ii ACE 40 performance review 2023

Over 2023 the growth style of investing did well in US and therefore in global indices, while the energy sector underperformed. This backdrop helped most funds on the ACE 40 post positive gains.

The strongest performer on the list was the Brown Advisory US Sustainable Growth fund, which focuses on companies with proven, profitable business models. The fund returned 30.6% over the year, benefiting from the strength of the US equity market and from its large-cap growth style bias. This was the top-performing style in the US market as growth-biased, mega-cap names in the IT, consumer discretionary and communications services sectors led the equity market higher.  

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These market characteristics also helped propel the UBS(Lux)FS MSCI World SRI USD Adis GBP (LSE:UC44) and the iShares MSCI USA SRI ETF USD Acc GBP (LSE:SUUS) on to the list of top five performers, with returns of 21.6% and 17% respectively. The UBS fund tracks the MSCI World SRI Low Carbon Select 5% Issuer Capped TR Index, and this gives it a slight growth bias versus mainstream indices which helped returns over the year. The iShares exchange-traded fund (ETF) invests in a sub-set of equities within the MSCI USA Index that demonstrate higher ESG ratings than other sector peers, as well as excluding companies involved in controversial businesses such as weapons, thermal coal, tobacco and oil sands. The fund showed positive returns but was slightly behind the S&P 500 index.

Similar elements contributed to the 15.2% return from Baillie Gifford Responsible Global Equity Income. The fund primarily invests in stocks able to provide sustainable growth and resilient dividends. The team focuses on dividend growth and therefore has less exposure to higher-yielding stocks in industries which are cyclical or lack structural drivers. This results in a portfolio that can at times shows a yield only slightly higher than the mainstream MSCI ACWI benchmark. In terms of style the portfolio can show a slight growth bias versus benchmark, but this is persistent and more obvious versus global equity income peers, and resulted in outperformance versus the average Morningstar Global Equity Income Category return in 2023.

The final fund to mention on the top 5 performers list is theM&G European Sustain Paris Alignedfund which posted a return of 17.7%. In 2021, this fund adopted alignment to the Paris agreement, with a focus on identifying companies with meaningful plans to reduce carbon emissions. The underlying stock approach has a focus on companies showing sustainable competitive advantages and this results in a growth bias. As a concentrated portfolio, returns to stock selection can overcome style biases at times, with 2023 highlighting this through strong selection in healthcare and consumer discretionary, while the underweights to energy and consumer staples were also positive.

The weakest performers on the list were those funds with an alternative energy focus. The iShares Global Clean Energy ETF USD Dist GBP (LSE:INRG) posted a negative 25% return, reflecting the impact of the higher rate environment. The fund tracks the S&P Global Clean Energy Index which is also the benchmark for the next weakest fund on the list, the VT Gravis Clean Energy Income fund. The manager of this fund looks to provide an income in region of 4.5% and primarily invests in closed ended investment companies and yield companies that are involved in the provision, storage and consumption of clean energy. This should result in a more stable return profile than that obtained through investing in the S&P Global Clean Energy Index, and this was the case in 2023 with the fund suffering less with a decline of 13.6%.

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The next fund on the list of top five underperformers is the Fidelity Sustainable Asia Equity fund. Asia ex Japan has been one of the weaker equity regions over the past year, driven by underperformance from China equities. The core of this portfolio will show quality growth characteristics, but there will also be exposure to turnaround situations where a catalyst is evident. The fund underperformed the market and posted a return of -6.8% in 2023, with attribution versus the MSCI AC Asia Ex Japan Index showing weakness in stock selection, particularly within China where the fund’s mild growth bias was a headwind.   

The relatively muted returns from emerging markets were further reduced by the SRI criteria employed by the iShares MSCI EM SRI ETF USD Acc GBP (LSE:SUES), which fell 3.7% over the year. Versus the mainstream MSCI EM Index the fund underperformed, with attribution showing particular weakness from the more limited exposure to the IT sector.

The final fund on the underperformers list is Impax Environmental Markets (LSE:IEM). The trust showed a positive return of just over 5% on a net asset value basis, but share price returns were impacted by a widening of the discount which resulted in a loss of 3.7%. The portfolio tends to favour growth stocks in the small and mid cap space and show sector bets which deviate significantly from broad global indexes. The underweight to the US, the small and mid cap growth bias and overweights to the utilities and materials sectors, were headwinds over the year versus MSCI ACWI, but longer-term returns from the fund remain good.

Top five ACE 40 funds in 2023

Source: Morningstar - Total Return for funds / Market Return for investment trusts - (GBP) to 31/12/2023.

Bottom five ACE 40 funds in 2023

Source: Morningstar - Total Return for funds / Market Return for investment trusts - (GBP) to 31/12/2023.

Top five ACE 40 funds over five years

Source: Morningstar - Total Return for funds / Market Return for investment trusts - (GBP) to 31/12/2023.

Bottom five ACE 40 funds over five years

Source: Morningstar - Total Return for funds / Market Return for investment trusts - (GBP) to 31/12/2023.

Most-bought ACE 40 funds in 2023

Most-sold ACE 40 funds in 2023

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

November: ACE 40 Annual Review

Global Equities

Removal of Baillie Gifford Positive Change Fund

Removal of Montanaro Better World Fund

Inclusion of Wellington Global Stewards Fund as a Core option (Considers)

UK Equities

Removal of Unicorn UK Ethical Income Fund

Removal of Aegon Ethical Equity Fund from Adventurous UK Equities category

European Equities

Removal of Montanaro European Income Fund

Inclusion of EdenTree Responsible and Sustainable European Equity Fund as an Adventurous Option (Considers)

Asian Equities

Removal of Impax Asian Environmental Markets Fund

Inclusion of Fidelity Sustainable Asia Equity Fund as a Core option (Considers)

Mixed Asset

Removal of Climate Assets Balanced Fund

Inclusion of Royal London Sustainable Growth Fund as a Core option (Considers)

Specialist

Removal of FP Foresight Global Real Infrastructure Fund

Inclusion of Polar Capital Smart Energy Fund as an Adventurous option (Embraces)

ACE 40 videos in Q4

None in Q4.