Mr Wells said that charities were persisting in basing their expectations on the tough years 2001 and 2002.
Despite their pessimistic outlook, charities remain big investors in equities. According to WM, the average charitable institution allocates 80 per cent of its portfolio to stocks (60 per cent domestic and 20 per cent international), a strategy based on their liability profiles.
But JPMorgan Fleming has found that charities are decreasing these weightings in favour of alternative investments. Mr Wells said that 56 per cent of the UK charities surveyed planned to pull money out of equities in the next 12 months, while 58 per cent would increase allocations to property and only 4 per cent would decrease their property investments.
Charities were even keener on hedge funds, with 72 per cent looking to increase their allocation and none planning to reduce it.
“The single most popular reason given for changing their asset allocation was to control risk, and improving diversification was the second factor”, said Mr Wells.
James Korner, director of charities at Newton, said that charities are also changing their approach to socially responsible investment. “It used to be that they took the negative position of not investing in certain stocks, such as tobacco companies. Now the approach is more positive, with an emphasis on seeking sustainable companies to invest in and also turning down donations from companies deemed unethical.”
He added that charities still see equities as the key asset class, since they offer both growth and income. “In the absence of any other type of investment, for charities, equities are still the best of what some might say was a bad bunch.”
Barclays Global Investors, however, claims that charities are considering currency management, tactical asset allocation and commodities. BGI is currently marketing the latter to charities on the grounds of its lack of correlation with mainstream asset classes.
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