A detailed knowledge of long-term trends in the market is the key to a sound charity investment strategy, according to Richard Maitland, head of charities at Sarasin & Partners, on the eve of the launch today of his firm’s new edition of the Compendium of Investment.

At a time when bond yields are at a 100-year low, and when equities have had a troubled few years, trustees have to look at long runs of data to ensure they don’t react on the basis of short-term market movements. 

The golden rule of investment, according to Maitland, is “to ensure you never have to become a forced seller”.   That means you can ride out market volatility and deal with the inevitable “bumps and scrapes” that investors will always have to contend with.

Citing the fact that in the period 2000-2010 the total return in the UK from gilts outperformed equities, and with less volatility, Maitland said: “It’s no surprise that people are now questioning the role of equities, but the main lesson of history since 1900 is that equities have substantially outperformed government bonds and the risk-free return available on cash in both the UK and the US.”

Other key messages Maitland highlighted from the Compendium included the need for charities to take a more international view in their investment strategy.  What matters here, he said, is “what you invest in, not where you invest”. 

For instance, although the IT sector represents only 0.8 per cent of the listed UK equity market, information technology companies account for 12 per cent of all world stock markets, and many charities will find themselves underweight in this sector as a result.

Maitland’s other clarion call to charities was that they should ensure that they understand the fees they are being charged by their advisers: “Seventy per cent of charity investors don’t know the costs they are being charged.  Once all charges have been added together, most charities’ total investment management costs are pushed up from 60 basis points to about 1-1.5 per cent.” 

Maitland particularly warned trustees to be aware of the “pernicious” effect of aggregated hedge fund fees, noting that a fund of hedge funds has several layers of fees factored in, and could easily pay away up to 7 per cent in fees, compared to 1.5 per cent on a conventional unit trust.

The book, which Sarasin publishes every two years, is now in its 16th edition, and can be downloaded free of charge from Sarasin’s website.