ii ACE 40 performance review: Q1 2024
Here’s how interactive investor’s sustainable funds performed in the three months to the end of March.
12th April 2024 13:23
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Over Q1 2024 the funds on the ACE 40 list were influenced by the strength of the US market and particularly growth stocks, and weakness in the alternative energy space.
Brown Advisory US Sustainable Growth topped the outperformers’ list with a gain of 11.9%. The fund benefited from the strength of the US equity market and from its large-cap growth style bias which was in vogue and contributed to its slight outperformance of the mainstream S&P 500 Index.
The second US fund on the outperformers’ list was the iShares MSCI USA SRI ETF USD Acc GBP (LSE:SUUS)(+7%). This passive fund invests in a sub-set of equities within the MSCI USA Index that demonstrate higher environmental, social and governance (ESG) ratings than other sector peers, as well as excluding companies involved in controversial businesses such as weapons, thermal coal, tobacco and oil sands. However, the return was slightly behind the S&P 500 index due to less strong performance from IT and consumer discretionary holdings.
In addition to the US names there were three global products in the top five outperformers’ list. These funds benefited from a large allocation to the US equity market.
The UBS (Lux) FS MSCI World Socially Responsible UCITS ETF produced a return of 9.8%. The fund tracks the MSCI World SRI Low Carbon Select 5% Issuer Capped TR Index, and this gives it a slight growth bias versus mainstream indices. This was beneficial over the quarter but was still not sufficient to result in outperformance versus the mainstream MSCI World Index, primarily due to weaker returns from the consumer discretionary sector where there was a lack of exposure to Amazon.com Inc (NASDAQ:AMZN) and a larger weighting to Tesla Inc (NASDAQ:TSLA).
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- Fund Spotlight: high-quality shares with an eye on sustainable growth
The remaining global equity funds CT Responsible Global Equity and Wellington Global Stewards GBP produced returns of 9.1% and 8.9%, respectively. Versus global large-cap growth peers, the CT Responsible Global Equity fund was in line with the average return, but the Wellington fund with its more balanced style approach outperformed its global large-cap blend peers.
Wellington Global Stewards is managed by Mark Mandel and Yolanda Courtines, who have been in place since inception in 2019. The managers aim to hold stocks that combine a high relative return on capital with good stewardship, which they believe can lower capital costs over time. Starting with an investment universe of 750 highly liquid global stocks, they use quantitative screens to narrow this down to 150 promising candidates which they research intensively with the help of Wellington's global industry analysts and ESG team. The size of the analytical resource supporting the managers and the experience levels within it are a key positive for this fund, while there is an equally impressive level of resource available on the sustainability side. The managers both have long tenures at the firm and are well placed to continue to take advantage of these resources.
The weakest performers on the list were again those funds with an alternative energy focus. The VT Gravis Clean Energy Income fund has the weakest return over the quarter at -13%. This fund looks to provide 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. This is expected to result in a more stable return profile than that obtained through investing in the S&P Global Clean Energy Index benchmark, but over the quarter the fund underperformed. The main detractors at the stock level were relatively strong performing index names that were not held, such as China Yangtze Power Co Ltd GDR (LSE:CYPC), NHPC and Orsted. The exchange-traded fund (ETF) that tracks the benchmark index, the iShares Global Clean Energy ETF USD Dist GBP (LSE:INRG), also posted a negative 9.6% return.
A further fund in the alternative energy space Polar Capital Smart Energy I Acc CHF (-1.4%) also appears on the underperformers’ list, but the returns here were much less severe reflecting a more diversified approach. The fund is managed by Thiemo Lang who moved from Robeco to Polar Capital in 2021 and was accompanied by three colleagues. Lang has more than two decades of relevant experience and is one of the most seasoned managers in the alternative energy category. The investment process focuses on bottom-up selection of quality-growth companies that trade at reasonable valuations and provide solutions that enable the decarbonisation and electrification of the global energy sector. A large overweight versus the category and the S&P Global Clean Energy Index in the technology sector is notable, with this being at the expense of utilities which represent over 40% of the index but only 7% of this fund. The fund is also heavily overweight North America versus the index, which was beneficial over the quarter.
- Polar Capital Smart Energy: Investing in under-the-radar clean energy winners
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The final two funds on the underperformers’ list are managed by Stewart Investors, but they showed very different returns.
Pacific Assets Ord (LSE:PAC)produced a positive net asset value (NAV) return of 2.3% but a significant shift in the discount resulted in negative share price performance of -8.8%. The positive NAV return was behind mainstream benchmark indices which may have impacted investor sentiment and caused the share price fall over the quarter.
