The most notable change from previous surveys is the growth in charities’ cash reserves. There was a near 40% increase in companies holding more than 12 months’ worth of cash reserves (from 25% to 35%). Partly, this is caution in case of another shock. The pandemic hit some charities hard, raising demand for their services at a time when fund raising became more difficult.
However, this isn’t the whole story. The trend towards reduced UK equity exposure has strengthened through the pandemic, with 32% of charities decreasing their UK weighting. This was despite a resolution on Brexit, a rapid UK vaccine roll-out, relatively cheaper valuations and higher income yields compared to the rest of the world. This probably reflects the continued out-performance of US equities and US technology stocks in particular. Looking ahead there are some significant changes and challenges for the charity sector including the coming impact measurement revolution.
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Head of Charities, Investment management
Director - Business Development
Head of Charities, Scotland & NI
Aspects of risks often overlooked by trustees
Risk is often considered in terms of volatility, the bumpiness of the ride, or how much a portfolio falls from peak to trough. But our recent Charity Survey showed that permanent loss of capital was often more of a concern for Trustees than these statistical measures of risk. As such, we think it’s worth considering three additional areas of risk. These are often overlooked by investors but can have a dramatic impact on a charity’s finances.
The behavioural drivers of stock markets
Being human can get in the way of good investment practice. All investors are subject to behavioural biases that can see them make irrational decisions, and fund managers are no exception. A vital part of investment analysis should involve looking at whether fund managers are making decisions rationally.