Interactive Investor

ii ACE 40 performance review 2022

Here’s how interactive investor’s sustainable funds performed in the three months to the end of December and over the past year.

With fixed-income markets coming under pressure from rising rates, and growth-biased equities also out of favour, it comes as little surprise that funds on the ACE 40 investments list struggled to produce positive returns over 2022. Sustainable investing in equities generally results in a bias to growth factors at the expense of value, while the exceptional returns seen from energy names also hampered sustainable investments relative to broader approaches. In general, investors shunned strategies regarded as higher risk, which also resulted in smaller-cap funds underperforming their larger counterparts.

The strongest performer on the ACE 40 list in 2022 was the iShares Global Clean Energy ETF (LSE:INRG). The exchange-traded fund (ETF) tracks the performance of the S&P Global Clean Energy Index, which includes clean energy production as well as equipment and technology. The index is quite concentrated in its top holdings with names such as Enphase Energy Inc (NASDAQ:ENPH), Consolidated Edison Inc (NYSE:ED) and First Solar Inc (NASDAQ:FSLR) producing strong performance. Clean energy is clearly an area of focus for governments and policymakers, with heightened interest through the current supply constraints in traditional energy and the consequent increase in prices.

The only other fund showing a positive return in 2022 was also from the Alternative Energy Sector and was the VT Gravis Clean Energy Income fund with a return of just over 2%. This fund has a focus on providing an income in region of 4.5% and primarily invests in closed-ended investment companies and yield companies that are involved in the provision, storage and consumption of clean energy. The result is often a more stable return profile than that obtained through investing in the S&P Global Clean Energy Index, but clearly the same broad drivers are at play here and resulted in good returns over the year relative to other investments.

The M&G European Sustain Paris Aligned fund had a change of remit in 2021, becoming an ex-UK fund and adopting alignment to the Paris Agreement with a focus on identifying companies with meaningful plans to reduce carbon emissions. The underlying stock approach remained intact with a focus on companies showing sustainable competitive advantages. As a concentrated portfolio, stock selection can overcome style biases, with 2022 highlighting this through strong stock selection in financials and industrials including names such as Hannover Rueck SE (XETRA:HNR1) and Andritz AG (XETRA:AZ2). Despite the growth bias in this fund, it ended the year less than 2% down.

The Schroder Global Sustainable Value fund was recently added to the ACE 40 as it is an unusual product offering both sustainable characteristics and a clear value bias relative to mainstream benchmarks. It therefore helps to offset the strong growth style bias that naturally exists on the list. The fund focuses on companies deemed to be industry leaders, or best in class versus peers in terms of sustainability, while the underlying stock selection methodology follows the established team process that focuses on identifying contrarian, recovery ideas with strong financials. Over the course of 2022, the positive from the value bias was tempered by the bias down the market-cap scale which was a negative, but the overall return of just under -3% was well ahead of the mainstream global index.

The final fund on the top performers list was Pacific Assets (LSE:PAC). The fund is managed by Stewart Investors and follows their tried and tested approach to investing in Asia and emerging markets, which focuses on sustainable growth stocks with higher quality elements, particularly regarding management teams. The geographical allocation, which has heavily favoured India for some time, was a significant benefit over the year, resulting in a good relative return of -3% for the year.

At the bottom of the performance list was Montanaro Better World with a loss of over 29%. Its growth focus and the mid- and small-cap bias were significant headwinds in a market that generally favoured large-cap value. All the funds listed as bottom performers have clear growth biases versus mainstream peers and most also have biases down the market-cap scale, which explain most of the weakness seen over the calendar year. These funds include Liontrust Sustainable Future European Growth (-28%), Liontrust UK Ethical (-25%), and Impax Environmental Markets (LSE:IEM) (-23% share price performance).

Brown Advisory US Sustainable Growth fund is the final fund in the list of under-performers with a negative return of 23%. The fund includes sustainable investing traits in its long-term fundamental research process. It has a clear growth bias versus mainstream peers and has a Russell 1000 Growth Index benchmark, but doesn’t have a very significant bias down the market-cap scale and its returns are largely as expected given the strength of the style bias and market conditions.   

