How our model portfolios have fared at the three-year mark
The performance of the two portfolios investing in actively managed funds and trusts stands out.
19th January 2022 09:28
by Kyle Caldwell from interactive investor
The performance of the two portfolios investing in actively managed funds and trusts stands out.Â
The past three years has thrown up plenty of headwinds for global stock markets, including Brexit uncertainty and the Covid-19 pandemic. For investors, though, who ‘kept calm and carried on’, it has been a potentially profitable period as the performance of our model portfolios shows.
Four of the five models now have a three-year performance track record. Our two growth portfolios lead the way, with ii Active Growth and Low-Cost Growth returning 68.3% and 44.8%.
Our two income models have produced lower returns. This reflects the dividend drought that played out during the early stages of the Covid-19 pandemic, when scores of companies paused or cancelled payments in a bid to shore up balance sheets. Nonetheless, despite a challenging backdrop, the three-year returns show that investors who held their nerve with income-focused funds have been rewarded for doing so. Active Income is up 31.5% at the three-year mark, while Low-Cost Income has returned 22.7%.
Our Ethical Growthportfolio, which launched in October 2019 and comprises actively managed funds and trusts, has returned 42.8% since launch. Over this period, only Active Growth has performed better, and it is marginal, a gain of 44.5%.
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Performance of models over 12-month time periods
| Discrete returns for the periods*: | |||
|---|---|---|---|
| 01/01/2021 - 30/12/2021 | 01/01/2020 - 30/12/2020 | 01/01/2019 - 31/12/2019 | |
| Growth Portfolios | |||
| ii Active Growth | 14.1 | 22.1 | 20.8 |
| ii Ethical Growth | 13.3 | 24.3 | N/A |
| ii Low-Cost Growth | 15.5 | 6.9 | 17.3 |
| Growth benchmark | 16.6 | 5.1 | 18.2 |
| Income portfolios | |||
| ii Active Income | 15.1 | -4.4 | 19.5 |
| ii Low-Cost Income | 15.3 | -7.1 | 14.6 |
| Income benchmark | 15.8 | -6.1 | 14.4 |
| Morningstar GBP Adventurous Allocation average | 13.4 | 6.3 | 17.7 |
Notes *as at 31 December 2021. Portfolio launch date (for monitoring purposes) was 1 January 2019, except Ethical Growth portfolio, launched on 1 October 2019. Data source: Morningstar Direct. Past performance is not a reliable indicator of future results.
Active approach pays off
Over the three-year period, the performances of the two portfolios with three-year track records that invest in actively managed funds and investment trusts stands out. ii Active Growth and ii Active Income have both comfortably outpaced their respective strategic benchmark, as the tables below shows. The performance is encouraging, and shows that actively managed funds and trusts can add value.
In Active Growth, of the original eight holdings at launch, the biggest performance contribution has come from funds investing in shares. Leading the way is Fundsmith Equity, up 82%, followed by gains of 55.7% and 53.5% for JPMorgan Emerging Markets (LSE:JMG) and F&C Investment Trust (LSE:FCIT).
The defensive areas of the portfolio, the funds that invest in bonds or alternative assets, provide diversification.
Both Standard Life Private Equity (LSE:SLPE) and Scottish Mortgage (LSE:SMT) have fared very well since entering the model in April 2020, with returns of 158% and 144.3%.
In Active Income, there has been much more chopping and changing over the three-year period. Only three constituents have kept their place: Man GLG Income, Bankers (LSE:BNKR) and Utilico Emerging Markets (LSE:UEM). Of the trio, Bankers has been the best performer, up 67.4%.
Performance of our three growth portfoliosÂ
| % total return (with income reinvested) as of 31 December 2021, after*: | |||||
|---|---|---|---|---|---|
| 1 month | 3 mths | 6 mths | 1 year | Since inception* | |
| Growth portfolios | |||||
| ii Active Growth | 1.6 | 2.3 | 5.3 | 14.1 | 68.3 |
| ii Ethical Growth | 0.5 | 3.1 | 6.5 | 13.3 | 42.8** |
| ii Low-Cost Growth | 2.1 | 3.6 | 5.2 | 15.5 | 44.8 |
| Growth benchmark | 2.1 | 4.3 | 5.6 | 16.6 | 44.9 |
| Growth benchmark since 1 October 2019 (date ii Ethical Growth was launched) | 24.7 | ||||
| Morningstar GBP Adventurous Allocation average | 1.8 | 3.1 | 4.6 | 13.4 | 41.8 |
Notes *as at 31 December 2021. Portfolio launch date (for monitoring purposes) was 1 January 2019, except Ethical Growth portfolio, launched on 1 October 2019. Data source: Morningstar Direct. Past performance is not a reliable indicator of future results.
