How our model portfolios fared as volatility returned to markets
In our latest review, we examine fund winners and losers during a difficult backdrop for markets.
19th October 2021 11:54
by 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.
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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.
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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.
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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 Incomeand 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.
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.