ii ACE 40: annual review prompts two fund removals and one addition

interactive investor announces changes to its sustainable rated list.

• Removed: Fundsmith Sustainable Equity
• Removed: Baillie Gifford Global Stewardship 
• Added: Schroder Global Sustainable Value Equity

Today (2 November) interactive investor has made two removals and one addition to its ACE 40 sustainable rated list, in partnership with Morningstar Manager Selection Services Group. 

The sustainable space has had a challenging year to date, with economic and geopolitical headwinds proving a real test.

Over the tough year to date, a third (33%) of ii’s ACE 40 constituents were first or second-quartile performers against industry peers (both sustainable and wider industry). Over 3 years, 59% of ACE 40 constituents were first or second quartile, rising to 71% over 5 years.

• Discover more: ACE 40 Sustainable Investments List 

Morningstar Manager Selection Services Group assumed day care of ii’s rated lists at the beginning of this year. Morningstar works in accordance with ii’s methodology, and is overseen by Dzmitry Lipski, Head of Funds Research at ii.

The sustainable fund universe is still relatively limited, with more growth funds relative to value and fewer income options, meaning Morningstar and ii’s fund research team work closely together to track existing and new fund performance. Thus, curating the ACE 40 rated list highlighting what ii believe to be the best-in-class.

Dzmitry Lipski, Head of Funds Research, interactive investor, says: “Private investors are vital stewards of capital, and growing numbers of people are acutely aware of the tremendous impact our investments can have on the world around us. It’s crucial that there are tools for people who want to invest within a sustainable framework, and that’s where our ACE 40 list can be a help in the research process. 

“Many funds with an ESG overlay have a relatively restricted investment universe, which can lead to portfolio biases. Performance in recent years has been boosted by growth-oriented sectors such as tech stocks, which have taken a hit more recently. Geographical focuses can be regional, such as UK and Europe, which continue to lead the world in ESG adoption, or in style. 

“But the choices are growing and it’s important to take a long-term view and remember that the year to date has been particularly challenging. There’s plenty of great long-term sustainable options out there, and our ACE 40 list is broken down into core, low cost, adventurous, income and smaller company options.”

ACE 40 changes

Removal: Fundsmith Sustainable Equity

Dzmitry Lipski, Head of Funds Research, interactive investor, says: “The fund was included on ACE 40 for customers who wanted to access the Fundsmith strategy through a sustainable lens. But Morningstar want to take a broader approach, which means the ejection of Fundsmith Sustainable Equity Fund. Moreover, as the ACE 40 list already contains many global equity funds with a growth style bias, we recommend removing the Fundsmith Sustainable Equity fund from the ACE 40 and retaining Fundsmith Equity on the Super 60.

“Given the huge change in the market climate this year, we agreed with Morningstar to make these changes in this case. We continually examine the list to make sure it meets consumer demands. We are aware that some funds with a sustainable theme have a relatively small investing universe, which could cause biases in the portfolio or a style that could affect the performance of the portfolio.”

Removal: Baillie Gifford Global Stewardship 

The ACE 40 currently features three global equity funds managed by Baillie Gifford. While there are distinct differences between the funds and their mandates differ, the funds all have a distinct growth style bias and have some overlap in respect of their company characteristics they favour in respect of stock selection. Their return profiles have similar characteristics too, particularly when comparing the Baillie Gifford Positive Change fund and the Baillie Gifford Global Stewardship fund. 

In considering all three, we would suggest that the two funds which merit retention on the ACE 40 are the Baillie Gifford Global Responsible Equity Income fund and the Baillie Gifford Positive Change fund and that the Global Stewardship fund be removed to broaden the list to include a fund with a value style bias - Schroder Global Sustainable Value Equity.

Addition:Schroder Global Sustainable Value Equity

Schroder Global Sustainable Value Equity has been added to the ACE 40 under the category ‘Considers’. The fund is managed by three managers, Simon Adler, Liam Nunn and Roberta Barr. They form part of the highly regarded Schroder Value team which has been led by Kevin Murphy and Nick Kirrage since July 2006.

The strategy takes the Global Value team’s distinctive and repeatable value process and adds a sustainability objective. It will only invest in those companies that the team identify as undervalued ESG (environmental, social and governance) leaders. This strategy offers customers a value approach that invests in companies that have a positive impact on society and are industry leading. As such, the fund would complement other growth oriented, global equity options on the ACE 40 list.