Have gilts lost their shine?
April 2010
Some asset classes may not be quite so safe to sit on as we come out of recession, despite being a welcome refuge from volatility in the tough times.
Chris Wyllie, partner and head of portfolio management at Iveagh Private Investment House observed that while charities have been glad of their gilt holdings over the last 10 years or more, they cannot rest on their laurels. Just as their income requirement led them to ‘accidentally’ back the right horse over this time, they should now be wary of falling into an investment abyss.
‘The income yield on gilts is no longer that attractive – currently about 4 per cent - and is only about 0.5 per cent higher than that available on equities and equity dividends can rise with inflation, unlike gilt coupons. There is a distinct risk of gilts entering a bear market akin to that experienced by equity markets in the last decade, with prices falling markedly over a long period.
‘Many charities, whilst recognising the attractions of equities after 10 years of negative real returns, find it hard to stomach the volatility that comes with them, and the risk of further big falls if the economy stumbles into a double dip recession. ‘
Chris recommends charities adopt a flexible approach, shifting between asset classes such as bonds and equities as they move through the cycle. ‘It’s not easy, but with a strong process, it is possible to have your cake and eat it – protecting capital in the bad times but capturing upside in the good times’ he says.
Further information on investment risk management will be available in Caritas’ Guide to Risk Management which will be published with the May issue of Caritas. Chris will be speaking at Iveagh’s free seminar, ‘Investing for the future’ on 20 April at the NCVO with whom they have partnered to provide investment information to charities. Information on this is available from Michelle Brister on 01424 870 589.
Author: Clarissa Dann
Clarissa Dann was the editor of Caritas as well as an HR and management online service,he People Bulletin until July 2011.
She is now the editor of the specialist trade finance magazine, Trade and Forfaiting Review which can be viewed at www.tfreview.com but does write on charity finance and investment from time to time.
Clarissa has a background in legal and professional publishing, as well as business journalism and holds an MBA from Cass Business School. She has been one of the judges for the non-profit category of the Chartered Institute of Marketing's Excellence in Marketing Awards for the second year running.
She has also acted as clerk to the trustees of a small almshouses charity and as a member nominated trustee to a pension scheme of a multinational publishing company.
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