Interactive Investor
Log in
Log in

ii ACE 40 performance review: Q1 2022

14th April 2022 08:52

by the interactive investor team from interactive investor

Share on

Here’s how interactive investor’s ethical funds performed in the three months up to the end of March.

ACE 40 logo 600

ESG (environmental, social and governance) as a theme is facing its most difficult challenge since its rapid growth in the last few years. If ESG investing can’t deliver the same returns as conventional investing, then investors will have to choose between greater personal wealth or a benefit to society and the environment, which is far from optimal.

ESG’s struggles this year have come from the fact that ESG is inherently linked to 'growth' as a style. Maybe ESG companies are younger, smaller, or faster growing/adapting than more mature old-world companies, but growth as a style has really struggled this year, with rising interest rates and inflation making investors reconsider how much the future earnings of these companies are worth today.

In addition, the booming oil and gas prices have posed a question as to whether the companies involved in these industries can be ignored. Furthermore, booming commodities prices in some areas have hurt ESG companies more than others, for example lithium and nickel prices skyrocketing puts pressure on EV manufacturers.

The boom in ESG has been an undoubtedly positive result for society and the planet as a whole. However, as the year unfolds, if ESG remains under pressure it will be interesting to see if ESG funds flew too close to the sun when gaining assets, and whether we will see a reversal in trends that undoes much of the good work these ESG leading companies have done.

ACE 40 performance

The troubles for ESG funds were seen clearly across the ACE 40 list, with only three funds delivering a positive absolute return in Q1, although the month of March was more fruitful as the Federal Reserve, America's central bank, projected 11 rate hikes by the end of 2023, which the market saw as a strong and decisive way to curb inflation and gave growth funds, and as a result ESG funds, a shot in the arm.

The best-performing funds were both from the Alternative Energy Sector, with VT Gravis Clean Energy Income and iShares Global Clean Energy ETF (LSE:INRG) gaining 5.8% and 4.6% respectively over the first quarter. These were also standout performers in their category, which delivered a negative return on average.

As a whole the sector was able to benefit from rising energy prices and the search for alternatives as oil and gas soared, but at the same time was hurt heavily by the rising rates and inflation story given the high growth of the sector. The exchange-traded fund (ETF) was able to outperform peers as it is naturally weighted to the larger and more mature companies in the sector, who are less exposed to the inflation story and able to take advantage of the positives to the sector. The same can be said of Gravis which, in its search for income, avoids the highest growth names and owns the mature, dividend-paying companies, which allowed them to be the top Alternative Energy fund for the quarter.

The other fund to deliver a positive return was FP Foresight Global Rl Infrastructure, which gained 1.8% as inflation drove infrastructure assets higher. The fund was moderately held back however by a focus on renewables and as such didn’t deliver as great a return as some infrastructure peers.

iShares MSCI EM SRI ETF (LSE:SUSM) lost 1.5%, making it the fourth-best performer on the list. Given energy is a tiny part of the MSCI EM index, being heavily underweight energy as this fund is, was not as significant as it would have been elsewhere. Additionally, the fund is underweight China and specifically avoids many of the big global Chinese names that were worst hit when the threat of sanctions began to loom.

Rounding off the top performers is Janus Henderson UK Responsible Income (-2%). Despite underperforming the UK Equity Income sector due to a 0% weight to BP and Shell, the fund still held up relatively well when compared to broader funds and especially ESG funds, given its value bias.

The worst-performing strategy on the list was Syncona (LSE:SYNC), the life sciences trust involved in cell therapy and gene therapy. The trust had ended the year well, with a sale to Novartis of one of the portfolio’s largest holdings, Gyroscope. This year however the share price of Syncona has fallen 24.5% and, although the published net asset value (NAV) has not changed, making this a swing from a premium to a discount, the listed parts of the portfolio have been hit hard. Most notably Freeline Therapeutics (NASDAQ:FRLN) continues to see declines, falling 40% so far this year and down 95% since the start of 2021. The portfolio’s listed and unlisted companies all suffer heavily from inflationary pressures as, by nature, they are either pre-revenue or engaging in trials and operations that will lead to future revenues, so rising rates and inflation make that future revenue worth less today.

The other poorest performing strategies on the list all have their growth bias to thank for their underperformance - Montanaro Better World -17% fared the worst, as it focuses on small and mid-cap companies, which also have suffered from the rising rate and inflation environment. Baillie Gifford Global Stewardship (-15.5%) and Liontrust Sustainable Future European Growth (-13.9%) both also suffered due to their growth style biases. Rounding off the worst performers is Impax Environmental Markets (LSE:IEM) (-14.4%) , which swung from a 10% premium to a 5% discount mid-quarter, although has since recovered that slightly. NAV performance was -8.2%, as the environmental companies the trust owns again tend to have a growth bias.

Top five ACE 40 funds in Q1 2022

Performance (%)Q11 year3 years5 years
VT Gravis Clean Energy Income Fund5.8011.2663.790.00
iShares Global Clean Energy ETF 4.61-4.97127.80164.24
FP Foresight Global Real Infrastructure Fund1.796.37--
iShares MSCI EM SRI ETF -1.470.2723.3334.39
Janus Henderson UK Responsible Income Fund-1.986.1021.6229.36

Source: Morningstar TR GBP.

Bottom five ACE 40 funds in Q1 2022

Performance (%)Q11 year3 years5 years
Syncona Investment Trust-24.53-37.01-37.6014.10
Montanaro Better World Fund-16.971.8353.22-
Baillie Gifford Global Stewardship Fund-15.47-13.0661.56105.66
Liontrust Sustainable Future European Growth Fund-13.92-1.5241.7044.11
Impax Environmental Markets Trust-14.387.3468.19116.29

Source: Morningstar TR GBP.

Top five ACE 40 funds over five years

Performance (%)Q1 20221 year3 years5 years
Baillie Gifford Positive Change-9.662.06112.15204.45
iShares Global Clean Energy ETF 4.61-4.97127.80164.24
iShares MSCI USA SRI ETF -2.5423.0281.14124.59
Impax Environmental Markets Trust-14.387.3468.19116.29
Baillie Gifford Global Stewardship Fund-15.47-13.0661.56105.66

Source: Morningstar TR GBP.

Bottom five ACE 40 funds over five years

Performance (%)Q1 20221 year3 years5 years
VT Gravis Clean Energy Income Fund5.8011.2663.790.00
Lyxor Green Bond (LSE:CLIM)-5.76-6.82-3.130.45
Threadneedle UK Social Bond-3.71-3.602.245.37
PIMCO GIS Global Bond ESG-4.56-3.994.097.98
Liontrust Sustainable Future European Growth Fund-6.42-5.704.9810.48

Source: Morningstar TR GBP.

Most-bought ACE 40 funds in Q1 2022

Company name
iShares Global Clean Energy ETF
Baillie Gifford Positive Change
Impax Environmental Markets
Syncona
Royal London Sustainable Leaders

Most-sold ACE 40 funds in Q1 2022

Company name
Baillie Gifford Positive Change
iShares Global Clean Energy ETF
Impax Environmental Markets
Royal London Sustainable World
Syncona

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

No changes in Q1 2022.

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.

Related Categories

    ETFsFundsEthical investingInvestment TrustsAce 30Bonds and giltsEurope

Get more news and expert articles direct to your inbox