Standard Life Higher Income Fund Retail Accumulation

In all the great boxing matches one upset really stands out; Muhammad Ali versus George Foreman in 1974. Ali was considered past his prime and widely expected to lose. Foreman was bigger, younger and stronger. Remarkably Ali tactically wore out his opponent then knocked him down, regaining the heavyweight crown. Sometimes quality can be underrated.

Bonds have underperformed for some time and prices have been marked down regardless of the quality of the issuer. Some fund managers have been forced to sell bonds as ratings have been reduced, demonstrating that although less volatile than equities, they can still fall as well as rise in value. The best time to invest can be when sentiment is negative and we believe there is currently compelling value in many areas of the market, in both high and lower yielding bonds.

The market valuations indicate up to 10% of bond issuers could default on their interest payments. Since 1970 the worst default rate in any five year period has been 2.5%. We think pricing in 10% is over-pessimistic and represents a real buying opportunity for those not too averse to risk. With prices low and yields high some bond fund managers believe we are currently seeing a buying opportunity that only arrives once in a generation.

Interest rates look likely to move lower. This scenario often means bond prices move higher. Higher than average yields also make bonds look doubly attractive. Investors can buy the bonds, take the income and also enjoy any capital growth if bonds bounce back.

One area in which insurers have excelled over the years is bond management. Standard Life Investments is no exception. We believe a good way to take advantage of this situation is via their Higher Income Fund. The manager invests predominantly in higher yielding, higher risk bonds but also has some exposure to investment grade bonds. Currently the fund yields 6.9% and remember that in an ISA or SIPP this is tax free. If
like us you believe bonds could deliver a knock out punch, the Standard Life Investments Higher Income Fund could make an excellent choice.

CORPORATE BOND FUND YIELDS - AN EXPLANATION

The running yield is an indication of the level of income you might receive, based on the income paid over the last year and the current value of the fund. The gross redemption yield is a theoretical figure which also takes into account the gain or loss that would be made if all the corporate bond holdings were held to maturity. Both yields are correct as at 16/04/2008 and are variable and not guaranteed.

Standard Life Investments Higher Income
Running Yield 6.9%
Gross Redemption Yield 7.8%