An unpleasant first half, but keep context in mind - Financial indicator
September 2008
The WM Charity Fund monitor has reported that in the first half of 2008 the total value of the investments held by charities fell by 8.4 per cent.
Within this average, individual asset categories gave a wide range of returns. Cash was positive and there were gains available on overseas bonds too, but most other asset classes saw falls in value. After a long positive period, property declined but the worst performances came from equities, in the UK and overseas.
Looking at the period in a little more detail, we see that most of the problems occurred at the very start, with January in particular very poor. In this one month, the UK equity market, as measured by the FTSE All Share Index, fell 8 per cent while markets in the USA, Europe and Asia experienced double-digit declines. After trendless trading until March, investment markets began to recover and although this improvement faded, the return charities experienced in the second quarter was only slightly negative at -1.6 per cent.
The reasons for the decline were various. Important was the credit crunch, in itself and in terms of the impact it would have on the world economy, where growth rates were already under pressure. Another important consideration, was the growing pressure of inflation. Investors became concerned that a combination of slowing growth – with a risk of recession, coupled with higher fuel and food prices – brought the threat of stagflation (see James Codrington's article 'More of the same' in this issue).
Unpleasant though they are, it is important to keep these returns in context. Using the same charity fund monitor we can see that in recent years performances have been strongly positive. Since 2003, the annual returns have been +17.4 per cent, +11.3 per cent, +20.4 per cent, +12.5 per cent and +6.1 per cent. Against that background, some reaction was always likely and, in the difficult economic climate, inevitable.
More important than the past is the outlook and it would be wrong to suggest that all the clouds in the investment sky have cleared. The correct asset allocation for a charity is the one best suited to meet its objectives.
Author: John Kelly
John Kelly is head of client investment at CCLA.
There are no comments on this article. Be the first to comment.