UK Charity Funds Had Subdued Q2, Says WM

UK charity fund returns were fairly modest during the second quarter, returning 1.4 per cent. Among asset classes, equities returned 1.8 per cent, outperforming the 1 per cent loss for bonds and a 1 per cent gain for cash during

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UK charity fund returns were fairly modest during the second quarter, returning 1.4 per cent. Among asset classes, equities returned 1.8 per cent, outperforming the 1 per cent loss for bonds and a 1 per cent gain for cash during the quarter. Property investments fared best, returning 4.5 percent for the three month period. However, with only 3 percent of assets exposed to property, the average charity fund realised few benefits from the gain.

“Performance has been much more subdued this year, particularly when compared with the high returns of 2003,” says Eric Lambert, head of performance consultancy at The WM Company. “For the three months ended in June 2004, the average charity posted a modest return of 1.4 per cent , compared with 0.7 per cent gains in the first quarter this year and more than 2 percent during the first half of the year. There has been a poor risk/return trade-off for the half year with the average charity fund return – despite 80 percent exposure to equities and property – in line with that available from cash! “

Within equities, the highest equity returns were in Europe (4.4 percent), North America (2.8 percent) and the UK (2.2 percent). Japan stocks lost 2.4 percent, influenced by a weak yen. Other losses were recorded in the Pacific Rim (-3.5 percent) and in Emerging Markets, which lost 7.6 percent in the quarter.

Charity funds with an unconstrained mandate which are characterised by a lower commitment to bonds produced a slightly higher average return of 1.5 percent. Conversely, those constrained by income with a greater allocation to bonds returned 1.2 percent in the quarter. In the first six months of 2004, the average charity returned a little more than 2 percent, bringing 12-month gains to 12.6 percent. For the three years ended in June, the average charity fund continued to earn less than the 2.3 percent annual inflation rate, posting a loss of 1.9 percent per annum.

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