FINANCE NEWS: Equity markets hold opportunity

MATHEW LITTLE

Charity investors should look to buy good quality stocks as the markets tumble, according to leading fund managers.

The value of FTSE-100 companies has dropped by 10.9 per cent since the end of May.

But David Kidd, chief investment officer with fund managers Chiswell Associates, said the firm had just decided to buy a selection of UK and US equities on behalf of a number of charity clients.

"The market is being driven by high-yield stocks such as tobacco and alcohol and that has gone too far. We are close to a turning point in the market. The equity market is substantially undervalued. Equities offer value on a long-term basis and charities should look to buy,

he said.

Recent falls on the stock market have worried charities, which increasingly rely on investment income. Nearly 70 per cent of charities use investment for funding their core costs, ahead of public donations and grant income, according to last year's annual survey of charities by law firm Charles Russell.

But James Saunders Watson, head of the charities team at JP Morgan Fleming Asset Management, said that charities are still receiving a strong stream of income from equity investments.

"Income is not affected by the massive falls in capital value. The yield at 3 or 4 per cent is still relatively attractive,

he said. Although charities that have adopted a total return approach, taking the above inflation excess return from the capital value of stocks, as well as income, will be affected.

Andrew Raisman, assistant director of Baring Asset Management's charities business, said that charities needed to adopt more fluid and flexible investment strategies in response to stock market volatility. They should move away from median benchmarks, which measure their funds against other charity funds and look to outperform them. "The structure bears no relation to their liabilities and spending requirements,

said Raisman.

Charity funds should also have the capacity to move aggressively in and out of UK equities. "We have a benchmark of 50 per cent, allowing the charity to go down to a minimum of 25 per cent and a maximum of 75 per cent, but no charities have yet moved to the lower extreme. They can move investments into overseas equities, bonds, corporate bonds and alternative assets,

he said.

The volatility of the stock market could begin to affect charities' spending plans as they are forced to dip into reserves and put a hold on new projects.

John Rogerson, head of investment at CAF, said that charities which rely on investment to fund services could be forced to adjust spending plans.

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