How the portfolios fared in 2021 and performance in December
The one-year performance of the five model portfolios was close-run. Low-Cost Growth topped the charts, with a return of 15.5%, followed by returns of 15.3%, 15.1%, 14.1% and 13.3% for Low-Cost Income, Active Income, Active Growth and Ethical Growth.
A factor at play behind Ethical Growth lagging the other four models in 2021 was lack of exposure to value shares, which were back in favour in 2021. Ethical funds tend to be underweight (hold less than the index), or completely avoid certain cyclical sectors on ethical grounds, such as big oil and mining companies. Therefore, when value shares outperform, it is a headwind, and when the opposite plays out, it is a tailwind.
In December, ii Active Income benefited the most from the ‘Santa rally’, returning 4.7%. Four funds returned just over 5%: Man GLG Income, Murray International (LSE:MYI), Morgan Stanley Global Brands Equity Income, and Fidelity Global Dividend.
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Low-Cost Income and Low-Cost Growth were the second and third best performers, up 2.8% and 2.1%. Leading the way in Low-Cost Income was Vanguard FTSE UK Equity Income Index, up 5.1%. For Low-Cost Growth, the same trend played out, as the two UK equity passive picks performed best. Fidelity Index UKÂ returned 4.7%, and Vanguard FTSE 250 ETF (LSE:VMIG) was up 4.5%.
Finally, Active Growth and ii Ethical Growth were up 1.6% and 0.5% in December. Active Growth saw its returns weighed down by a 10.2% fall for Scottish Mortgage (LSE:SMT), which was negatively impacted by the sell-off of technology stocks. In Ethical Growth, five of the 10 funds posted a loss in December. The biggest faller was Baillie Gifford Positive Change, down 5.1%. At the other end of the table, Liontrust UK Ethical 2 posted a gain of 5.2%.
Performance of our two income portfoliosÂ
| % total return (with income reinvested) as of 31 December 2021, after*: | |||||
|---|---|---|---|---|---|
| 1 month | 3 mths | 6 mths | 1 year | Since inception* | |
| Income portfolios | |||||
| ii Active Income | 4.7 | 5.5 | 5.7 | 15.1 | 31.5 |
| ii Low-Cost Income | 2.8 | 3.8 | 5.8 | 15.3 | 22.7 |
| Income benchmark | 3.5 | 4.1 | 4.9 | 15.8 | 24.3 |
| Morningstar GBP Adventurous Allocation average | 1.8 | 3.1 | 4.6 | 13.4 | 41.8 |
Notes *as at 30 November 2021. Portfolio launch date (for monitoring purposes) was on 1 January 2019, except Ethical Growth portfolio, launched on 1 October 2019. Data source: Morningstar Direct. Past performance is not a reliable indicator of future results.
Our Model Portfolios have been compiled by investment experts to help investors who do not have the time or the confidence to make their own investment choices. There are a variety of financial goals they are designed to help people meet.
However, you should note that the selection of our Model Portfolios is not a ‘personal recommendation’. This means we have not assessed your investment knowledge, your financial situation (including your ability to bear losses), your investment objectives, your risk tolerance, or your sustainability preferences.
You should ensure that any investment decisions you make are suitable for your personal circumstances, and if you are unsure about the suitability of a particular investment or think you need a personal recommendation, you should speak to a suitably qualified financial adviser.
The past performance of an investment is not a reliable indicator of future results, and ii does not guarantee or predict the future performance of the Model Portfolios or the constituent investments.
Risk Warning(s)
The value of your investments may go down as well as up. You may not get back all the money that you invest.
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Disclosure(s)
Annual performance can be found on the factsheet of each fund, trust or ETF. Simply click on the asset’s name and then the performance tab.
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To see a list of previous updates to Model Portfolio constituent investments, please go to the relevant Model Portfolio’s ‘Timeline’.
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