Income-seeking investors face problems

Advisers face a careful balance this year if they need to find yield for their clients, Mint Asset Management chief investment officer Paul Richardson says.

Monday, February 9th 2015, 6:00AM

by Susan Edmunds

He said equities could perform well this year but after five or six years of very strong returns, they looked fully priced.

But that would probably not put investors off who found their fixed interest portfolios were not delivering the income they wanted.

He said fixed interest was not going to be able to provide safety or returns over the short to medium term. “That’s a quandary for advisers. You can’t go to your elderly clients and say ‘you’re not getting yield out of bonds I’m going to put you in shares’. The regulator won’t accept that.”

He said portfolio returns overall would likely be lower this year but getting the mix right would be what set advisers apart.

Mint had created a diversified income fund to tackle the income problem for conservative advisers, Richardson said.

The fund has a higher allocation to shares than is normal for a conservative fund. The target is 40% equities but they are in things such as infrastructure, utilities, ports and property. The fixed interest component is not government bonds but more trusted corporates and other entities with a better spread.

Fixed interest is not government bonds but more trusted corporates and other entities that have a better spread. “It’s a balance of income from fixed interest assets and share assets but the volatile side has low beta with less volatile equities,” Richardson said.

He said the FMA would likely be watching closely for any retail offerings that purported to offer a higher yield.

“There’s a need for people in retirement or nearing retirement to find yield. They went to finance companies 10 years ago and came a nasty cropper. There’s a need out there. One of the problems is that market returns have been strong so that’s prompting advisers and investors to consider allocating more than they otherwise would have done to riskier assets. There’s no easy answer. A more diversified portfolio protects from downside risk, rather than chasing the highest yield you can get.”

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