.
McGill said the campaign and launch was part of a strategy to make use of its institutional capabilities in the retail market.
'We have established successful processes to make decisions on fixed income on the institutional side and we want to use these to offer a range of quality fixed interest products to retail investors,' she added.
The S&P four-star-rated Extra Income portfolio, run by Snowden, is ranked 11 out of 78 funds in the UK Corporate Bond sector over the three months to 31 December 2001, while the Socially Responsible fund is rated 15 out of 78 for the same period.
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