ii ACE 40 performance review: Q3 2023
Here’s how interactive investor’s sustainable funds performed in the three months to the end of September.
12th October 2023 13:25
With the growth style of investing in equity markets coming under pressure at the end of the third quarter, it is no surprise that a large number of funds on the ACE 40 investment ideas list returned negative performance.
However, there were some brighter spots, with Schroder Global Sust Value Equity leading the way with a positive return of 3.34%. The fund is an unusual product offering both sustainable characteristics and a clear value bias relative to mainstream benchmarks. There is a focus on companies deemed to be industry leaders or best in class versus peers in terms of sustainability, while the underlying stock-selection methodology follows the established team process that seeks to identify contrarian, recovery ideas with strong financials. The value style and the bias down the market-cap scale were both positives over the quarter.
The other four funds on the top performers' list are all sterling corporate bond funds and reflect the strength of that market over the quarter on the back of positive corporate earnings and moderating inflation.
The CT UK Social Bond fund produced marginally the best returns of this group, being up 2.81%. The fund has a twin objective of achieving both a financial return and delivering a social impact. The financial strength of all investments is key and is the starting point for consideration for inclusion in the portfolio. In addition, every investment is evaluated for its social good characteristics with the portfolio seeking to have a minimum exposure of 80% to UK outcomes. The portfolio is constructed from the bottom up and from a duration, yield and ratings perspective has a profile which is very similar to that of its benchmark, the BofA Merrill Lynch 1-10 Year Sterling Non-Gilt Index.
Next on the list were the Liontrust Sust Future Corporate Bond and RLBF II Royal London Ethical Bondfunds, while Rathbone Ethical Bond rounded out the list with a positive return of 2.02%. The fund has 100-200 holdings, but it adopts a relatively aggressive approach with most of the portfolio invested in bank and insurance bonds over the past five years, owing to the manager’s views on market opportunities. The fund has been managed by Bryn Jones since November 2004, who also serves as Rathbone’s head of fixed income, with the ethical overlay being provided by Rathbone Greenbank Investments, the specialist ethical investment unit of Rathbone Investment Management.
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The bottom end of the ACE 40 performance list is populated by two types of funds, those with an alternative energy focus and those with a global mid-cap growth bias.
The weakest performance over the quarter was seen by the iShares Global Clean Energy ETF (LSE:INRG), which posted a negative 16.9% return, reflecting the negative 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 can 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 Q3 2023 with the fund suffering slightly less with a decline of 10.9%.
The third fund with exposure to alternative energy is FP Foresight Global Real Infrastructure. Versus infrastructure peers and broader benchmarks, the fund has overweights to the utilities (primarily renewables rather than traditional utilities) and real estate sectors. Both these areas came under pressure in Q3.
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The final two funds on the underperformers list are both global funds with biases towards small and mid-cap stocks, and the growth style.Impax Environmental Markets (LSE:IEM) defines its investable universe by applying a screen on environmental, financial quality, and valuation criteria. Portfolio candidates must derive at least 50% of their sales from environmental activities, such as energy efficiency, water infrastructure, and pollution control. The portfolio tends to favour growth stocks in the mid-cap space and show sector bets that deviate significantly from broad global indexes. The growth bias, exposure to US and European small-caps and the overweight to the utilities sector, were all headwinds over the quarter. The NAV weakness was exacerbated by a widening of the discount, which resulted in a share price decline of just over 9%.
WS Montanaro Better Worldaims to invest in small and mid-cap companies deemed to make a positive impact on society and focuses on six themes, environmental protection, green economy, healthcare, innovative technology, nutrition and well-being. It has a clear growth bias and this, together with the exposure to US and European small-caps, resulted in a significant headwind over the quarter and performance of -7.76%.
Top five ACE 40 funds in Q3 2023
| Group/Investment | 3 month | 1 year | 3 years | 5 years |
| Schroder Global Sust Val Eq Z Cap | 3.34 | 20.68 | 59.79 | 13.47 |
| CT UK Social Bond Z Grs Acc£ | 2.81 | 6.98 | -9.03 | -1.41 |
| Liontrust Sust Fut Corp Bd 2 Grs Inc | 2.42 | 11.31 | -15.71 | -4.70 |
| RLBF II Royal London Ethical Bond M Inc | 2.33 | 7.56 | -12.91 | -0.91 |
| Rathbone Ethical Bond I Acc | 2.02 | 9.55 | -11.39 | 2.43 |
Source: Morningstar - Total Return for OE / Market Return for CE - (GBP) to 30/09/2023.
