ii ACE 40 performance review: Q3 2022
19th October 2022 09:24
Here’s how interactive investor’s ethical funds performed in the three months to the end of September.
Only around one-third of the ACE 40 list managed to produce a positive return in Q3, all of which were equity funds. This is an improvement on the previous quarter, although all but three funds remain in negative territory over 12 months, such was the significance of the style rotation over the first half of 2022.
ACE 40 performance
The top-performing fund over the quarter was the iShares Global Clean Energy ETF USD Dist GBP (LSE:INRG), which achieved a return of 11.71%, well above the MSCI ACWI’s return of 1.37%. Such is the concentration of the index, over half of this return was driven by the top five stocks, particularly in the month of July. Names include Enphase Energy Inc (NASDAQ:ENPH) and SolarEdge Technologies Inc (NASDAQ:SEDG).
- Discover more: ACE 40 Sustainable Investments List
Second and third in the list of top performers was the investment company Pacific Assets (LSE:PAC) and the Stewart Investors Global Emerging Markets Sustainabilityfund. The former had a share price return of 10.32% and a narrowing of its discount from 12.36% to 11.03%, and the latter achieved a return of 7.95%. Both strategies are managed by Stewart Investors and follow 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. Both funds performed well in August and September, in what was a choppier market environment following July’s risk-on rally. Both strategies also benefited from their large overweights to Indian equities, and underweight to Chinese equities.
The iShares MSCI USA SRI ETF (LSE:SUUS) was up 6.13%, which was a strong return versus the broader S&P 500 Index. The strategy is designed to reflect a sub-set of equities within the MSCI USA Index that are demonstrating higher ESG ratings than other sector peers, as well as excluding companies involved in controversial businesses such as weapons, thermal coal, tobacco, oil sands, and so on.
Rounding off the quarter’s top performers was Baillie Gifford Positive Change, which was the worst-performing fund last quarter, such is the high concentration of the portfolio and boldness of their approach. The fund did particularly well in July’s market rally, largely owing to an overweight in European tech, and good stock selection within European and US healthcare names. This strategy is a natural extension of Baillie Gifford’s long-standing growth approach, adding a focus on companies that are perceived by the team to contribute to solving a social or environmental challenge.
All of last quarter’s five worst-performing funds invest in UK assets, of which three were UK Corporate Bond funds. UK Corporate Bond and Government Bond funds were the worst-performing categories in the quarter, such was the market’s very negative reaction to the government’s fiscal announcement, with sterling falling sharply and gilt yields and spreads increasing substantially. Bottom of the pile was the Liontrust Sustainable Future Corporate Bond fund, down -12.26% and the weakest performer over the past three years, while RLBF II Royal London Ethical Bond returned -10.13% and Rathbone Ethical Bond -9.57%.
Unicorn UK Ethical Income and CT Responsible UK Income were down -11.09% and -9.07% respectively as income funds in general struggled against more growth-minded peers. The Unicorn fund struggled even more so than its income peers due to its focus on smaller companies, which fared much worse than their large-cap counterparts. The CT Fund has a marginally lower market-cap profile, which would have detracted, but it was the underweight to energy companies, and stock selection within financial services and technology, which was the biggest source of underperformance.
Top five ACE 40 funds in Q3 2022
| Performance (%) | Q3 2022 | 1 Year | 3 Years | 5 Years |
| Pacific Assets Ord | 10.32 | -4.42 | 19.18 | 46.19 |
| iShares Global Clean Energy ETF USD Dist | 9.84 | 7.92 | 98.57 | 173.28 |
| Stewart Inv Glbl EM Sustnby B GBP Acc | 7.95 | -9.56 | 9.25 | 26.84 |
| Baillie Gifford Positive Change B Acc | 5.23 | -30.80 | 62.54 | 113.01 |
| Montanaro Better World GBP Dis | 4.36 | -25.00 | 21.05 |
Bottom five ACE 40 funds in Q3 2022
| Performance (%) | Q3 2022 | 1 Year | 3 Years | 5 Years |
| Liontrust Sust Fut Corp Bd 2 Grs Inc | -12.26 | -26.05 | -21.21 | -14.02 |
| Unicorn UK Ethical Income B Acc | -11.09 | -21.26 | -11.01 | -10.75 |
| RLBF II Royal London Ethical Bond M Inc | -10.15 | -21.26 | -15.72 | -6.51 |
| Rathbone Ethical Bond I Acc | -9.57 | -22.77 | -14.52 | -5.99 |
| CT Responsible UK Income 2 Acc | -9.07 | -14.33 | -7.47 | 0.93 |
Source: Morningstar Total Returns for OE funds / Market Returns for ITs to 30/09/2022.
Top five ACE 40 funds over five years
| Performance (%) | Q3 2022 | 1 Year | 3 Years | 5 Years |
| iShares Global Clean Energy ETF USD Dist | 9.84 | 7.92 | 98.57 | 173.28 |
| Brown Advisory US Sust Gr GBP B Inc | 3.14 | -12.22 | 44.69 | 123.40 |
| Baillie Gifford Positive Change B Acc | 5.23 | -30.80 | 62.54 | 113.01 |
| iShares MSCI USA SRI ETF USD Acc | 3.65 | 3.85 | 47.79 | 107.64 |
| Impax Environmental Markets Ord | -0.68 | -23.81 | 30.75 | 72.02 |
Bottom five ACE 40 funds over five years
| Performance (%) | Q3 2022 | 1 Year | 3 Years | 5 Years |
| Liontrust Sust Fut Corp Bd 2 Grs Inc | -12.26 | -26.05 | -21.21 | -14.02 |
| Unicorn UK Ethical Income B Acc | -11.09 | -21.26 | -11.01 | -10.75 |
| Lyxor Green Bond (DR) ETF C EUR | -1.99 | -14.79 | -18.26 | -7.64 |
| CT UK Social Bond Z Grs Acc£ | -7.44 | -15.31 | -12.61 | -7.38 |
| Aegon Ethical Equity GBP B Acc | -4.38 | -27.68 | -6.92 | -6.93 |
Source: Morningstar Total Returns for OE funds / Market Returns for ITs to 30/09/2022.
Most-bought ACE 40 funds in Q3 2022
| Company name |
| Baillie Gifford Positive Change |
| Impax Environmental Markets |
| iShares Global Clean Energy ETF |
| Royal London Sustainable Leaders |
| VT Gravis Clean Energy |
Most-sold ACE 40 funds in Q3 2022
| Company name |
| iShares Global Clean Energy ETF |
| Baillie Gifford Positive Change |
| Impax Environmental Markets |
| Royal London Sustainable World |
| Rathbone Ethical Bond |
Changes to the ACE 40 list (under review/developments)
CT UK Social Bond Fund was removed from being ‘Under Review’ in August and retains its rating on the ACE40. It was put under review on 20 May following the announcement that its lead manager, Simon Bond, will retire in 2023.
We have now started our ACE 40 annual review with Morningstar, looking at the entire sustainable universe of potential funds for each investment category to ensure we include only the best-in-class products. We will communicate our findings and any changes in due course.
ACE 40 videos in Q3
Impax Environmental Markets
The best cheap and expensive sustainable stocks we own
How we've invested in climate change solutions and made money since 2002
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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
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.
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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.
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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.