Investors search for income

More investors are looking for products that produce income in retirement, as low interest rates persist.

Thursday, November 2nd 2017, 6:00AM

by Susan Edmunds

AMP Capital’s head of investment strategy for New Zealand Greg Fleming said: “It looks as if the low deposit interest rate environment in New Zealand could continue even longer than expected. With such an outlook, the defensively-positioned yield enhancing investment ideas should continue to attract strong interest.”

He said, while there was mounting pressure to lift bond yields globally, the drivers of New Zealand domestic term deposits rates were more locally determined.

He said competition to secure deposit funding had resulted in only a marginal increase in rates. If unemployment rate reductions were added to the Reserve Bank’s mandate, as the government has signalled it plans, that could keep the official cash rate lower for longer. “People who are waiting for an uptick back to what they see as normal term deposit rates could be waiting a couple of years.”

In general, that made it harder for investors to turn lump sums into income. There was a risk that people would take too much risk in the search for yield and could be hurt when the cycle turned.

AMP Capital’s Income Generator fund had been "very popular" he said, and had grown to $110 million after four years.

Fleming said such as that fund offered a higher yield than term deposits without too much extra credit risk. At the moment it is delivering 1.6% to 1.7% above term deposits, with 40% growth assets.

He said more managers were moving into the area, although it could be difficult for investors to understand the quality of the underlying assets in some funds.

Some managers were incurring more risk than was immediately apparent, he said. "Especially quite late in the cycle."

Fleming said it would not be long before AMP Capital brought more of its goals-based products to New Zealand, that would offer New Zealanders more retirement options. It has products in Australia that allow investors to elect to make a sum last a set amount of time, or set a desired level of income.

Tags: AMP Capital interest rates investment OCR Reserve Bank retirement yield