Interactive Investor

How our model portfolios fared as volatility returned to markets

19th October 2021 11:54

Kyle Caldwell from interactive investor

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In our latest review, we examine fund winners and losers during a difficult backdrop for markets.

All five of our model portfolios posted small losses in September amid a disappointing month for global markets.

During the month, the MSCI World Index gave up 2.2%, a larger loss than four of our portfolios. The exception was ii Ethical Growth, which declined by 2.8%.  

US markets, in particular, had a bad month, with the S&P 500 index closing 4.8% down.

Below, we examine the fund winners and losers in September for all five portfolios, including detailing how each portfolio performed. All performance figures are total return, the share price total return in respect of investment trusts.

As reported in the previous monthly update, all five portfolios were automatically rebalanced back to their target allocations. Our constituents have target allocations of either 5%, 10% or 15%. The weightings are displayed on our model portfolios page.

Performance of our models over 12-month time periods

Discrete returns for the periods*:      
  01/10/2020 - 31/09/2021 01/10/2019 - 30/09/2020 01/10/2018 - 30/09/2019
Growth Portfolios      
ii Active Growth 25.4 12.6 N/A
ii Ethical Growth 22.9 12.7 N/A
ii Low-Cost Growth 23.1 -1.7 N/A
Growth benchmark 22 -2 6.4
Income Portfolios      
ii Active Income 22.9 -11.9 N/A
ii Low-Cost Income 19.5 -12.9 N/A
Income benchmark 23.7 -14.7 6.2
Morningstar GBP Adventurous Allocation average 20.8 -0.4 3.3

Notes *as at 31 September 2021. Portfolio launch date (for monitoring purposes) was 1 January 2019, except Ethical Growth portfolio, launched 1 October 2019. Data source: Morningstar Direct. Past performance is not a reliable indicator of future results.

How our growth portfolios fared in September 

Our growth trio all declined in September, with ii Ethical Growth the worst performer, down 2.8%. ii Low-Cost Growth and ii Active Growth gave up 1.3% and 1.1%, respectively.

Just one of the 10 constituents of ii Ethical Growth posted a positive return during the month – Impax Environmental Markets (LSE:IEM), which gained 0.4%.

Three members posting sizeable losses of 4.6%, 4.5% and 3.5% were Liontrust UK Ethical, Baillie Gifford Positive Change and Montanaro Better World

But the biggest laggard, which over other time frames has been a negative contributor to performance, was Syncona (LSE:SYNC). The trust’s share price declined by 16.1% over the month. Over one year, it has suffered greater losses of 33.2%.

It has certainly been a challenging period for the trust's shareholders. Syncona invests in life science companies, predominately unlisted, and is highly concentrated – with just 11 holdings at present.

Given that the trust is adventurous, it is sensible to keep exposure to a small part of a diversified portfolio. This is reflected by Syncona having only a 5% weighting in the ii Ethical Growth portfolio.

Dzmitry Lipski, head of funds research at interactive investor, says that two of the trust’s listed holdings have hurt returns over the short term. “Drug trails for Autolus (NASDAQ:AUTL) and Freeline (NASDAQ:FRLN) have been pushed back, which has contributed to the portfolio underperformance,” he points out. 

Another notable detractor has been Syncona’s shrinking premium, which currently stands at 2.1%. Over the past year, the trust has typically traded on a premium of 21.2%.

In August, interactive investor’s analysts put the trust under formal review on performance grounds. The trust is a member of interactive investor’s ACE 40 ethical rated list. The results of the review, once completed, will be published on the ii.co.uk website.  

Moving on to ii Low-Cost Growth, the WisdomTree Enhanced Commodity ETF was the only member in positive territory. The ETF returned 5%, with the defensive nature of some commodities, such as gold, shining through during a turbulent month for equity markets.

The rest of the eight members of ii-Low Cost Growth posted losses of less than 2% asides from Vanguard FTSE 250 ETF (LSE:VMID) and iShares Global Property Securities Equity Index , down 4.5% and 2.2%.

In ii Active Growth, two of the 10 holdings made gains in September. Scottish Mortgage (LSE:SMT), which was the biggest contributor to performance, returned 4.3%, while Standard Life Private (LSE:SLPE) posted a higher gain of 12%. But given that Scottish Mortgage comprises 15% of the portfolio versus a 5% weighting for Standard Life Private Equity, its performance had greater influence.

The worst contributor to performance was Fundsmith Equity, down 3.5%. It was not the worst overall member, though, that was JPMorgan Emerging Markets (LSE:JMG), which lost 4.6%. But given that Fundsmith Equity accounts for 15% of ii Active Growth against 10% for JP Morgan Emerging Markets, it proved to be more of a detractor.

Performance of our three growth portfolios 

% total return (with income reinvested) as of 30 September 2021, after:          
  1 month 3 mths 6 mths 1 year Since inception*
Growth portfolios          
ii Active Growth -1.1 3 11 25.4 64.5
ii Ethical Growth -2.8 3.3 9.8 22.9 38.5**
ii Low-Cost Growth -1.3 1.6 7.3 23.1 39.8
Growth benchmark -1.4 1.3 8 22 38.9
Growth benchmark since 1 October 2019 (date ii Ethical Growth was launched)         19.5**
Morningstar GBP Adventurous Allocation average -1.3 1.4 6.9 20.8 37.5

Notes *as at 30 September 2021. Portfolio launch date (for monitoring purposes) was 1 January 2019, except **Ethical Growth portfolio, launched 1 October 2019. Data source: Morningstar Direct. Past performance is not a reliable indicator of future results.

Performance of our two income portfolios in September 

Our two income portfolios were also in the red, with respective declines of 1.8% and 0.8% for ii Active Income and ii Low-Cost Income. One a year view, though, returns are much healthier, at 22.9% and 19.5%. Over that time period, a recovery in dividend payments from the pandemic has been gathering pace. At the end of 2020, the one-year performance figure for ii Active Income was -4.2% and -7.3% for ii Low-Cost Income.

In ii Active Income, just one holding made a positive return in September, a 12% gain for Standard Life Private Equity (LSE:SLPE), which is also held in ii Active Growth.

The rest of the portfolio posted small losses of less than 3%, asides from Bankers (LSE:BNKR) and Murray International(LSE:MYI), down 6.9% and 4%.

Finally, our ii-Low Cost Income portfolio had two holdings in positive territory, with gains of 2.6% and 0.4% for the WisdomTree Emerging Markets Equity Income ETF (LSE:DEM) and the SPDR® S&P Global Dividend Aristocrats ETF(LSE:GBDV)

At the other end of the table, with a decline of 4.2%, was the SPDR® S&P UK Dividend Aristocrats ETF (LSE:UKDV).

Performance of our income portfolios 

% total return (with income reinvested) as of 30 September 2021, after:          
  1 month 3 mths 6 mths 1 year Since inception*
Income portfolios          
ii Active Income -1.9 0.2 6 22.9 24.6
ii Low-Cost Income -0.8 1.9 5.9 19.5 18.3
Income benchmark -0.6 0.8 4.7 23.7 19.4
Morningstar GBP Adventurous Allocation average -1.3 1.4 6.9 20.8 37.5

Notes: *Portfolio launch date (for monitoring purposes) was 1 January 2019, except Ethical Growth portfolio, launched 1 October 2019. Data source: Morningstar Direct. Past performance is not a reliable indicator of future results.

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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