The Wellcome Trust announced a slim positive return in sterling on its investment portfolio of 1.7% in its latest financial year despite tough financial market conditions – but the headline gain was mainly due to the UK currency’s weakness and did not save the charity from a decline in overall assets.
The return for the year to September 2022 was also a far cry from the investment success of the previous year, when the London-based heath-research organisation returned 34.5% – the highest for 25 years.
The UK’s largest charity said in its 2021-22 report released today that its sterling returns had been boosted significantly by currency weakness, and in US dollar terms, the portfolio was down by 15.8% in the financial year, compared with a 40.3% gain in those terms the year before.
Julia Gillard, chair of the Wellcome Trust, said in the annual report: “After more than a decade of monetary accommodation and historically low interest rates, there has been a sea change in the economic and financial climate.”
The charity said it had prepared for a more difficult environment by holding fewer equities and more cash, but was “not immune from the market moves”.
“There have been bright spots in our investment portfolio, especially in our property assets, but inevitably we have been affected by the simultaneous decline in prices of government bonds, equities and corporate credit, the scale of which has not been seen for many years,” said Gillard, a former Australian prime minister.
The trust said the small gain in its portfolio over the financial year had largely been a function of holding most of its assets in currencies other than sterling.
“The dollar was strong against all major currencies due to a relatively stronger US economy, more aggressive interest rate rises by the Fed, and the fact that the US is not dependent on energy imports,” it said, adding that sterling had depreciated by more than 17% against the dollar during the year.
Gillard said the market environment was unlikely to get easier soon, but that falling asset prices might present opportunities to buy promising long-term investments at good value, and that the trust expected inflation to come down in time.
“As such, the board and I remain confident that despite financial market headwinds, Wellcome will be able to meet our planned spend of £16bn on charitable activities over the next 10 years,” she said.
Net assets fell to £37.8bn at the end of September 2022, from £38.2bn 12 months before.
The charity said it expected macro conditions to remain difficult, and was focusing in this environment on preserving a healthy cash flow, rather than avoiding volatility.
“We have pared holdings in low-conviction assets but continue to make new investments where we see opportunities to plant seeds for future returns at increasingly attractive entry prices,” it said.
“As long-term investors, if we look after our liquidity, asset price volatility can be our friend, rather than our enemy,” Wellcome said in the report.
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