Investor Views: "We Boosted Music Charity's Returns by 20%"

Private investor Simon Williams tells Morningstar how a financial review cut tax bills and boosted investment returns for a local charity

Emma Simon 30 November, 2015 | 8:11AM
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Simon Williams is happy managing his own pension and ISA, but as a trustee for a local charity he recently sought financial advice to ensure these funds were being invested prudently. 

Switching into more appropriate holdings boosted returns instantly by 20%

He says: “The charity was set up in 2007 to provide financial support for children who were musically gifted. It was set up with a legacy and we wanted to ensure that this could continue to help children for many years into the future.” 

The original legacy worth around £315,000 had originally been put into a single investment bond. The proceeds from this have been used to give grants to young musicians, but high charges and volatile returns have meant that these grants have eaten away into the capital. This legacy was the sole asset of the charity, as it hasn’t actively sought new donations.

Williams says: “This is obviously a sizeable slug of money. I know with my own investments that it can pay to diversify and I have also seen more positive returns on my pension investments in recent years.

“I wanted to see whether we could find a more sustainable investment strategy so this legacy can continue to provide financial help to those that need it.”

It Can Pay To Diversify

After consulting Manchester-based financial planners Depledge Strategic Wealth Management, Williams along with the other trustees decided to move this money out of this bond and invest it in a portfolio of equity, fixed interest and money market funds, within a general investment account.

He says: “As part of this review we discovered this was wasn’t the most tax-efficient way to invest this money.”

In the UK, charities don’t have to pay either income tax or capital gains tax on their funds, provided they are held within qualifying investment schemes. However, the onshore investment bond the charity previously held wasn’t a qualifying investment so by switching into more appropriate holdings they have boosted their returns instantly by 20%.

Keeping a Sum in Cash for Liquidity

Following their adviser's recommendation, Williams has moved a portion of their money into a cash account, which will ensure there is enough money to pay the scheduled grants for the next two years, regardless of market movements. He says: “In the past a sudden downturn in returns has meant we've had to eat into our capital in order to ensure the grants we've promised are paid. But the charity's investments now feel as though they are on firmer footing.

“We know what we can commit in terms of grants for the next couple of years and this is in a low-risk cash account. The balance of the charity’s funds are now invested more sustainably for the future.” He added: “We will now work with our advisers to review these holdings regularly to see what we can afford to award in grants in the next funding period, without damaging the long-term viability of the charity.”

A Blend of Risk Appropriate Funds

Aside from these cash reserves the bulk of the funds are in the charity’s investment account, which splits this money across 15 different funds, chosen to meet the charity’s risk profile.

This include Standard Life’s Global Absolute Return Strategies, Fidelity Moneybuilder Income, First State Global Listed Infrastructure and Schroder Recovery.

This Schroder fund, has a three star rating from Morningstar, and the managers of the fund, Kevin Murphy and Nick Kirrage who have  run it since 2006 have a coveted Silver Rating.

Morningstar fund analyst Daniel Vaughan said: “We retain conviction in their value approach.”

The fund aims to identify companies that are trading at significant discounts by using a number of different valuation screens.

The Standard Life Global Absolute Return fund - or GARS as it is sometimes known - is another strong performer. The manager Guy Stearn has a Bronze Rating, reflecting Morningstar’s confidence in him to continue to outperform peers. He has headed this management team since July 2013.

Morningstar analysts said: “GARS has one of the more successful track records within the absolute return group. It has returned approximately 6.5%, annualised, since launch in May 2008 exceeding its Libor +5% target, and with positive returns in each calendar year.”

Like many absolute return funds its aims to achieve positive returns in all market conditions while providing low volatility. This makes it an option for those focused on capital preservation - although absolute return funds can lag more aggressive growth funds during strong bull markets.

The First State Global Listed Infrastructure fund receives a four-star performance rating and its manager, Peter Meany, also has a Silver Rating.

Morningstar analysts describe him as “outstanding” with more than decade of experience in the infrastructure and utilities sector.

Williams added: “The tax savings alone have put the finances of our charity on a much sounder basis. Previously we have only been able to support a couple of musicians a year but we are now looking to increase this, thanks to the advice we have received.”

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
ASI Global Absolute Ret Strat R Acc72.25 GBP-0.80Rating
Fidelity MoneyBuilder Income33.34 GBP0.18Rating
First Sentier Glb Lstd Infra VI USD Acc16.28 USD-0.28Rating
Schroder Recovery A Acc264.43 GBP1.04Rating

About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk