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| Charities
urged to use caution in equity investment |
08/03/07 |
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Expenditure
as a proportion of income is growing for UK charities and
voluntary organisations, up to 96.6%, but Baring Asset Management
has warned charities to be wary of taking on too much investment
risk to cover this increased expenditure.
The latest figures from the WM Company show that UK charities
have approximately 55% of their assets invested in UK equities
and 22.9% in overseas equities.
Barings head of charities James Codrington said that charities
are coming under growing pressure to spend more, with many
relying heavily on their investment portfolios to do this.
“They could thus be forgiven for depending on equities
to generate significant returns to help fund their work, as
equities have outperformed bonds and cash over the long term,”
he said. “But although equity returns can be huge, the
losses can be huge as well. Indeed, between 1973 and 1974,
UK equities fell by 71% in real terms. Between 2000 and 2002
the corresponding figure was a drop of 40%.”
Although UK equity markets have rebounded in recent days following
the correction at the beginning of March, Ted Scott, manager
of the F&C UK Growth & Income Fund, mirrored Codrington’s
sentiments, warning that investors should exercise caution
in preparation for a more serious bear market around the corner.
"When you have a long bull run like the one since May
last year, investors become overconfident but it takes very
little to destabilise the status quo and as soon as a few
people start selling the effect snowballs and suddenly we
are in a correction,” he said.
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