Asset Risk Consultants has launched a new set of four sterling-denominated charity indices that will place portfolio performance into peer group context.

Some 30 charity investment managers have provided performance data dating back to December 2003 that encompasses around 1,500 discretionary portfolios with non-specialist mandates.

After completing a free subscription to the Asset Risk Consultants (ARC) website, charities can compare the performance of their portfolios to a sizable peer group of other charities’ portfolios which exhibit similar volatility characteristics.

Only actual charity portfolio performance numbers are included in the calculation of the ARC Charity Indices – there are no pre-set asset allocations; no asset class restrictions; no concentration limits; and no index performances used.

Approximately half the portfolios submitted were valued in the £1m to £5m range, and around 10 per cent in excess of £10m in size.

The four risk classes

The four risk-based categories are a core component of the methodology used in compiling the ARC Charity Indices, and are calculated on a common basis and according to the realised volatility of each portfolio relative to equity markets over the previous 36 months.

Risk here is measured as the volatility of monthly returns over time. Exposure to potential loss of capital is used as the common classification system for the ARC Charity Indices, and the four categories are ranked by their risk relative to UK equity markets.

Portfolios in the Cautious Charity Index have a 0 to 40 per cent risk. Balanced Asset Charity Index portfolios are rated 40 to 60 per cent; 60 to 80 per cent is the margin for a Steady Growth Charity Index; and the portfolios in the Equity Risk Charity Index have an 80 to 120 per cent risk relative to UK equity markets.

An ‘accurate barometer of performance’

ARC says that the charity indices are an accurate barometer for the performance of the charity investment management industry.

They have been constructed on the basis of pooling charity portfolios with similar return patterns rather than using the traditional approach of asset allocation. The focus is on allowing charity trustees to compare portfolio returns for a given level of risk (defined broadly as probability of loss), and the indices are asset allocation agnostic.

“These charity peer group indices respond to the demand from charity trustees for a robust, independent tool that allows charity investment portfolio performance to be placed into context,” said Graham Harrison, managing director of ARC.

“With so much uncertainty surrounding financial markets, these indices provide an invaluable anchor upon which charity trustees can make informed investment decisions.”