Yield-chasing raises concern
A financial adviser is worried the search for yield is pushing investors into investments that are riskier than they think.
Friday, February 8th 2013, 9:08AM 
1 Comment
by Niko Kloeten
Mike Newton of Newton Ross said low interest rates were causing increased interest in high-yielding products, often without appreciation of the risks
“Kiwis and Kiwi advisers have a real orientation towards yield and that gets them into trouble,” he said.
“I think New Zealanders have got an obsession with yield and they don’t look at the underlying risks of the investment that are driving that yield. You start seeing people climbing into all sorts of things.”
Newton said investors were moving intosub-investment grae bonds and just looking at the spreads without taking into account other factors; syndicated property and equities were other popular options for those after yield.
He said it was important for financial advisers to make sure investors fully understood these products and the risks involved.
“There’s a plethora of income funds being created. People buy that and think it’s a fixed interest investment; they don’t understand it’s a yield-chasing investment. People have asked me about it and I explained it holds shares and they were very surprised.”
Harbour Asset Management chief financial officer Jody Kaye agreed there was a risk investors could be confused by the “income” label, which he said Harbour tried to avoid by including the word “equity” in the title of its Australasian Equity Income Fund.
“There are products out there that are fairly generic in name and you don’t know what the underlying investments are; it’s an income fund but how is the income generated?” he said.
“We’re very up-front that our fund invests in equities so clearly there are risks; it’s going to move up and down with the market and there’s a lot of capital volatility.”
Kaye said he shared Newton’s concern about investors potentially coming unstuck in their quest for yield.
“It’s very much a concern especially if investors are not getting appropriate investment advice."
Tower Investments head of fixed interest Craig Alexander said further declines in bond yields could push investors into other, less regulated investments.
“If they go out of the fixed income sector into other sectors where there’s not as much scrutiny by public institutions, those are the conditions where there could be adverse outcomes.”
Niko Kloeten can be contacted at niko@goodreturns.co.nz
| « Ross couldn't keep up with withdrawals: Receivers | Fund managers call for level playing field » |
Special Offers
Comments from our readers
Sign In to add your comment
|
|
Printable version |
|
Email to a friend |
Shares can be too volatile to live with and property has basically seen it's day for the big capital gains enjoyed for the last couple of decades until the GFC hit the world.
The banks have always had it right.!
They have "never" wanted to have their name on your property "title."
They have always been real clever and chosen the ultimate security (low-risk... or safety), and have chosen to have their name on the "mortgage"(their "investment").
After all, they act sort of like financial planners, and invest (partly..see below) other people's money into things (like mortgages).
You could be a financial planner who does it themselves for their clients...or, if you don't understand how simple and effective it is,there is a 100% NZ website initiative (live but not active, so it can be used FREE of charge for all investors).
This site obviously has the "final solution" to the decisions that financial planners have been searching for.
"How to provide their investors with
LOW -RISK...HIGH-RETURNS !
There are literally 1000's of real decent Kiwis who have fallen to the "Baycorp Curse",because they maybe had a "memory lapse" and forgot to pay the last $20 off their Farmers Card (maybe due to a result of a misunderstanding in a broken marriage??), and subsequently the banks "automatically decline" any mortgage application?
"Enter" the rescue site.
Free of charge, the site shows how lenders (financial planners investors) can "secure" returns of 12% or more.
Further, these returns may be for a shorter term (eg 6 months) so that equates to a 24% PER YEAR return...all with a registered 1st mortgage security!
To claim that "HIGH RETURNS [automatically means] HIGH RISK", is now clearly a very misleading saying, when applied to this analytical example?
Lenders can just choose their comfortable level of LVR.
It is a true "Win-Win" situation because the lenders (investors) eliminate virtually all risk and receive high returns .
(A) The "borrowers" receive a beloved mortgage , and are helped on the path to regaining their good Kiwi reputation so they can ultimately go to the bank to re-finance at a lower rate in a year or so..!
(B) The lenders (financial planners 'investors') learn the truth that HIGH RETURNS ARE NOT ALWAYS HIGH RISK, and that they can have the ultimate security to give ultimate peace of mind.
With a "mortgage" investment it is all very simple and transparent for even relatively unsophisticated investors to understand, and they are not confused when told that their other "fixed interest"(income) investments are actually derived from shares or government bonds.
To finish,... such bonds are now a higher risk with interest rates only having one realistic way to move.
Most investors (and...I suggest most investment advisers/financial planners) do not understand that there is a very real risk of capital loss from such bonds in the event that the investor sells prior to maturity when interest rates have risen.
But that is another specialist topic.!
Sadly, the void that has been left by the demise of most of the old finance companies (not that I had cause to ever use them)has been left with us, and will remain a "void", until the fact is realised that there is an effective solution.
The banks did not fall over like the finance companies did when the GFC crunch happened, because they enjoyed and still enjoy the fact that they (banks) can lend out much more money than they have in their asset-base coffers!
Wouldn't it have been great for the finance companies back just a few years, if they had a million dollars deposited yet could enjoy the "fruits" of being able to lend out maybe $10 million.
Almost like a type of "ponzi" ...is it not?
Ex F.P. & Professional Money Manager, Michael Donovan