Finance: Surge in sector investments will continue, according to analysts

The three-year surge in charity investments shows no sign of slowing down, according to preliminary figures for the first quarter of 2006 from WM Performance Services.

The survey, which covers 290 funds with £11.6bn under management, recorded an average return of 6.3 per cent for the first three months of the year, a figure grounded in strong equity performance.

In the past 12 months, charities have seen returns of 25 per cent and, in the past three years, returns of 20.4 per cent per year.

"Against a benign inflation environment, and despite bond markets faltering, equity markets moved ahead very strongly," said George Urquhart, head of charity business at WM Performance Services.

"With just over three-quarters of their assets invested in equities, charities benefited greatly from this.

"More significantly, fund values are now well in excess of the levels seen before the downturn in world equity markets between January 2000 and March 2003, and charities are much more optimistic about expected returns going forward." The highest equity returns in the first quarter were 11.3 per cent in Europe and 8.1 per cent in the UK. The US posted the lowest returns - 3.4 per cent. Yields from government and corporate bonds improved, but returns still remained in negative territory at - 0.6. Property stood at 4 per cent.

John Hildebrand, head of charities at Investec Asset Management, said: "The growth in income should continue, with analysts forecasting UK dividends to grow by more than 6 per cent per annum over the next two years."

Meanwhile, investment managers serving the charity sector are in negotiation with WM on how to make the company's charity universe more representative of the sector as a whole. Fund managers want more charities to be included in the indices and more snapshots taken of charity performance.

Charles Mesquita, charities specialist with Rensburg Sheppards, said: "Charity trustees need comparisons with what other charities are doing.

They need a way of measuring fund managers' performance against an independent average."

He said WM needed more charities in their indices and to measure the range of charity performances, not just median averages.

The Charity Investors Group is involved in the discussions, and changes to the WM universe could be announced in the next two months.

MAIN POINTS

Preliminary figures for the first quarter of 2006 indicate that the three-year rise in charity investments is set to continue

The figures show an average return of 6.3 per cent for the first three months of the year, a performance grounded in equity performance

The survey, which covers 290 funds with £11.6bn under management, was carried out by WM Performance Services

Charities have seen returns of 25 per cent in the past 12 months and of 20.4 per cent a year in the past three years.

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