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.”