Interactive Investor

How our five Model Portfolios fared in February 2021

17th March 2021 10:00

Kyle Caldwell from interactive investor

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Our five models have been rebalanced. We explain why and run through the fund winners and losers. 

It is a classic investment mistake to become too emotionally attached to a fund or investment trust that has enjoyed a run of good form.

Rebalancing (taking some profits from your winners) avoids complacency creeping into a portfolio and maintains its risk level, which is more important than chasing returns.

For our five Model Portfolios each quarter we look at how the percentage weightings have changed and decide whether to rebalance.

At the end of February, we chose to rebalance all five portfolios to the target asset allocation and fund weightings. Market volatility and the performance of individual funds meant each portfolio had diverged from its original weightings.

We also reviewed our strategic asset allocation and didn’t make any changes. Each Model Portfolio is comprised of constituents that interactive investor believes best fits the asset allocation for the portfolio’s aims. To find out more about our strategic asset allocation, examine our methodology

The performance of each model is measured against recognised indices that represent the asset classes that are targeted, with the exception of alternatives, for which it is difficult to find a recognised index benchmark. 

Asset class

Optimal weight

UK Equities

25%

International Developed Market Equities

40%

Emerging Market Equities

15%

Global Bonds*

10%

Alternative Investments**

10%

* with currency risk removed for a sterling-based investor.
** This includes asset classes such as property and commodities.

Passive trumps active

Our two passive portfolios had the upper hand in February. ii Low-Cost Growth returned 1.2%, while ii Low-Cost Income was up 0.7%.

In ii Low-Cost Growth the two biggest contributors to performance were the Vanguard FTSE 250 ETF (LSE:VMID) and Vanguard Global Small-Cap Index, up 3.8% and 3.2%.

For ii Low-Cost Income, the three main performance drivers were the WisdomTree Emerging Market High Dividend Growth ETF (LSE:GGRG)Vanguard FTSE All World High Dividend Yield ETF (LSE:VHYL) and SPDR® S&P Global Dividend Aristocrats ETF (LSE:GBDV). The ETFs returned 2.7%, 2.1% and 1.5%. 

Overall, the tech wobble aside, February was a good month for global markets. As a result, the majority of our equity-focused passive picks produced positive returns. A couple of our passive picks, however, were negatively impacted by the tech sell-off and L&G Global 100 Index and WisdomTree Global Equity Dividend Growth ETF (LSE:GGRG) were down 0.7% and 1.7%. 

Income models: how they performed 

% total return (with income reinvested) as of 28 February 2021 after:          
  1 month 3 mths 6 mths 1 year Since inception*
Income portfolios          
ii Active Income -0.1 1.9 9.3 3.6 11.9
ii Low-Cost Income 0.7 1.9 7.5 1.1 6.1
Income benchmark 2.1 4.2 12.1 4.1 8.9
Morningstar GBP Adventurous Allocation average 0.9 3.7 10.3 14.5 26.1

Notes *as at 28 February 2021. Portfolio launch date (for monitoring purposes) was 1 January 2019. Data source: Morningstar Direct.

How our three models backing active funds fared 

Of our three models that invest in actively managed funds, ii Active Income performed best last month, posting a small loss of 0.1%.

Funds and trusts with an income focus tend to have a greater value focus compared to growth funds, so they will, in theory, benefit if a sustained style rotation plays out in the coming months. Predictions of a resurgence in value investing have been made following positive vaccine progress. In turn, this could be positive for the global economy as businesses re-open.

Alongside the global economy accelerating, the spectre of inflation picking up has prompted plenty of column inches to be dedicated to the ‘reflation trade’.  In theory, this would be a favourable backdrop for value stocks that are more cyclical and economically sensitive, which bodes well for UK equities given the market has plenty of exposure to such stocks.

In February, our two UK constituents in ii Active Income were two of the three best contributors to performance: Man GLG Income and City of London (LSE:CTY), up 2.6% and 1.1%. The best performer, however, was Standard Life Private Equity (LSE:SLPE), which gained 7.9%.

Our two other models posted bigger losses, with ii Active Growth down 1.5% and ii Ethical Growth falling 1.9%.

In the case of ii Active Growth, it was Scottish Mortgage (LSE:SMT) that weighed down performance, losing 9.6%.

However, the technology-focused trust was the star of the show for the portfolio in 2020. In that year, ii Active Growth returned 22.7% and over half this return was generated by Scottish Mortgage, which was, in share price terms, up 110.5%.

Scottish Mortgage has been caught up in the technology sell-off that has taken place since mid-February, due to its focus on disruptive companies that have a technological edge over competitors.

Standard Life Private Equity was the best monthly performer in ii Active Growth, followed by Fundsmith Equity and JPMorgan Emerging Markets (LSE:JMG), up 1.1% and 0.7%.

ii Ethical Growth the worst performer in February

ii Ethical Growth is in last place in terms of monthly performance, down 1.9% in February.

There were losses across the board, with only two out of its 10 funds posting a positive return. Royal London Sustainable Leaders gained 3%, while Syncona (LSE:SYNC) was up 0.4%.

Given that such funds tend to be underweight, or completely avoid, certain cyclical sectors on ethical grounds, such as big oil and mining companies, the potential resurgence of value investing had a negative impact on performance over the month.

Since launch on 1 October 2019, ii Ethical Growth’s performance has impressed, with the model up 27.4%.

How our three growth models have performed 

% total return (with income reinvested) as of 28 February 2021, after:          
  1 month 3 mths 6 mths 1 year Since inception*
Growth portfolios          
ii Active Growth -1.5 3.3 11.3 29.4 45.6
ii Ethical Growth -1.9 3.7 14.9 28.7 27.4
ii Low-Cost Growth 1.2 4.9 12 17.1 27.5
Growth benchmark 1 3.3 9.8 12.7 24.2
Growth benchmark since 1 October 2019 (date ii Ethical Growth was launched)         7
Morningstar GBP Adventurous Allocation average 0.9 3.7 10.3 14.5 26.1

Notes *as at 28 February 2021. Portfolio launch date (for monitoring purposes) was 1 January 2019, except Ethical Growth portfolio, launched 1 October 2019. Data source: Morningstar Direct.

 

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.

ii adheres to a strict code of conduct. Members of ii staff may hold shares or units in investments which make up the ii Model Portfolios, which could create a conflict of interest. Any member of staff intending to complete some 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 ii Model Portfolios are subject to a personal account dealing restriction. This prevents them from placing a transaction in these portfolios or the underlying specified constituents of each portfolio for five working days before and after an investment is included or amended and made public within the list. This is to avoid personal interests conflicting with the interests of the recipients of the ii Model Portfolio options

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