WM Performance Services released its preliminary Charity Fund results for the third quarter of 2005. WM’s charity fund survey is the largest and longest-running study of UK charity fund performance and covers more than two-thirds of the UK charity fund market.
According to the survey, charity funds had an excellent third quarter, gaining just over 7 percent on the back of strong equity performance. For the last 12 months, the average charity fund has achieved a return of 21.9 percent; the return for the last three years, which is the most typical performance assessment period, is now 16.2 percent per annum. This represents a real return (i.e. return in excess of retail price inflation) in the last three years of around 12.5 percent per annum for the average charity.
“Against a background of terrorist activity, natural disasters and high oil prices, equity markets proved most resilient, and with just over three-quarters of their assets invested in equities this proved highly beneficial for charities,” said Michael Walsh, managing director of WM. “The average charity is now looking at a return of 15 percent for the first nine months of 2005 against a comparatively benign inflation environment. With cash delivering returns of only 3.5 percent, it will have been important for charity funds to be as fully invested as possible over the period.”
During the quarter, the highest equity returns were recorded in Japan (19.9 percent) and in the Pacific ex Japan region (11.0 percent). UK and Europe ex UK returns were slightly lower, at around 8 and 10 percent respectively. Even with assistance from a strengthening dollar, which gained 1.3 percent against sterling, North America was the area of lowest equity returns at 5.9 percent. It was a fairly flat quarter for bond investments, with returns ranging from 0.5 percent for UK government bonds to 1.3 percent for Index Linked. Property remained a strong performer at close to 4 percent.
There were only small differences in performance over the one-year and three-year periods between charity funds constrained by an income requirement or their asset mix and those which have no such constraints. However, funds which are unconstrained have done better over the latest quarter, having benefited from being more committed to equities.