The hunt for yield in a market characterised by wafer-thin interest rates is prompting RBC Wealth Management to encourage clients to take a hard look at yield-enhancing currency, debt and equity products.

The firm thinks this year’s equity rally is “long in the tooth” as much of the rise has been driven by low bond yields and interest rates - a situation unlikely to endure forever. But in the near term, with yields so low, a number of ideas are worth examining, Phil Cutts, head of advisory at RBC’s wealth arm, told journalists in a briefing yesterday.

“You have got a client base that is nervous about markets but is perhaps not quite as nervous as they were,” Mr Cutts said.

Among its fixed income ideas is a short-dated bond portfolio with high credit ratings, in the form of a floating rate note, linked to Libor, that pays a guaranteed minimum floor rate of 4 per cent, he said. On the equity side, Mr Cutts suggested the idea of a “best entry point note” with a six-year maturity. The product enables an investor to buy stocks at the cheapest level between a start date and six months after that date, and then hold the product until its maturity after 6 years.

On the currency side, to exploit what have been some significant moves foreign exchange, Mr Cutts pointed to the example of dual-currency deposits. For example, an investor deposits an amount of sterling in a contract at a spot rate against the dollar of $1.5940. If sterling-dollar closes above £1.6242 at maturity – say after a week or month, depending on the contract – the investor’s sum is converted back into dollars. If the exchange rate stays below $1.6242, the investor is repaid in sterling. In this case, the investor will always be paid an interest rate of 5 per cent on his sterling deposit at maturity, according to the example given by RBC.

These products are designed to give the investor a degree of protection against adverse market movements while taking the chance to move up the risk scale, Mr Cutts said.

Speaking at the same media briefing, Peter Lucas, investment strategist at RBC Wealth Management, said one paradoxical risk to equities at the moment could be resurgent economic growth, since this may prompt central banks to finally move away from their ultra-low interest rates and tighten monetary policy. He pointed out that the process may have already started, citing the example of Australia’s increase of interest rates at the start of this week.

“It is early days yet but there is a building interest rate story that will have an effect on the market,” Mr Lucas said. “I think that the equity market has limited upside at the moment. But I am not saying that it is going to lurch and fall over.”

Looking at technical charts of stock market behaviour, Mr Lucas pointed out that the S&P 500 index of US equities, for example, is currently near the upper end of a 200-day moving average point, suggesting it is likely to drop as the index reverts to its mean level over the long run. Mr Lucas also highlighted the risk that while quantitative easing – or printing money – by central banks had arguably warded off a global depression, the vast increase in the money supply held out the threat of future inflation.