Fund returns drop 8.4 per cent


The total return of charity investment funds fell by 8.4 per cent in the second quarter of this year as the stock market went into freefall, according to figures from performance analysts The WM Company.

Total return includes both income and capital value. But the figures do not reveal the full extent of charity losses to date since they only cover performance to the end of June. Since then, the FTSE All-Share index has dropped by another 8.8 per cent.

The 8.4 per cent fall in total charity funds virtually cancels out the gradual resurgence of charity investments post-September 11 which had seen funds grow by 9.6 per cent in the previous two quarters from October to March. Funds have dropped by 11.5 per cent over the last 12 months.

WM's executive director Sarinder Singh said: "US equities are down more than any other asset class because of accounting scandals and they have dragged the UK and Europe down as well. The gains of the previous two quarters have almost been offset."

US equities in charity funds have fallen by 20.9 per cent in the last three months, while UK equities are down 10.6 per cent and overseas equities by 12.7 per cent. UK bonds rose by three per cent.

As the fall in the market continues charities may have to start cutting back on activities. Charities such as the RNLI, Guide Dogs for the Blind and Barnardo's are reported to have suffered major losses on investments.

John Hildebrand, head of charities at fund management firm Investec Asset Management said: "The figures taken together to the end of August show the third worst post-war fall in markets.

He predicted "a pretty hefty fall

of 15 per cent for 2002 as a whole if markets stay at current levels.

But he said that while the capital value of investments has been hit, income has remained steady. "If you exclude the withdrawal of Advance Corporation Tax Credits (ACT), income shouldn't have fallen. Dividends will grow in 2002. But you take into account ACT and inflation, the income has seen a slight fall."

He also claimed that charity funds were slightly outperforming the FTSE-All Share index.

"Dispersal of returns is quite wide but the average charity is doing slightly better than the FTSE,

he said. "The All-Share is down 11 per cent in the second quarter, compared to 10.6 per cent for charities."

Charity funds that are constrained by income have performed better than unconstrained funds because of a heavier weighting in bonds and cash.

They have fallen by 7.3 per cent in the last quarter, while unconstrained funds have fallen 8.8 per cent.


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