Standard Life Investment Higher Income bond fund, to launch on 7 February, will feature a target yie...
Standard Life Investment Higher Income bond fund, to launch on 7 February, will feature a target yield of 8% and have a portfolio of 25 stocks.
The fund, to be managed by Andrew Sutherland, will invest 40% in high yield, consisting of only 10 holdings.
The remainder of the portfolio will be a mixture of investment grade corporates, debentures, emerging market sterling debt and structured or securitised deals.
The 3% initial charge will go to the intermediary and there is an annual fee of 1% of which 0.25% is available as renewal. The fund is Isable. There are four share classes, retail income, retail accumulation, institution income and institutional accumulation.
The fund will look to hold some pub securitisation bonds, which are yielding more than 200 basis points over gilts, according to Alix Stewart, an investment director on the Standard Life Investment fixed interest team.
Another investment in the fund will be Castle Transmission, a high-yield bond yielding 290 basis over gilts. Castle owns the transmission towers that service mobile phones, the BBC and digital television.
Stewart said: "For a bond fund it will be high risk as we are going purely for high income with it. We hope to get our credit right to avoid defaults. The target of 8% is realistic considering what the market is showing at the moment."
Credit analyst Steve Logan, previously with Sumito Trust and Hill Samuel, has joined the bonds team at Standard Life to support the fund with his experience in high yield credits.
The actual higher yield portion of the fund is looking at bonds with an average credit rating of B. The portfolio overall may be closer to BB or BBB.
Sutherland said: "There was not much issuance before the New Year and a lot of people are chasing paper. We did not want to launch the fund in that environment.
"We expect to see a lot more issues in the first quarter this year. The fund will be open to Pep transfers as it will have more than 51% in sterling. At the beginning we are aiming for 100% sterling but we do have the flexibility to go into other currencies like the dollar or euro."
Standard Life Investment is hosting a roadshow starting on 17 January to promote the fund which it believes rounds out its income offering. The group has an AAA Income fund, launched last year, as well as a corporate bond fund.
The Standard Life Corporate bond is ranked nine out of 90 funds over three months with returns of 1.1% compared to the average 0% in the UK General Bonds sector. Over three years the fund has returned 22.8% and is ranked 32 out of 59 funds in the sector.
The AAA Income fund is ranked 49 out of 90 funds and returned 0% over the three months to 1 December.
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