ii ACE 40 performance review 2021

Here’s how interactive investor’s ethical funds performed over the year.

It proved a mixed year for ESG (Environmental, Social, and Governance) funds, some of which had been coming off the back of bumper 2020 returns. On the whole, performance was strong which, in a market where energy is the top performer, is a good return.

Given the strong performance of US equities in 2021, it is unsurprising to see the list of top-performing funds is dominated by US Equity funds and Global funds that include significant allocations to US Equities.

The strongest performer on the ACE 40 list in 2021 was the iShares MSCI USA SRI ETF USD Acc GBP (LSE:SUUS), which was up 31.6%, putting it slightly ahead of the broader market as measured by the S&P 500.

Following closely with a return of 30.8% was the Brown Advisory US Sustainble Growth fund. The fund benefited from an overweight in the Technology sector, which currently makes up around 40% of the portfolio, and from strong stock selection in the Healthcare sector, which constitutes around 24% of fund assets.

Following closely on the heals of the US Equity funds were three Global Equity funds, which all delivered strong double-digit returns too. These included Impax Environmental Markets (LSE:IEM) (30.1%), UBS(Lux)FS MSCI World SRI (LSE:UC44) (25.8%) and Fundsmith Sustainable Equity (23.2%).

The Impax fund also benefited from a widening of the trust’s premium, which contributed an additional 9% to its return, demonstrating the strong demand that exists for funds with an ESG mandate.

• Want to invest ethically? ii’s ACE 40 list of ethical investments can help
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The Quality Growth approach adopted by Terry Smith in the management of the Fundsmith Equity fund lends itself to a sustainable investment profile, and results in the fund having strong correlation to the Fundsmith Sustainable Equity fund.

Following a bumper 2020, the market rotation to more cyclical stocks, especially in energy, and the threat of inflation, caused the clean energy market to stumble, which contributed to the 23.4% decline in the iShares Global Clean Energy ETF (LSE:INRG), resulting in it being the weakest performing fund on the ACE 40 list.

A sharp fall in the premium, as well as some volatility from its listed holdings, harmed performance of Syncona (LSE:SYNC), which suffered a decline of 18.8% over the year.

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The three remaining weakest performers on the ACE 40 list were all bond funds which, given the strong year for risk, it is perhaps not surprising to see bonds fail to perform. Tight labour markets and consistently increasing inflation figures, particularly in the US have seen yields start to rise as markets begin to anticipate a return to a rising interest rate environment.

Among the weakest of the bond funds were the Lyxor Green Bond ETF (LSE:CLIM), a Global Corporate Bond fund, which fell by 7.9%, as well as two Sterling Corporate Bond funds, namely Liontrust Sustainable Future Corporate Bond (-1.96%) and Threadneedle UK Social Bond  (-1.7%).

In the context of the double-digit declines of the Clean Energy fund and Syncona, the sell-off in the two Sterling Corporate Bond funds was relatively muted, as corporate bond funds in general benefited from an improving earnings picture. This helped offset the headwind caused by rising rates.

Top five ii ACE 40 funds in 2021

Source: Morningstar. Total returns in GBP as at 31/12/21

Bottom five ii ACE 40 funds in 2021

Source: Morningstar. Total returns in GBP as at 31/12/21

Most-bought ACE 40 funds in 2021

Changes to the ii ACE 40 list (under review/developments)

• Syncona (LSE:SYNC) removed from under formal review and retained on our ACE 40 list following an extensive review of the trust’s approach and performance. This trust has always been classed as an ‘Adventurous’ ACE 40 option, and will very much continue to be so. (29th October 2021)
• iShares Global Clean Energy ETF (LSE:INRG) removed from under formal review and retained on our ACE 40 list following an extensive review of changes to its methodology. (7 July 2021)
• Rathbone Ethical Bond reclassified from ‘income’ to ‘adventurous’. (26 February 2021)
• L&G Ethical Trust Fund removed from our ACE 40 ethical rated list because the fund’s mandate that sets out how the money is to be invested is changing. (28 January 2021)

Click here to read the rationale for changes to the ACE 40 list in 2021 and all other reviews.

ACE 40 videos in 2021

Baillie Gifford Positive Change (published in April 2021)

• Why this star fund backs ‘controversial’ Alphabet and Tesla
• Baillie Gifford Positive Change: top shares and two new holdings

BMO Responsible UK Income (published in July 2021)

• These green UK dividend stocks are back in business
• Two ethical income winners from pandemic and our latest buys

Royal London Sustainable Leaders (published in July 2021)

• Three super-trends and shares this star fund is backing
• Two shares that stand out from the crowd and recent buys

Climate Assets Fund (published in November 2021)

• Two UK climate change shares I am backing
• Proof from a pro that green investing does not sacrifice returns

Montanaro European Income (published in December 2021)

• Top three income shares and avoiding dividend value traps
• Why small-cap stocks outperform, and latest buys and sells