Our five Model Portfolios are maintaining momentum
Over the past six months, our portfolios have returned between 17% and 24%.
18th May 2021 12:48
by Kyle Caldwell from interactive investor
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Over the past six months, our portfolios have returned between 17% and 24%.
Global markets extended their winning streak in April and have now delivered 13 months of strong performance. This has rewarded patient investors who kept a cool head during heavy falls in the first three months of 2020, as markets took fright over Covid-19.
All our five models were in positive territory for the month, with the three growth-focused portfolios leading the way. ii Active Growth returned 5.6%, followed by ii Ethical Growth and ii Low-Cost Growth, up 4.3% and 3.6%.
Our two income models lagged behind, with respective returns of 3.2% and 2% for ii Active Income and ii Low-Cost Income.
On a positive note, over the past six months ii Active Income is the best performer of the five portfolios, which is a further sign that the dividend drought has potentially come to an end.
The latest Dividend Monitor report by Link (published in late April) note that the outlook for dividends is brightening. The report points out that half of UK companies either increased, re-started or held their dividends steady in the first quarter of this year, compared to just one-third in in the fourth quarter of 2020. Link expects underlying dividends to rise 5.6% to £66.4 billion this year.
No changes have been made (including no rebalancing) to the five models this month.
ii Active Growth
Scottish Mortgage (LSE:SMT) has been the standout performer for ii Active Growth since the start of 2020 and in April it was the star of the show once again. The global trust returned 10.7%, with its share price clawing back some of the declines endured in mid-February when technology-focused companies fell out of favour. The current share price is 1,118p (as at close of trading yesterday). The high point for the shares since the start of 2021 was 1,415p on 15 February.
In the trust’s annual results, published last week, Scottish Mortgage reported the strongest ever yearly return in its 112-year history. In the year to the end of March, it posted a net asset value (NAV) total return of 111.2% and a share price rise of 99%. In contrast, its benchmark – the FTSE All World Index – returned 39.6%.
Other growth-focused strategies performed well in April, a month that saw a slowdown in the rotation away from growth and tech stocks to value and cyclical stocks, which has been playing out since last November following the vaccine breakthroughs. Fundsmith Equity and CFP SDL UK Buffettology both returned 6.2%.
Keith Ashworth-Lord, fund manager of CFP SDL UK Buffettology, notes that in April “the market dynamic discontinued the trend of investors looking to make a quick turn in stocks that had been left behind in the previous 12 months”.
He adds: “Reflecting some really good results and trading statements, sentiment began to swing back to favour of quality. I always felt that the so-called rotation into ‘value’ might be measured in months, not years, though I stand to be corrected. The market is a great leveller.”
- Fund Finder: Value vs Growth investing
- Keith-Ashworth Lord: The Richard Hunter Interview
- Market rotation towards value shares slows in April
Elsewhere, there were strong showings in April from Standard Life Private Equity (LSE:SLPE) and F&C Investment Trust (LSE:FCIT), up 9.8% and 6.2%.
At the other end of the table, Fidelity Global Dividend lagged, up just 0.6%. The fund favours larger companies with sustainable dividends, focusing on valuation and downside protection.
ii Ethical Growth
Impax Environmental Markets (LSE:IEM), the UK’s largest environmental investment trust, notably outpaced the other nine members of ii Ethical Growth in April. The trust returned 9.5%, which maintained its strong momentum, with gains of 66.7% and 27.7% over the past year and six months.
Impax Environmental Markets invests in companies offering solutions to environmental challenges, with a particular focus on alternative energy and energy efficiency, water treatment and pollution control, and waste technology and resource management (including sustainable food, agriculture and forestry).
In its annual results for 2020, published last month, Impax notes performance was driven by the “strengthening outlook for environmental markets post-Covid, and especially for the renewable energy and energy efficiency sub-sectors, which are particularly set to benefit from the accelerated drive towards ‘net‑zero’ economies”. The trust is trading on a premium of 4.5%, slightly below its 12-month average premium of 5.5%.
Baillie Gifford Positive Change was the second-best performer in April, up 7.7%. The fund benefited from growth stocks being back in favour during the month. In an interview with interactive investor last month, fund manager Lee Qian outlined the four themes the fund invests in and explained why Alphabet (NASDAQ:GOOGL) wins a place in the portfolio on ethical grounds.
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- The four themes Baillie Gifford Positive Change backs and recent trading activity
The two other developed market equity funds in the portfolio were the third and fourth best performers in April. Montanaro Better World and BMO Responsible Global Equity returned 5.4% and 5.1%.
But it was not all good news, Syncona (LSE:SYNC) lost 6.5% over the month. Given that the portfolio invests in 10 early stage life science companies (with a target of 15 to 20 companies), short-term volatility is to be expected from time to time. Syncona was the only actively managed fund or trust to post a negative return in April across all three active models: ii Active Growth, ii Ethical Income and ii Active Income.
ii Low-Cost Growth
The five developed market equity constituents in ii Low-Cost Growth – including two that invest exclusively in the UK – posted gains between 3.4% and 4.9%. L&G Global 100 Index led the way, followed by Vanguard FTSE 250 UCITS ETF (LSE:VMID) returning 4.8%.
