Investment performance for nonprofit groups with budgets of $25 million or less, though strong, lagged most investment benchmarks in 2013, according to a new study by Raffa Wealth Management.

Small and midsize charities that adhered to formal strategies and monitored how much they paid their financial advisors earned more on their investments last year, Raffa found.

The study was based on data from 77 charities, 19 private and community foundations, and 165 other tax-exempt groups, mostly associations, according to a summary of findings in The Chronicle of Philanthropy.

Nearly 60% of the charities and foundations studied had budgets of $5 million or less.

Overall investment returns for charities of all sizes increased by 10.8% last year. Private and community foundations earned 11.5% returns.

Broad indexes of U.S. stocks, in comparison, were up some 30% in 2013.

The Chronicle noted that smaller entities still did better that big ones last year. Its most recent survey of endowments at 209 mostly large foundations and nonprofits showed a median return of 8.4% for 2013.

Ignorance Is Not Bliss

The Raffa study found that more than half of the nonprofits surveyed did not know how much they paid in fees to investment managers. Groups with small amounts to invest typically were less aware of their fees than wealthier organizations.

Smaller nonprofits also tended to pay higher fees, imposing an additional drag on returns.

Raffa also found that groups with formal investment strategies for allocating their assets — nearly 60% of participants — increased investments by 12.7% last year from 2012.

Nonprofits without formal investment strategies grew by only 6.3%.

Such discipline paid off in another way. Groups that stuck with formal investment plans enjoyed bigger gains than those that made changes to their strategy.

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