Don't be fooled by the growth in charity investments

Finance experts at CCLA and Charities Aid Foundation warn that the market remains volatile despite the recent strong quarterly increase


Charities should not assume their investment problems are behind them despite positive recent figures, according to charity finance experts at CCLA and Charities Aid Foundation

The value of charity investments grew by 6.4 per cent in the second quarter of this year, the first rise since December 2007, according to figures published earlier this month by WM Performance Services.

But investment managers have warned charities not to assume the worst is over.

John Kelly, head of client investments at fund management firm CCLA, said charities should not be too optimistic. "Charities should not go into the third quarter thinking that it's all done now," he said. "The chances of a further setback are severe.

"This market is characterised by volatility: every time there is a swing of the pendulum towards the sunny side, it tends to be followed by a swing back again."

Income problems meant charities were more likely to look at riskier investments, such as corporate bonds and international equities, he said.

Kelly said charities were facing strains on their existing investment income, despite the recent rise in capital values, because of low interest rates on cash and companies cutting or postponing dividends.

Mark Morford, head of client relations at the Charities Aid Foundation, said investment markets were likely to be volatile for another two years. "Braver charities can pick up some high-yielding equities for historically low prices," he said. "But you have to be prepared for the roller-coaster ride."

John Hildebrand, senior fund manager at investment firm Rensburg Sheppards, said he expected dividends to rise next year. "We would expect income to be down in 2009," he said. "We think in 2010 you are going to get a slight rise in dividends, albeit from a lower level. We think dividends going forward will be slightly on the up." He predicted there would be modest growth in equity values.

A spokesman for fund management firm Blackrock said the company's investment managers had not cut dividends from its flagship funds. "Corporate earnings are obviously down, but our fund managers have dipped into reserves they created as they anticipated this problem," he said.


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