Bottom five ACE 40 funds in Q3 2023
| Group/Investment | 3 month | 1 year | 3 years | 5 years |
| iShares Global Clean Energy ETF USD Dist | -16.89 | -29.70 | -14.25 | 90.24 |
| VT Gravis Clean Energy Income C GBP Acc | -10.90 | -23.20 | -6.34 | 37.68 |
| FP Foresight Global Rl Infras A GBP Acc | -9.57 | -17.53 | -16.94 | |
| Impax Environmental Markets Ord | -9.13 | -5.39 | 7.45 | 36.33 |
| Montanaro Better World GBP Dis | -7.76 | -4.04 | -8.68 | 20.13 |
Source: Morningstar - Total Return for OE / Market Return for CE - (GBP) to 30/09/2023.
Top five ACE 40 funds over five years
| Group/Investment | 3 month | 1 year | 3 years | 5 years |
| Brown Advisory US Sust Gr GBP B Inc | 1.38 | 13.57 | 27.92 | 91.93 |
| iShares Global Clean Energy ETF USD Dist | -16.89 | -29.70 | -14.25 | 90.24 |
| iShares MSCI USA SRI ETF USD Acc | 0.33 | 10.13 | 39.01 | 84.12 |
| Baillie Gifford Positive Change B Acc | -7.35 | 4.50 | -1.55 | 67.72 |
| UBS(Lux)FS MSCI World SRI USD Adis GBP (LSE:UC44) | -0.02 | 13.98 | 28.82 | 53.91 |
Source: Morningstar - Total Return for OE / Market Return for CE - (GBP) to 30/09/2023.
Bottom five ACE 40 funds over five years
| Group/Investment | 3 month | 1 year | 3 years | 5 years |
| Lyxor Green Bond (DR) ETF C EUR GBP (LSE:CLIM) | -0.15 | -2.83 | -22.49 | -11.00 |
| Liontrust UK Ethical 2 Net Acc | -4.42 | -2.17 | -8.72 | -6.07 |
| Liontrust Sust Fut Corp Bd 2 Grs Inc | 2.42 | 11.31 | -15.71 | -4.70 |
| CT UK Social Bond Z Grs Acc£ | 2.81 | 6.98 | -9.03 | -1.41 |
| PIMCO GIS Global Bond ESG Instl GBPH Inc | -1.55 | 1.47 | -11.73 | -1.32 |
Source: Morningstar - Total Return for OE / Market Return for CE - (GBP) to 30/09/2023.
Most-bought ACE 40 funds in Q3 2023
Most-sold ACE 40 funds in Q3 2023
| Baillie Gifford Positive Change B Acc |
| iShares Global Clean Energy ETF USD Dist GBP (LSE:INRG) |
| Impax Environmental Markets (LSE:IEM) |
| Royal London Sustainable World C Acc |
| Royal London Sustainable Leaders |
Changes to the ACE 40 list (under review/developments)
No changes.
ACE 40 videos in Q3
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The ACE 40 investments list is selected and managed by our independent research partner Morningstar and reviewed by our in-house investment experts to help narrow down the wide choice of available investment products. We believe it represents a set of high-quality choices, across different asset classes, regions, and investment types.
However, you should note that the selection of ACE 40 investments list 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 ACE 40 investments list as a whole 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.
Investing in emerging markets involves different risks from developed markets, in many cases the risks are greater.
The value of international investments is affected by currency fluctuations which might reduce their value in sterling.
Disclosure(s)
All funds listed are the Accumulation version of the fund, where available, where any income generated within the fund is reinvested automatically. Income versions of these funds may also be available for investors looking for income generated to be paid directly into their account.
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.
Any changes to the ACE 40 investments list and the rationale behind those decisions will be communicated through the Quarterly Investment Review.
Details of all ACE 40 recommendations issued by ii during the previous 12-month period can be found here.
ii adheres to a strict code of conduct. Members of ii staff may have holdings in one or more ACE 40 investments, which could create a conflict of interest. Any member of staff involved in the development of research about any financial instrument in which they have an interest are required to disclose such interest to ii. We will at all times consider whether such interest impairs the objectivity of the recommendation.
In addition, staff involved in the production of the ACE 40 investments list are subject to a personal account dealing restriction. This prevents them from placing a transaction in the specified instrument(s) for five working days before and after an investment is included or amended and made public within the ACE 40 investments list. This is to avoid personal interests conflicting with the interests of investors in the ACE 40 investments.