Interactive Investor

ii ACE 40 performance review: Q2 2022

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

The second quarter proved to be another testing quarter for environmental, social and governance (ESG) products, as the general bias of the peer group towards growth and away from traditional energy stocks continued to hamper returns versus the broader investment universe. As a result, just one fund in the ACE 40  managed to scrape into positive return territory over the quarter.

ACE 40 performance

Clean energy continued to be a relative success story in Q2, with the top-performing fund in the ACE 40 list being VT Gravis Clean Energy Income, and the iShares Global Clean Energy ETF (LSE:INRG) also appearing in the top five.

The VT Gravis fund produced a positive return of 0.27%, outperforming the ETF’s return of -4.32%. 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 VT Gravis fund has had the added benefit of being an income mandate and therefore has a focus on more mature, dividend-paying companies which has given it an advantage in the current uncertain market environment.

The remaining three funds in the top performers list offer very different exposures. The investment company Pacific Assets (LSE:PAC) saw just a minor widening of its discount over the quarter and produced a mildly negative return of -1.30%. 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. This emphasis has benefitted the fund over the recent past with strong stock selection overcoming the geographical allocation which has favoured India over China.

CT UK Social Bond is the only fixed income fund on the top performers' list, with the asset class having to battle the headwinds of rising interest rates and inflation concerns. This fund returned -4.67% over the quarter, which reflects these issues, but the cautious stance of the fund and the focus on corporate bonds helped limit losses.

The top performers list ends with the passive fund, iShares MSCI EM SRI ETF (LSE:SUES), which produced a negative return of 4.82%, putting it slightly behind the mainstream MSCI EM Index return.

At the other end of the performance list are two funds from Baillie Gifford, Baillie Gifford Positive Change and Baillie Gifford Global Stewardship, which posted declines of -22.27% and -21.99% respectively. Both funds are managed using the growth-biased approach of the investment house, and have a particular focus on higher-growth names that produced exceptional returns in the market recovery of 2020, but have struggled since. The style of these global equity funds is out of favour because such names require belief in high levels of growth over the longer term to justify their valuations. At present, few investors have the confidence to take such views. 

The remaining laggards are also equity funds, and all three found themselves on the bottom five performers list last quarter, emphasising the continuation of market themes and conditions that we have seen in the year to date. Liontrust Sustainable Future European Growth saw a decline of 17.74%. The biases towards growth, away from commodities and down the market-cap scale, help to explain some of the weakness that has been seen in excess of the Europe ex UK universe itself. Montanaro Better World is another fund with a bias down the market-cap scale and to the growth style, which explains the majority of its -17.45% return.

The final fund in the list of bottom performers is Impax Environmental Markets (LSE:IEM). With its growth and small/mid-cap nature the NAV return of this investment company is in line with its investment universe, although share price performance was lower (-9.83% NAV, -14.35% share price return) further reflecting the negative investor sentiment towards higher risk equity holdings.

Top five ACE 40 funds in Q2 2022

Performance (%) Q2 2022 1 Year 3 Years 5 Years
VT Gravis Clean Energy Income C GBP Acc 0.27 9.50 52.08  
Pacific Assets Ord -1.30 -9.33 5.00 30.38
iShares Global Clean Energy ETF USD Dist -4.32 -6.70 92.64 158.38
CT UK Social Bond Z Grs Acc£ -4.67 -8.78 -4.01 0.32
iShares MSCI EM SRI ETF USD Acc -4.82 -13.10 11.50 26.60

Source: Morningstar TR GBP.

Bottom five ACE 40 funds in Q2 2022

Performance (%) Q2 2022 1 Year 3 Years 5 Years
Baillie Gifford Positive Change B Acc -22.27 -30.11 57.58 118.93
Baillie Gifford Global Stewardship B Acc -21.99 -37.88 14.94 51.40
Liontrust Sust Fut Eurp Gr 2 Net Acc -17.74 -24.47 6.13 11.62
Montanaro Better World GBP Dis -17.45 -23.20 13.52  
Impax Environmental Markets Ord -14.35 -15.41 32.92 77.80

Source: Morningstar TR GBP.

Top five ACE 40 funds over five years

Performance (%) Q2 2022 1 Year 3 Years 5 Years
iShares Global Clean Energy ETF USD Dist -4.32 -6.70 92.64 158.38
Baillie Gifford Positive Change B Acc -22.27 -30.11 57.58 118.93
iShares MSCI USA SRI ETF USD Acc -10.39 2.72 50.51 102.90
Impax Environmental Markets Ord -14.35 -15.41 32.92 77.80
CT Responsible Global Equity 2 Acc -10.97 -9.87 26.62 61.54

Source: Morningstar TR GBP.

Bottom five ACE 40 funds over five years

Performance (%) Q2 2022 1 Year 3 Years 5 Years
Lyxor Green Bond (DR) ETF C EUR -5.75 -12.82 -14.58 -6.19
Liontrust Sust Fut Corp Bd 2 Grs Inc -9.54 -16.35 -7.17 -1.58
CT UK Social Bond Z Grs Acc£ -4.67 -8.78 -4.01 0.32
PIMCO GIS Global Bond ESG Instl GBPH Inc -5.68 -10.24 -4.25 1.05
Aegon Ethical Equity GBP B Acc -14.12 -21.16 -3.88 1.37

Source: Morningstar TR GBP.

Most-bought ACE 40 funds in Q2 2022

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

Most-sold ACE 40 funds in Q2 2022

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

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

Removal of abrdn Europe ex UK Ethical Equity

Removal of Syncona Limited

CT UK Social Bond Fund Z Gross Accumulation GBP under review

ACE 40 videos in Q2

BMO Sustainable Universal MAP Range

The UK shares we are buying that are sustainable winners

Why mining stocks have a place in this sustainable fund

The ACE 40 investments list has been selected by 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.