Finance News: Markets 'pause for breath' as growth slows

Mathew Little

The growth of charity investments slowed considerably during the first three months of 2004, according to latest estimates from the WM Company.

Charities recorded an estimated return of 0.9 per cent in the first quarter, the figures show. This compares with a return of just under 7 per cent for the last quarter of 2003.

But investments have still risen in value by nearly 24 per cent over the past 12 months as portfolios recovered strongly from the three-year bear market. But returns from the past three years still leave charities in the red by 1.7 per cent.

In the latest quarterly results, UK equities rose by 0.7 per cent and overseas equities by 0.9 per cent. UK bonds posted a return of 1.4 per cent, while overseas bonds slipped into negative territory at -0.8 per cent.

Cash recorded a return of 0.9 per cent and property of 2.9 per cent.

"Markets appear to have paused for breath," said Andrew Hunter Johnson, head of charities at Merrill Lynch Investment Managers. "Returns for the first quarter were flat, which reflects investors' reduction in risk-appetite after a strong year in 2003.

"A weak US dollar, profit-taking and concerns about global terrorism have all taken their toll, attached to which is the likelihood of interest rate rises in both the US and UK.

"With low inflation and lower expected returns from here on, the search for additional yield is key for charities, and many of our clients have started to consider the benefits of diversification into other asset classes such as property and hedge funds."

John Hildebrand, head of charities at Investec Asset Management, urged charity trustees to take stock. "With equities now having performed well in the short term, it is a good time for charities to review their objectives.

"They should also check that their benchmark matches their aims, and that they have an investment strategy likely to match or preferably beat their benchmark," Hildebrand said.

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