In spite of political challenges, charities appear to be broadly optimistic about the future, having enjoyed strong performance from their investment portfolios. Charities also continue to make progress on diversity, and ethical investment issues remain important.

Here are some of the key findings from our fourth annual Charity Investment Survey, which we have published this week:

Charity trustee boards have a better gender balance than is seen in the UK corporate sector

Women make up 33.8% of the average charity trustee board. This represents an incremental increase from two years ago, and compares favourably with the percentage of women on FTSE 100 boards (27.6%). However, 41% of charities still believe there is more to be done in terms of diversity.

Charities have enjoyed strong performance from their investment portfolios, and are relatively optimistic about future prospects

50% of respondents reported a total gain of 12% or more during the 12 months to 31 March 2017. Looking ahead, 37% of charities expect total returns of 6-9% per annum over the next 3-5 years (rebounding from 17% in 2016), while 8% expect annual returns of 9% or more, a response approximately twice as optimistic as any previous survey.

Expected annual total return over the next 3-5 years

The amount charities are willing to take out of their investment portfolios to spend has edged higher, after the caution of 2016

Some 22% of charities are now withdrawing 4-4.9% of their portfolios, a jump from 16% in 2016. Charities also have heightened expectations of what represents a sustainable withdrawal rate, with a significant fall in responses indicating a rate of 2-2.9% and a corresponding rise in responses indicating a rate of 3-3.9%.

A clear majority of charities expect Brexit to affect their investments negatively, but a majority are less concerned, meanwhile, about its impact on their charitable work

Of the 68% of charities that believe Brexit will affect their portfolios, 73% believe it will have a negative impact on capital and 81% think it will adversely affect income. However, 60% of respondents feel that Brexit will have no or a negligible impact on their charitable works, with the negative impacts expected to be most damaging to the charities’ beneficiaries.

Likely impact of the UK’s vote to leave the EU on charity investment portfolios

Overall exposure to equities has increased compared to 2016, while allocation to bonds has been reduced

The strong equity returns that charities have enjoyed over the 2017 survey’s reporting period will have contributed to the overall increase in equity allocation. The 2017 findings broadly support the trend we have seen over time of a declining allocation to UK equities and a corresponding rise in allocation to overseas equities. However, while larger charities reported their exposure to UK equities either flat or down in 2017, smaller charities reported an increased allocation.

Ethical investment remains important for charities, and there is a growing desire to see ethical policies applied to investments held indirectly through pooled funds

Over half of respondents to the survey identified as ethical investors. During the last four years, the proportion of ethical charity investors applying their policies to indirect investments has risen from 53% in 2014 to 62% currently. The 2016 survey highlighted that there are now a ‘big six’ of ethical exclusion categories, including fossil fuels, and this has been reinforced by the 2017 survey results.

Areas covered by ethical exclusion policy

Charities remain predominantly committed to active management strategies rather than passive (index-tracking) strategies

68% of charities in 2017 use only active portfolio management strategies, compared to 66% in 2014. Smaller charities are the most likely to use only passive strategies, perhaps because these have lower management costs and require less trustee oversight than active strategies. The largest charities are the most likely to use a combination of active and passive.


More about the survey

Between mid-May and the end of July 2017, we surveyed a total of 93 charities, representing some £10 billion of investment assets, with a record date for data responses of 31 March 2017. For many of the questions in the survey, we now have four years of answers, so can identify evolving trends in charity thinking on particular issues, as well as changes of direction over the last year. The average charity in the 2017 survey has investment assets of £112 million, making respondents to the survey typical of larger charities in the UK. Respondents were well spread across size and type of charity organisation.

View the full survey report



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