In the sector press

Investment book club - Summer 2017

27/07/2017

Kate Rogers

Kate Rogers

Head of Policy

Kate Rogers, Portfolio Director and Head of Policy at Cazenove Charities shares her thoughts on issues faced by the charity sector in Third Sector Magazine every other month.  

 

Book reviews aren’t usually my thing. Mostly because two young kids and a wandering mind makes it increasingly difficult for me to read anything substantial from cover to cover these days. This helps explain why a nice short essay, recently published in the Financial Analysts Journal, is my chosen specialist subject for the month.

The said article has been written by John C Bogle, the legendary founder of the first index fund, and comments on the lessons learnt over his 65 years in investment management. His seven lessons offered to investors, are salient for charities with long term assets.

He starts by affirming the need for investment if capital is likely to be held for the long term; ‘the biggest risk facing investors is not short-term volatility but, rather, the risk of not earning a sufficient return on their capital as it accumulates.’ For long term charity investors, in a world of low interest rates outpaced by inflation, holding on to excess cash on the balance sheet can be costly in real terms.

He goes on to highlight that ‘time is your friend’ but ‘impulse is your enemy’. That long term investing is a virtuous habit leading to superior returns, and emotional decisions can hinder performance. Charity investors often have the benefit of these long term time horizons, with endowments looking out to perpetuity. However, governance structures should be robust enough to protect against reactive, emotional decision making when markets are more difficult in the short term.

The fourth ‘lesson’ highlights the potential erosion of returns through costs. It is perhaps unsurprising that Bogle, as the father of index funds, believes in the importance of keeping expenses low. However, irrespective of passive or active management, all managers should be able to demonstrate the value that they add to the charity investor, considering how much return has been generated for every pound paid in fees.

Simplicity is espoused as an attractive trait of a well constructed portfolio; balancing risk, return and cost. Bogle discourages alternative investments, omitting them entirely from his ‘basic portfolio’. I suspect he is unconvinced by the higher fee structures implicit in many of these approaches. Simplicity does have its benefits; I have long fought against the battle of city speak and jargon; and am certainly of the view that if it can’t be easily explained it is probably not appropriate for an average charity investor.

For his penultimate lesson, he reminds us of a common mistake; picking the fund manager with the best performance, in the expectation that it will continue. Under the heading ‘never forget reversion to the mean’, Bogle quotes the bible ‘So the last shall be first, and the first last’ (Matthew 20:16, King James Bible). Although it is important for charity investors to keep performance under review, it is not always the best course of action to jump ship after a bad spell.

Finally Bogle highlights the ‘single most devastating mistake you can make as an investor’ is changing your strategy at the wrong time. The importance of being able to set an investment strategy and stay the course is emphasised; and is, in my view, a sign of a high performing investment committee[1].

So, if you’re looking for a good quality, jargon free, short summer read; try ‘Balancing Professional Values and Business Values’ by John C Bogle. Or stick to Third Sector.

Author

Kate Rogers

Kate Rogers

Head of Policy

Kate specialises in investment on behalf of charities, endowments and foundations and joined Schroders Charities in 2005 after four years with Kleinwort Benson Private Bank Charity team.

Kate is chair of the Charity Investors' Group, which is a membership organisation providing a forum for investment debate. In this role she has collaborated with CFG to launch a guide to written investment policies and 'For Good and Not For Keeps' published by the Association of Charitable Foundations in 2013. Kate also regularly writes on charity investment in the charity sector press.

Kate is also Portfolio Director at Cazenove Charities. She is a CFA charterholder and has a BSc (Hons) in natural sciences from the University of Durham, is Chair of her local community foundation, and governor of her local primary school.

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Limited 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

Contact Cazenove Charities

Achieving your charity's investment objectives takes time and thought. To find out how we can help you please contact:

Giles Neville

Giles Neville

Head of Charities giles.neville@cazenovecapital.com
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John Clifton

Business Development Manager john.clifton@cazenovecapital.com