Which corporate bond fund?

By THIS IS MONEY
Updated:

 

Experts are predicting a comeback for corporate bond funds. But if you are thinking of investing in one how do you know which to choose? And what sort of bonds will your fund manager be buying? This Is Money asked a panel of top independent financial advisors to pick six of the best deals on the market - ranging from lower-risk but lower-yielding bonds to better paying but higher-risk alternatives. Here, we put them under the microscope to give investors all the information they need to shop around.

Lower yielding funds for cautious investors:

M&G Corporate Bond Picked by Alan Durrant, UK equities director of independent financial advisers Hargreaves Lansdown. He says: 'You need a manager who has been through the mill, which is why we would stick with the big players such as M&G who are experts in this sort of market.'

Here are the fund's key statistics:

Yield: 6%. Initial charge: 0%. Annual charge: 1% taken from income. Fund size: £1.1 billion. Minimum investment: £500. Launch date: April 1994.

Fund composition: Over 90% is UK corporate bonds with some gilts and cash holdings. Biggest bonds holdings include those in Lloyds TSB, HSBC, NatWest, Royal Bank of Scotland, Asda.

Scottish Widows Corporate Bond Picked by Paul Fuller, director of independent financial advisers Baronworth. He says: 'Scottish Widows is a good company with a good track record in this sector and the fund's annual charges come out of the yield not the capital. This is attractive as charges taken out of capital eat away at the client's savings.'

Yield: 5.75%. Initial charge: 5%. Annual charge: 1.2% taken from income. Fund size: £178.7m. Minimum investment: £1,000. Launch date: October 1997.

Biggest bond holdings include those in European Investment Bank, Vodafone, Abbey National, BT, McDonalds, Halifax.

Medium yield

CGU Monthly Income Plus Picked by Alan Durrant. He says: 'Another big and reassuring player with management who knows the market well.'

Yield: 7.26%. Initial charge: 3%. Annual charge: 1.25% taken from income. Fund size: £1.4 billion. Minimum investment: £500. Launch date: May 1989

Biggest bond holdings include the Treasury for the fund's gilts, Abbey National, BT, Bank of Scotland, P%&O, Thistle Hotels.

Threadneedle UK Corporate Bond Picked by Andrew Miles, head of research at Leeds-based Thomson's Financial Planning Consultants. He says: 'Though interest rates have taken their toll on the capital value of bonds in the past year this fund has maintained an above-average performance.'

Yield: 6.53%. Initial charge: 2%. Annual charge: 0.5% taken from income. Fund size: £159.5 million. Minimum investment: £2,000. Launch date: July 1995.

Some 20% of the fund is invested in overseas bonds. The biggest holdings include the Treasury, Railtrack, Boots, Tesco, Coca Cola Entertainments.

High yield

Aberdeen Fixed Interest Picked by Alan Durrant. He says: 'This is a long-standing fund with a good and respected name offering an excellent yield.'

Yield: 8.20%. Initial charge: 4.25%. Annual charge: 1.25% taken from capital. Fund size: £1 billion. Minimum investment: £500. Launch date: April 1979

Biggest bond holdings include Orange, NTL, Rank.

Mercury High Income Bond Picked by Andrew Miles. He says: 'Another above-average performer offering realistic returns without compromising portfolios in terms of undue risk.'

Yield: 8.09%. Initial charge: 3.25%. Annual charge: 1% taken from capital. Fund size: £102 million. Minimum investment: £1,000. Launch date: July 1995.

Some 20% of the fund is held in European bonds. Biggest holdings include National Grid, Commercial Union, BAA, BT and Thames Water.

Bonds set to make a comeback

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