Interactive Investor

Growth fund portfolios pull further ahead of benchmark

15th January 2021 08:52

Kyle Caldwell from interactive investor

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In December, all three growth portfolios outpaced the benchmark, with two up over 20% in 2020.

December marked another positive month for our three growth-focused model portfolios. Leading the way was ii Active Growth, up 5.1%, followed by ii Ethical Growth and ii Low-Cost Growth, with respective monthly returns of 3.7% and 3.2%.

Each model outperformed the growth benchmark return of 2.6%, which has helped all three pull further ahead of the benchmark over all time periods.

For 2020 as a whole, out in front was ii Ethical Growth, gaining 25.7%. Closely behind was ii Active Growth, which gained 22.7% . Our passive ii Low-Cost Growth model lagged the two active models. The portfolio returned 6.9%, but this was ahead of the growth benchmark, which was up 4.5%.

In 2020, both ii Ethical Growth and ii Active Growth outperformed the MSCI World index, which returned 12.3%.

How our three growth Model Portfolios are performing: 

% total return (with income reinvested) as of 31 December 2020, after:          
  1 month 3 mths 6 mths 1 year Since inception*
Growth portfolios          
ii Active Growth 5.1 12.6 20.3 22.7 48
ii Ethical Growth 3.7 12.3 22.8 25.7 27.4
ii Low-Cost Growth 3.2 10.7 13 6.9 25.4
Growth benchmark 2.6 9.1 10.7 4.5 23.4
Growth benchmark since 1 October 2019 (date ii Ethical Growth was launched)         6.3
Morningstar GBP Adventurous Allocation average 2.9 9.9 12.7 6.3 25.1

Notes: *as at 31 December 2020. Portfolio launch date (for monitoring purposes) was 1 January 2019, except Ethical Growth portfolio, launched 1 October 2019. Data source: Morningstar Direct.

 ii Active Growth

Standout stat: Buffettology is running its lowest cash weighting since 2015 as the manager’s confidence in the outlook for UK companies grows. 

As was the case with ii Active Income, Standard Life Private Equity (LSE: SLPE) was star of the show, up 13.4%. SLPE saw its share price fall 40% at one point in 2020. However, it has benefited from the market recovery that took place from the end of March onwards and ended the year in positive territory, up 19.8%.

Its discount has subsequently narrowed, and now stands at around 25%. Winterflood, the investment trust analyst, says this “represents a significant value opportunity given the fund’s strong long-term performance record, the quality of its investment portfolio, which reflects the team’s well-established selection process, and the strength of its balance sheet”.

Closely behind was Scottish Mortgage (LSE: SMT), up 10.8%. The trust, which favours businesses built on cutting-edge technology, was one of the best-performing trusts in 2020, returning 110.5%. Tesla (NASDAQ:TSLA), its top holding, which at the end of November accounted for 12.3% of the portfolio, saw its share price rise more than 700% in 2020. Last month, the electric car maker entered the S&P 500 index.

In third place in December was CFP SDL UK Buffettology, with a return of 6.4%. The fund is running its lowest cash weighting since 2015 as the manager’s confidence in the outlook for UK companies grows. 

Investors seem to have a similar view, pouring £73.4 million of net inflows into the £1.5 billion fund over the last year. Fund manager Keith Ashworth-Lord has used £16.8 million of this money to top up some of the portfolio’s holdings, reducing the fund’s cash as a proportion of net asset value from 6.5% to 3.9%.

The next best performer was JP Morgan Emerging Markets (LSE:JMG), up 6.2%. As coronavirus continues to sweep through Europe and the US, some parts of Asia and emerging markets are strongly in recovery mode. Funds and trusts investing in emerging markets have benefited from this recovery in recent months. Over the past three months, JMG has gained 22%.

Anthony Willis, investment manager in the BMO multi-manager team, notes: “Emerging markets and Asia were at the epicentre of the pandemic, but the measures taken were more aggressive and effective. The economies (in the East) are on a more robust trajectory than those in the Western world. In addition, valuations are more attractive.”

ii Ethical Growth

Standout stat: our top two fund performers in December were introduced to the portfolio at the start of November. 

Two of our four new additions to the portfolio on 1 November were the best performers in December. Liontrust UK Ethical returned 8.4%, while Montanaro Better World was up 7%.

The Liontrust UK Ethical fund’s investment process “seeks to generate strong returns while benefiting society through identifying long-term transformative developments and investing in companies exposed to these powerful trends that have a positive impact and can make for attractive and sustainable investments”.

Montanaro Better World invests in small and mid-cap listed companies, which aim to help solve some of the world’s major challenges by supporting the United Nations Sustainable Development Goals.  In 2015, the UN set 17 goals seeking to address the world’s biggest challenges and all countries are aiming to achieve them by 2030.

The fund follows six impact themes: environmental protection, green economy, healthcare, innovative technology, nutrition and well-being.

The third-best performer in December was Syncona (LSE: SYNC), which returned 6.5%. The life sciences-focused investment trust’s premium rose from around 20% at the start of December to around 30% by the end of the month.

The two other new names introduced on 1 November, FP Foresight Global Real Infrastructure and Baillie Gifford Positive Change, gained 5.4% and 3% in December.

Of the remaining five holdings, which have all been members of the ii Ethical Growth portfolio since launch on 1 October 2019, Stewart Investors Global Emerging Market Sustainability led the pack, with a return of 4.6%. The next best performers were Royal London Sustainable Leaders, up 3.1%, and BMO Responsible Global Equity, which returned 2.7%.

The two laggards in December were Rathbone Ethical Bond, up 1.7%, and Impax Environmental Markets (LSE: IEM), which posted a small loss of 0.2%.

ii Low-Cost Growth

Standout stat: the Vanguard FTSE 250 ETF returned 6.1% in December, outstripping Fidelity Index, which was up a more modest 2.9%.

With markets in risk-on mode, it was unsurprising to see  Vanguard FTSE 250 ETF (LSE: VMID) (LSE: VMID), Vanguard Global Small-Cap Index and Fidelity Index Emerging Markets as the three top performers in December.

The Vanguard FTSE 250 ETF returned 6.1%, outstripping Fidelity Index, which was up a more modest 2.9%. Investor sentiment for UK shares was boosted following the eleventh-hour post-Brexit trade deal struck on Christmas Eve. The prospect of a no-deal scenario was one of two big headwinds - the other being Covid-19 - that cast a shadow over the UK stock market in 2020. 

Vanguard Global Small-Cap Index rose by 4.8%, while Fidelity Index Emerging Markets was up 4.3%. In the event of investor confidence remaining high, both should in theory continue to be beneficiaries in the months ahead.

Elsewhere, our two global passive picks, L&G Global 100 Index and iShares Core MSCI World ETF LSE: SWDA produced respective returns of 2.3% and 1.8%.

 

These articles are provided for information purposes only. The information we provide in respect of the ii Model Portfoliosii Super60 or ACE40 is an opinion provided by ii or one of its partners on whether to buy a specific investment or portfolio. Please note that none of the opinions we provide are a “personal recommendation”, which means that we have not assessed your investing knowledge and experience, your financial situation or your investment objectives. Therefore, you should ensure that any investment decisions you make are suitable for your personal circumstances. If you are unsure about the suitability of a particular investment or think that you need a personal recommendation, you should speak to a suitably qualified financial advisor.

The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Any changes to the ii Model Portfolio constituents and the rationale behind those decisions will be communicated through the Quarterly Investment Outlook.

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