Top five ACE 40 funds in Q4 2022

Group/Investment3 month1 year3 years5 years
M&G European Sustain Paris Aligned I Acc18.27-1.6919.0726.47
Unicorn UK Ethical Income B Acc14.13-10.71-11.790.20
Montanaro European Income £ Inc13.79-17.949.2722.32
Janus Henderson UK Responsible Inc I Inc12.52-4.931.2616.15
Liontrust Sust Fut Eurp Gr 2 Net Acc11.95-27.672.259.67

Bottom five ACE 40 funds in Q4 2022

Group/Investment3 month1 year3 years5 years
Brown Advisory US Sust Gr GBP B Inc-4.77-22.9338.3299.91
iShares Global Clean Energy ETF USD Dist GBP (LSE:INRG)-3.666.3789.61153.14
VT Gravis Clean Energy Income C GBP Acc-2.802.5131.9180.13
FP Foresight Global Rl Infras A GBP Acc -1.59-9.7213.73 
Stewart Inv Glbl EM Sustnby B GBP Acc-1.54-8.7610.9917.17

Source: Morningstar Total Returns for OE funds / Market Returns for ITs to 31/12/2022.

Top five ACE 40 funds over five years

Group/Investment3 month1 year3 years5 years
iShares Global Clean Energy ETF USD Dist GBP (LSE:INRG)-3.666.3789.61153.14
Baillie Gifford Positive Change B Acc5.72-21.8855.90106.78
Brown Advisory US Sust Gr GBP B Inc-4.77-22.9338.3299.91
iShares MSCI USA SRI ETF USD Acc (LSE:SUAS)0.65-8.5147.4694.72
VT Gravis Clean Energy Income C GBP Acc-2.802.5131.9180.13

Bottom five ACE 40 funds over five years

Group/Investment3 month1 year3 years5 years
Lyxor Green Bond (DR) ETF C EUR GBP (LSE:CLIM)-0.98-13.37-13.18-8.74
Liontrust Sust Fut Corp Bd 2 Grs Inc8.97-19.07-15.08-8.53
CT UK Social Bond Z Grs Acc£4.80-10.95-8.55-3.95
RLBF II Royal London Ethical Bond M Inc5.47-17.24-11.32-3.67
PIMCO GIS Global Bond ESG Instl GBPH Inc0.87-12.44-8.15-3.04

Source: Morningstar Total Returns for OE funds / Market Returns for ITs to 31/12/2022.

Most-bought ACE 40 funds in 2022

Most-sold ACE 40 funds in 2022

Changes to the ACE 40 list (under review/developments)

  • Removal of Fundsmith Sustainable Equity Fund (November)
  • Removal of Baillie Gifford Global Stewardship Fund (November)
  • Addition of Schroder Global Sustainable Value Equity Fund (November)

ACE 40 videos in Q4

Baillie Gifford Positive Change:

Baillie Gifford: our latest views on Tesla and Elon Musk

Baillie Gifford: why these growth stocks will bounce back

The ACE 40 investments list is selected and managed by our independent research partner Morningstar and reviewed by our in-house investment experts to help narrow down the wide choice of available investment products. We believe it represents a set of high-quality choices, across different asset classes, regions, and investment types.

However, you should note that the selection of ACE 40 investments list 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 ACE 40 investments list as a whole 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)

All funds listed are the Accumulation version of the fund, where available, where any income generated within the fund is reinvested automatically. Income versions of these funds may also be available for investors looking for income generated to be paid directly into their account.

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 ACE 40 investments list and the rationale behind those decisions will be communicated through the Quarterly Investment Review.

Details of all ACE 40 recommendations issued by ii during the previous 12-month period can be found here.

ii adheres to a strict code of conduct. Members of ii staff may have holdings in one or more ACE 40 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.

In addition, staff involved in the production of the ACE 40 investments list 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 the ACE 40 investments list. This is to avoid personal interests conflicting with the interests of investors in the ACE 40 investments.