EUROPE – UK charity returns averaged as high as 12.6% over 2012, according to preliminary figures from Asset Risk Consultants (ARC).

Gains increased with the amount of risk in portfolios.

The ARC Cautious Charity index returned 6.4%, while the ARC Balanced Asset Charity index achieving 8.8%.

ARC Steady Growth gained 10.7%, but the biggest returns came from ARC Equity Risk, which posted 12.6% (fourth quarter performance has been estimated).

The figures are in sharp contrast to 2011, when returns for the same four indices were 1.9%, -0.7%, -2.0% and -4.0% respectively.

Dan Hurdley, director of research at ARC, said: “Last year was generally positive, with equities in particular doing well. Also, corporate bonds recovered in the second half, with government bonds also coming through.”

Hurdley said the charity indices had outperformed the company’s private client indices partly because fees tended to be lower, and also because of the higher exposure to Gilts, which did well in mid-2012.

“Furthermore,” he said, “a private client portfolio might have 5% or more in alternatives such as multi-strategy hedge funds, which have struggled to achieve a positive return.”

The indices are calculated from the actual performance of around 1,500 segregated charity portfolios run by 30 asset managers.

Portfolios are classified according to their volatility in relation to UK equity markets.

For example, the ARC Cautious Charity index has zero to 40% risk relative to UK equity markets, while the ARC Balanced Asset Charity index has 40-60% risk.

“The feedback we’re getting for the next 12 months is that managers are very positive on equities and will be increasing their weighting,” said Hurdley.

“In contrast, government bonds and alternatives don’t look attractive, and cash is still producing very little.”