The investment arm of the Church of England has warned of further volatility in financial markets as it announced an investment return of 1.8% for 2018.
The return on the Church Commissioners for England’s £8.2bn (€9.4bn) investment portfolio compared with a 7.1% gain in 2017 and missed its investment target of inflation plus 5%.
However, the average annual return over the past 30 years – 8.9% – is still above its target of 8.2%.
Loretta Minghella, first Church estates commissioner, said: “Our full year financial results reflect a difficult year – in 2018, cold winds blew through the equities markets and other asset classes. The macro-economic environment continues to be uncertain and volatile and we anticipate muted returns in the future.”
She added: “Over the next 12 months we will continue to develop our focus on non-traditional asset classes, such as venture capital, which are well suited to our long-term horizon as a perpetual endowment.”
In the investor’s annual report, the Commissioners said 2018 proved to be a poor year for investment returns as monetary tightening and rising political risk led to a rise in risk premiums and a fall in expected economic growth.
“What made things worse for investors in 2018 was that, unlike previous corrections, there were few if any places to hide in traditional assets,” the Commissioners said. “Defensive assets like government bonds produced very modest returns and were essentially flat for the year and hence did not provide much offset to the losses in stock markets.”
Holdings in strategic land, private equity, timber, infrastructure and indirect real estate combined to keep the fund’s performance in positive territory.
Private equity returned 23.8% during the year while the “multi-asset absolute return” portfolio returned 8.6%. This was in contrast with most multi-asset strategies which lost money during 2018, said the Commissioners.
Meanwhile, the endowment’s real assets allocations – which consist of a diverse range of property-related investments making up 27.4% of the portfolio – returned nearly 6% combined, over the course of 2018. Top performing asset classes included strategic land (29.2%) and timberland and forestry (12.7%).
The equity component of the fund lost 4.2% overall. Within this, the defensive equity allocation was flat for the year, while global equities lost 3.7% and UK equities lost 8.9%.
The liquid portfolio within the endowment’s fixed income portfolio – which includes investments in global high yield bonds, emerging market debt and structured credit – returned 1.5%.
Meanwhile, the Commissioners continued to champion socially responsible investment and engagement with investee companies during 2018.
The endowment voted against or withheld votes on 15.6% of resolutions presented at company meetings. As last year, the issue on which the Commissioners most commonly voted against management was executive remuneration.