Charity investment

The initial panic around the impact of the pandemic has faded and stock markets have largely recovered from the volatility seen in March. However, the crisis has helped highlight some important considerations for charities with investable assets, including the importance of looking long-term and managing income requirements with care.

The pandemic has wreaked havoc on economic growth and on certain sectors. This was reflected in an early sell-off in markets. However, for the most part, share prices have recovered. Those investors that panicked and sold in March would not have participated in that recovery and would still be nursing losses of 20-30%.

This is the strongest argument possible for staying invested even through uncertain times. For those that sell, the moment to reinvest is often unclear – stock markets tend to move ahead of economic data. Those waiting for a good time to reinvest might still be waiting, at a time when markets are significantly higher. Our time horizon for any investment portfolio is typically over 10 years and we recognise there will be bumps along the way.  

A changing world

This does not mean that investors can simply shut their eyes and hope for the best. There can be little doubt that the pandemic will bring about changes in the way we live and work that could have long-term effects for specific companies and sectors. Will we go back to full time office work, for example? Will our new-found enjoyment of online shopping endure?

The strategy of the Barclays Charity Team has always been to look for growth opportunities, while also making sure we invest in strong franchises with experienced management teams and solid financial fundamentals. At Barclays, our belief is that sustainable businesses must first and foremost be financially viable. While this could not protect us from the market falls, it did mean we were confident our portfolio of companies would be strong enough to survive the current economic environment and to thrive once we emerge into recovery.

One of the pandemic’s effects has been to accelerate themes that already existed. Movements in markets provided excellent opportunities to invest in some of these areas we had deemed too expensive. We assessed some of our holdings we thought would be less likely to prosper, selling them to invest in companies such as Visa, which should benefit from the move to a cashless society; medical devices firm Medtronic, which is geared into the adoption of robotics and electronic solutions in medical care; and Alphabet (Google) who, among other things, will benefit from the structural shift to digital advertising.

Cashflow planning

Another key challenge for charity investors this year has been cashflow planning, at a time when many income-generating asset classes have come under pressure. Many charities have found their fundraising efforts have stalled at the same time as the income from their investment portfolios has dropped, compromising their ability to offer their usual range of services.

We have seen many of the traditionally reliable dividend payers cut or suspend their distributions. Shell famously had not cut its dividend since the Second World War but was forced to do so this year. In the UK for the period from June to September, 176 companies cancelled pay-outs and 30 more cut them, together representing three quarters of dividend-payers. This is worse than at any other time on record, including the Financial Crisis of 2007/2008.

At the same time, other sources of income also dried up. As companies saw their revenues slide, many sought to negotiate with their landlords on rents. This meant many commercial property companies came under pressure. Income from bonds was already low and further cuts to interest rates, plus renewed quantitative easing pushed yields even lower. This left investors with an income drought. 

In the short-term, we have had to try to find new streams of income, one of which came through the opportunities provided by market volatility. We invested in a structured income note, which allowed us to buy a coupon of 9.5% p.a., giving us a strong and reliable yield to offset some of the cuts in the equity markets.

In the longer-term, we see dividend income starting to recover. Many companies cut dividends as a precautionary measure, while they sought better visibility on earnings and cashflow. With better times ahead and a potential vaccine in progress, a number of companies have sought to reinstate dividends. During the crisis, we have been careful to distinguish between those companies where dividends were likely to be permanently compromised and those where there was a good chance of recovery.

Overall, the pandemic has been a salutary reminder of the key principles of investing – the importance of diversification, of discernment and of careful analysis. At Barclays we are careful to remember that investment goals support important charitable work.

Our support to the sector

To support COVID-19 relief work in UK communities, we launched the Barclays 100x100 UK COVID-19 Community Relief Fund. We invited UK charities to apply for one of 100 donations of £100,000.

This commitment – which forms part of our wider COVID-19 Community Aid Package – focuses on supporting UK charity partners who are meeting the immediate needs of people in UK communities, including low income families, those facing financial hardship, isolated elderly people and key workers.

Things to consider

The value of investments can fall as well as rise. You may get back less than what you originally invested.

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