Finance News: Equities and bonds pick up in third quarter

Mathew Little

Equity and bond markets rallied to give charities an improved return in the third quarter of this year, according to preliminary results from the WM Company.

The average charity fund posted a total return of 2.4 per cent during the three months to October, compared with 1.4 per cent in the previous quarter.

Returns for the year to date stand at nearly 5 per cent, while the three-year annualised return is now 0.7 per cent above inflation at 3.2 per cent.

George Urquhart, a consultant at the WM Company, said: "The positive third-quarter returns will come as a breath of fresh air to charity funds in the UK. In particular, the three-year return is now back in positive territory for the first time since the beginning of 2002."

UK equities posted a three-month average return of 2.9 per cent. However, the performance of non-UK equities was mixed. The Pacific Rim and emerging markets posted returns of 10 per cent and 8.5 per cent respectively. But North America drifted into negative territory at -1.1 per cent, and Japanese equities were down 7.6 per cent. European equities posted a small positive return of 0.7 per cent.

Government bonds stood at 3 per cent, while corporate bonds performed slightly better at 3.5 per cent. Property again performed solidly at 3.9 per cent.

David Bailey, vice president of charities at Deutsche Asset Management, commented: "Equity, bond and property returns in this quarter reflect our long-term real returns expectations. UK equities should produce 7-8 per cent per annum, property 6-7 per cent, bonds 4-5 per cent and cash 2-3 per cent over the next 10 to 20 years. Charities should aim to have meaningful asset allocation in each of these investment classes.

"Going forward, the big question is what impact the $50 per barrel crude oil prices will have on current benign levels of inflation. The fourth quarter in 2004 and the first quarter in 2005 could sustain current levels or cause a setback if the geopolitical risks intensify."

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