The WisdomTree Enhanced Commodity ETF (LSE:WCOB), a new member of the ii Super 60 list, was the best performer in April. The ETF returned 7.3%, benefiting from the improving outlook for the global economy, which is a positive for commodity prices. Commodities have soared during the pandemic, and investment bank Goldman Sachs believes the rally has only just begun. The bank has predicted the start of a commodities supercycle – a multi-year bull market.
WisdomTree Enhanced Commodity ETF offers investors broad and diversified commodity exposure, covering major commodity sectors such as industrial metals, precious metals, energy and agriculture.
How our growth portfolios are performing
| % total return (with income reinvested) as of 30 April 2021, after: | |||||
|---|---|---|---|---|---|
| 1 month | 3 mths | 6 mths | 1 year | Since inception* | |
| Growth portfolios | |||||
| ii Active Growth | 5.6 | 6.3 | 19.6 | 38.3 | 57.1 |
| ii Ethical Growth | 4.3 | 2.6 | 16.8 | 39.3 | 33.1** |
| ii Low-Cost Growth | 3.6 | 7.4 | 21.1 | 30.7 | 35.3 |
| Growth benchmark | 3.9 | 7.9 | 19.9 | 29 | 33.7 |
| Growth benchmark since 1 October 2019 (date ii Ethical Growth was launched) | 15** | ||||
| Morningstar GBP Adventurous Allocation average | 3.5 | 6.6 | 19 | 27.7 | 33.1 |
Notes *as at 30 April 2021. Portfolio launch date (for monitoring purposes) was 1 January 2019, except **Ethical Growth portfolio, launched 1 October 2019. Data source: Morningstar Direct.
ii Active Income
A gain of 3.2% for ii Active Income in April retains positive momentum. The model and ii Low-Cost Income were negatively impacted by the severity of the dividend drought that emerged in response to Covid-19, but there are now signs of light at the end of the tunnel for income investors. ii Active Incomehas, over the past six months, been the best performer of the five portfolios, up 23.8%. Its one-year return is 23.3%.
The past six months, from 1 November 2020, when the vaccine breakthroughs materialised, has been a particularly strong period for UK funds. This is reflected in this model as Man GLG Income and City of London (LSE:CTY) have been among the best performers over this period, up 36.4% and 28.6%.
The value-focused income proposition of Murray International (LSE:MYI), however, is in second place. The trust, managed by Bruce Stout, is up 36.7% over the past six months.
Standard Life Private Equity tops the charts. It is up 53.9% over the past six months. The trust was the second-best performer in April, gaining 9.8%. Despite its strong run of form, the trust is trading on an eye-caching discount of 12.7% at the time of writing. Winterflood, the investment trust analyst, notes that while discounts have narrowed over the past year, discounts remain attractive.
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BMO Commercial Property (LSE:BCPT) was the best performer over the month, up 13.1%. Over the past six months, the trust has been staging a recovery, returning 33.1% since 1 November 2020. Its shareholders will be hoping the turnaround and improving sentiment towards property continues. In 2020, its net asset value declined by 8.1% and its share price fell by 28.3%.
Its discount remains high, at 29.3%. The board, however, has so far opted against buying back shares to reduce its discount.
ii Low-Cost Income
Our passive income portfolio was the worst performer of the five models in April, up 2%. Over the past six months and one year, ii Low-Cost Income has been in recovery mode, up 18.2% and 20.1%.
The five developed market equity constituents – including two that invest exclusively in the UK – returned between 1.6% and 3.1%. The best performer was the WisdomTree Global Equity Dividend Growth ETF (LSE:GGRA). Its return, however, was lower than all five developed market passive picks in ii Low-Cost Growth in April. This was one reason why ii Low-Cost Income underperformed ii Low-Cost Growth over the month.
Another factor for ii Low-Cost Income lagging was the lack of a standout performer in April. iShares Global Property Securities Equity Index, which is also held in ii Low-Cost Growth, was its best performer, up 4%.
How our income portfolios are performing
| % total return (with income reinvested) as of 30 April 2021, after: | |||||
|---|---|---|---|---|---|
| 1 month | 3 mths | 6 mths | 1 year | Since inception* | |
| Income portfolios | |||||
| ii Active Income | 3.2 | 8.6 | 23.8 | 23.3 | 21.6 |
| ii Low-Cost Income | 2 | 7.9 | 18.2 | 20.1 | 13.7 |
| Income benchmark | 2.3 | 9.3 | 23.6 | 22 | 16.6 |
| Morningstar GBP Adventurous Allocation average | 3.5 | 6.6 | 19 | 27.7 | 33.1 |
Notes *as at 30 April 2021. Portfolio launch date (for monitoring purposes) was 1 January 2019, except Ethical Growth portfolio, launched 1 October 2019. Data source: Morningstar Direct.
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.
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)
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 Model Portfolio constituents and the rationale behind those decisions will be communicated through the Quarterly Investment Outlook.
To see a list of previous updates to Model Portfolio constituent investments, please go to the relevant Model Portfolio’s ‘Timeline’.
ii adheres to a strict code of conduct. Members of ii staff may have holdings in one or more Model Portfolios (or the constituent 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 to add/remove a constituent investment to/from a Model Portfolio.
In addition, staff involved in compiling the Model Portfolios 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 a Model Portfolio. This is to avoid personal interests conflicting with the interests of investors in the Model Portfolios and their constituent investments.