OUR GILT NEEDS NO APOLOGY

There are those who might think it necessary for us to apologise for bringing this particular topic to your attention. If the weight of financial commentary that we receive is to be believed, now is not a good time to be investing in gilts (ie Government Securities). On the other hand we are reminded of one of the 'principles for investment success' expounded by Sir John Templeton, founder of the massive Franklin Templeton empire. Sir John said 'Never follow the crowd'. If you want to read all of his investment principles you will find an Adobe pdf version of his '10 Principles for Investment success' on the free literature section of our website.

Studies have also shown that around 91% of the source of a portfolio's outperformance of a benchmark or peer group came from the asset allocation decision, with stock selection and market timing together accounting for less than 10%. For those investors who should have an allocation of gilts or gilt funds in their portfolios, therefore, now is as good a time as any to invest.

Gilts are particularly attractive to investors who need a known level of income with a guaranteed capital return. Although gilt funds cannot offer a guaranteed return they are a useful investment vehicle and can provide tax free income when held in an ISA or PEP.

We would particularly like to draw the intention of investors to two funds that use gilts and which are available through the Cofunds Fund Supermarket. The first is the RLAM ( Royal London Asset Management) UK Fixed Interest Trust. RLAM is not a well known name in the retail market but it has a good name in the institutional market (fixed interest assets under management 14.3 billion pounds). Their 9 man fixed interest team is lead by Jonathan Platt (Citywire AAA) who has been with Royal London since 1985. The team is supported by a Quantative Techniques Team of 9 led by Dr Paul Doran. Before becoming a director of RLAM in July 2005, Dr Doran was a Money Manager in the Gilt Edged and Money Markets division of the Bank of England, and an Assistant Director at Barclays Bank. The fixed interest team includes Sajiv Vaid (Citywire AAA). The UK Fixed Interest Trust currently has 92% in gilts and 8% in unrated bonds. The presence of unrated bonds give an edge to this fund. These are not junk bonds and are given ratings by RLAM, they have just not gone to the expense of getting a rating from an independent agency.

The second is the Liontrust Distribution Fund. 65-70% of the Fund is invested in a portfolio of gilts managed by State Street Global Advisors, with the remainder invested in a portfolio of mainly high yielding equities, managed by Jeremy Lang, Joint Investment Director of Liontrust. Jeremy Lang follows very much in the Templeton tradition and has his own four investment principles, one of which is ' pessimism'. He states 'In my experience, the best way of getting long term capital reward is to buy stocks when other investors don't like them, or at least are sceptical about their prospects'. In practical terms he looks for stocks that are 'ugly', 'boring' or 'unfashionable'. The Liontrust Distribution Fund aims to provide a high level of income (paid quarterly) with long term capital growth. The Fund is a lower risk investment combining the ability of a gilt portfolio to provide a consistent level of income and relative security in volatile markets, with the potential for capital growth and rising income of a UK equity portfolio.

You will find background information on gilts as an investment on a recently updated section of our website.

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