Charity investments fall further


Charities lost 15 per cent of the value of their investments in the third quarter of this year - the worst three-month slump since the stock market slide of 1987.

Latest figures from the WM Company reveal the total return of charity investment funds, which include capital value and income, fell by 14.8 per cent from the end of June to the end of September. But excluding income averaging at 3.3 per cent, the fall in capital value will have been even higher at close to 15.5 per cent.

Sarinder Singh, executive director at WM, said: "The fall of 14.8 per cent is the second worst return since we started recording the performance of charity funds in 1986. The worst was the last quarter of 1987 after the stock market crash, when charity funds lost 22 per cent."

Charity funds have fallen by 23 per cent over two consecutive quarters with a drop of 8.4 per cent in the second quarter of this year.

The reason for the 14.8 per cent decline in the last quarter was the desperate performance of equities. UK equities fell by 19.3 per cent, posting their worst return since 1987, a performance mirrored by overseas shares.

"All equity markets fell like stones, dropping by around 20 per cent across the world," said Singh. "But bonds and property had positive returns."

Fund managers have responded to the falls by buying equities in anticipation of a market turnaround next year.

"Although the proportion invested in equities has fallen (from 77.6 per cent of charity funds to 73.8 per cent), this is because equity returns have fallen so drastically over the last quarter," said Singh.

"Fund managers were actually taking some opportunistic investment decisions and moving money out of bonds and cash and into equities - calling the bottom of the market."

Since the end of September, the stock market has recovered, rising by around 10 per cent.

The third quarter figures may make depressing reading but, according to Singh, WM research shows that charities are still benefiting from investments over the long term.

"If a charity had invested £100 ten years ago, it would now be worth £181," he said. "So the average fund has gone up 80 per cent over a 10-year period. It reached a peak of £219 in August 2000, but fell back to £205 in August 2001, and has declined further since."

"We have had a lot of bad news in the past two quarters, but over the longer term funds still have positive returns," he said.


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