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Church Commissioners' quarterly newsletter October - December 2004

Highlights of the quarter

 

Early signs indicate the Church Commissioners will achieve a total return of 13 per cent on their investments during 2004 - significantly ahead of the 11 per cent benchmark against similar funds.

During the quarter, investments in stocks and shares showed respectable returns, as stock markets continued to rally. The Commissioners’ UK shares achieved a 6.8 per cent return. Overseas shares achieved a 5.3 per cent return.

Property investments performed well in the quarter, but there are signs that the housing market is cooling.

The Church Commissioners’ role

The Church Commissioners manage assets worth over £4 billion on behalf of the Church of England.

They aim for the best possible long term return from a diversified investment portfolio both to meet pension commitments, and to provide the maximum sustainable funding for other purposes including support for the work of bishops, cathedrals and parish ministry.

The portfolio of assets includes stock market investments, and commercial, residential and rural property investments.

Fund performance

Full year performance: Early signs indicate the Church Commissioners’ total return could be at least 13 per cent at the end of the year. This is ahead of the ‘WM All Funds Universe’  - a widely used measure of comparative performance - which achieved returns of approximately 11 per cent. The Commissioners’ audited annual report and financial statements will be published in April.

Fourth quarter performance:  Stock markets continued their steady recovery in the final quarter and the Commissioners’ UK equities returned 6.8 per cent growth for the quarter. This was just ahead of the relevant FTSE benchmark, even though the strong performance of stocks excluded by the Commissioners’ ethical investment policy – for example, aerospace, defence and alcohol - reduced the Commissioners’ relative performance by half a percentage point.

International investments in stocks and shares performed less well, returning 5.3 per cent growth against the benchmark of  5.9 per cent during the quarter. Investors’ concerns included economic growth slowing, and rising interest rates and oil prices. Banking and telecommunications stocks were the best performers.

Commercial property saw much demand from investors and rising capital values. Retail and industrial rents rose and office rents looked to be improving. Central London house values fell by 0.7 per cent while the increase in rents slowed to 0.5 per cent, compared with 1.2 per cent last quarter.

Demand for farmland ran well ahead of supply, keeping land prices up. Four out of six rent reviews produced reductions, with one increase and one unchanged. Overall farm rents rose by an average of one per cent in 2004 - the first annual rise this decade. 

Fund management activity

The Commissioners transferred a further £25 million from UK to global shares in line with the aim of improving the fund’s spread of opportunities and controlling risk. Some £59 million was invested in commercial property, including industrial estates in the south-west of England and home counties, and offices and a trading estate in the London area. The Commissioners sold housing for £10 million and land for £4 million, and received £3 million in loan repayments.

Fund managers voted on 836 company resolutions (485 for UK equities and 451 overseas). They voted in favour of management in 98 per cent and 93 per cent of cases respectively.

The Commissioners accepted the Ethical Investment Advisory Group’s recommendation that the current restrictions on investing in companies making or selling alcohol should stay in place. The portfolio continues under active management.

The Commissioners reviewed responses from bishops’ councils and local authorities to their draft guidelines for diocesan bishops’ housing, drawn up following visits to almost every bishop’s house and discussions with each bishop, his wife and staff. This marked the final stage in what has proved to be a valuable consultation exercise. The proposals now  go forward for final endorsement by the Board of the Commissioners and will pave the way for a cyclical review of the bishops’ houses.

 

Andreas Whittam Smith

First Church Estates Commissioner

25 February 2005