Stewart Investors Global Emerging Markets Sustainability showed a -1.8% return over the quarter which was behind the mainstream MSCI EM Index return of 3.3%. Asian and emerging markets were clearly impacted by negative performance from Chinese equities, and the fund saw further weakness versus the index as a result of stock selection within IT and the overweight to, and stock selection within, consumer staples. The investment approach focuses on sustainable growth stocks with higher-quality elements, particularly regarding management teams, and this can result in the fund being out of line with market movements in the short term. The process has, however, proved its worth over the longer term.
Top five ACE 40 funds in Q1 2024
| Group/Investment | 3 months (%) | 1 year | 3 years | 5 years |
| Brown Advisory US Sust Gr GBP B Inc | 11.87 | -4.34 | -5.99 | -10.49 |
| UBS(Lux)FS MSCI World SRI USD Adis GBP (LSE:UC44) | 9.81 | 23.61 | 38.86 | 86.11 |
| CT Responsible Global Equity 2 Acc | 9.09 | -6.78 | -21.22 | -14.68 |
| Wellington Global Stewards GBP N Acc | 8.90 | -2.84 | 8.30 | 22.33 |
| iShares MSCI USA SRI ETF USD Acc GBP (LSE:SUUS) | 6.99 | 19.45 | 44.36 | 111.57 |
Source: Morningstar - Total Return for OE / Market Return for CE - (GBP) to 31/03/2024.
Bottom five ACE 40 funds in Q1 2024
| Group/Investment | 3 months (%) | 1 year | 3 years | 5 years |
| VT Gravis Clean Energy Income C GBP Acc | -13.04 | 6.87 | 15.02 | -38.60 |
| iShares Global Clean Energy ETF USD Dist GBP (LSE:INRG) | -9.72 | -30.01 | -34.99 | 53.79 |
| Pacific Assets Ord (LSE:PAC) | -8.83 | -0.23 | 13.66 | 24.98 |
| Stewart Inv Glbl EM Sustnby B GBP Acc | -1.80 | -1.20 | 8.27 | 6.66 |
| Polar Capital Smart Energy I Acc | -1.40 | -22.37 |
Source: Morningstar - Total Return for OE / Market Return for CE - (GBP) to 31/03/2024.
Top five ACE 40 funds over five years
| Group/Investment | 3 months (%) | 1 year | 3 years | 5 years |
| iShares MSCI USA SRI ETF USD Acc GBP (LSE:SUUS) | 6.99 | 19.45 | 44.36 | 111.57 |
| UBS(Lux)FS MSCI World SRI USD Adis GBP (LSE:UC44) | 9.81 | 23.61 | 38.86 | 86.11 |
| Vanguard SRI European Stk £ Acc | 6.46 | 12.18 | 30.86 | 54.99 |
| iShares Global Clean Energy ETF USD Dist GBP (LSE:INRG) | -9.72 | -30.01 | -34.99 | 53.79 |
| Impax Environmental Markets Ord (LSE:IEM) | 1.37 | -4.97 | -5.57 | 47.96 |
Source: Morningstar - Total Return for OE / Market Return for CE - (GBP) to 31/03/2024.
Bottom five ACE 40 funds over five years
| Group/Investment | 3 months (%) | 1 year | 3 years | 5 years |
| Schroder Global Sust Val Eq Z Cap | 4.88 | -10.49 | -17.58 | -58.73 |
| VT Gravis Clean Energy Income C GBP Acc | -13.04 | 6.87 | 15.02 | -38.60 |
| Liontrust Sust Fut Eurp Gr 2 Net Acc | 5.10 | -4.78 | -39.43 | -30.88 |
| Liontrust UK Ethical 2 Net Acc | 2.03 | -2.58 | -52.80 | -20.31 |
| CT Responsible Global Equity 2 Acc | 9.09 | -6.78 | -21.22 | -14.68 |
Source: Morningstar - Total Return for OE / Market Return for CE - (GBP) to 31/03/2024.
Most-bought ACE 40 funds in Q1 2024
| Royal London Sustainable World C Acc |
| iShares Global Clean Energy ETF USD Dist GBP (LSE:INRG) |
| Impax Environmental Markets Ord (LSE:IEM) |
| Royal London Sustainable Leaders C Acc |
| Rathbone Ethical Bond I Acc |
Most-sold ACE 40 funds in Q1 2024
Changes to the ACE 40 list (under review/developments)
No changes in Q1.
ACE 40 videos in Q1
Polar Capital Smart Energy
Investing in under-the-radar clean energy winners
Shares winning from this ‘unstoppable’ mega-trend
Rathbone Ethical Bond
A 5% income yield makes bonds an insurance policy
What will happen to inflation, interest rates, and bonds in 2024
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.