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Investments at UK charities return nearly 18% over last year

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EUROPE – UK charity returns have powered ahead for the first six months of 2013, delivering as much as 8.3% for the half-year to 30 June, and 17.6% over the 12 months to the same date.

This was achieved in spite of negative returns for the second quarter of the year.

As has happened in previous reporting periods, gains increased with the amount of risk in the portfolio.

The ARC Cautious Charity index returned 7.4% for the 12 months to 30 June, while the ARC Balanced Asset Charity index returned 12%.

ARC Steady Growth gained 15%, but the biggest returns came from ARC Equity Risk, which posted 17.6%.

The figures are in sharp contrast to the previous 12 months, when returns for the same four indices were 2.9%, 0.23%, -1.0% and -3.1%, respectively.

Once again, the charity indices have outperformed the company’s private client indices because of the differing requirements of the segments.

Chris Curtis, investment analyst at ARC, told IPE: “Charity portfolios tend to hold more cash and sovereign debt, and have a more domestic focus.

“They also tend to hold less in the way of alternatives such as hedge funds and commodities, which have struggled recently.

“This is particularly true for gold, which experienced a sharp sell-off of around 25% in Q2.”

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

Portfolios are denominated in sterling, with the vast majority run on behalf of charities based in the UK.

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 Equity Risk Charity index has 80-120% risk.

The indices can be used to compare charity portfolio performance with a realistic and sizeable peer group of charities whose portfolios have exhibited similar volatility characteristics.

Looking ahead, Curtis said equities were very much in favour with managers, despite the recent market correction.

“But Gilts, and to a certain extent corporate bonds, are still looking overvalued, while cash is yielding nothing,” he added.

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