interactive investor Super 60 list: annual review

‘Five out' and ‘three in’, while a torrid 2022 reflects on performance.

• 55% of active selections on Super 60 outperformed their peers after a difficult 2022 for markets 
• Four of the five bottom Super 60 performers in 2022 were investment trusts, led by Scottish Mortgage
• Two of the top five performers were investment trusts too (Murray International and City of London)
• New in on Super 60: Fidelity Special Values Investment Trust, Janus Henderson European Selected Opportunities, Artemis Income
• Ejected: TM Crux European Special Situations, IFSL Marlborough Multi Cap Growth fund, Royal London UK Equity Income fund, Mobius Investment Trust and iShares Environment Low Carbon Tilt Real Estate Index Fund (UK)

A year ago, interactive investor, the UK’s second-largest investment platform for private investors, handed over the day care of its rated products to Morningstar’s Manager Selection Services Group. 

Morningstar work in partnership with interactive investor’s Head of Funds Research Dzmitry Lipski, within a framework of collaboration and mutual challenge. Lipski ensures Morningstar follow ii’s processes and in-house methodology.

• Invest with ii: Open a Stocks & Shares ISA| Free Regular Investing | Super 60 Investment Ideas

After an annual review of ii’s flagship rated list, Super 60, interactive investor today publishes a performance review, as well as sharing the recent additions and removals following the annual review.

Over the past five years, 77% of active Super 60 current constituents have outperformed their sector peers, but the past torrid year has made things much tougher shorter term. Just over half (55%) of active Super 60 constituents beat their peers in 2022. And the one-year data, inevitably, has impacted three-year returns too, with just under three-fifths (59%) of active managers on Super 60 beating peers.

Dzmitry Lipski, Head of Funds Research, interactive investor, says: “Last year was difficult for investors to navigate and our Super 60 rated list, with its blend of adventurous, core, income, smaller company and low-cost options was by no means immune. Nor would we expect it to be. The impact of geopolitical tensions, rising volatility, bond market chaos, rising inflation and creeping interest rates has been indiscriminate. 

“We won’t get it right all the time – least of all in exceptionally turbulent times, and that’s in part why we choose a blend of strategies, risk profiles and product types. But it’s important to be both transparent and long term in our approach. Over a five-year period, 77% of active selections outperformed peers, based on returns data from Morningstar to the end of December 2022. 

“Of the top five performers of 2022 on Super 60, two of these were passive exchange-traded products providing exposure to commodities. WisdomTree Enhanced Commodity ETF (LSE:WCOB) rose off the back of elevated commodity prices. iShares Physical Gold ETC GBP (LSE:SGLN) also enjoyed the far more muted but net positive movements in the price of gold, with owners of the GBP denominated share class benefiting from the strengthening of the dollar through 2022.

“Murray International (LSE:MYI) investment trust’s globally diversified portfolio delivered an impressive return to investors of nearly 21% through 2022, following some years of relative underperformance compared with peers. 

“City of London (LSE:CTY) also delivered investors a market return of just over 9% through 2022, but at the other end of the spectrum, four out of the five bottom performers were investment trusts, led by Scottish Mortgage (LSE:SMT). The reasons for Scottish Mortgage’s poor performance are well documented, not least its relatively high technology exposure versus peers. More broadly, many investment trusts use gearing (borrowing) to enhance returns. This has tended to help investment trusts produce stronger than average long-returns compared to funds. But over the shorter, more volatile periods, it can also enhance losses. So, it is important to take the rough with the smooth.”

Super 60 changes

Removal of TM Crux European Special Situations

The fund was initially placed Under Review by interactive investor in November 2021 following performance concerns. It was removed from ‘under review’ and reinstated in January 2022, with Morningstar, in partnership with ii’s in-house investment experts, taking a view that short to medium-term performance could be overlooked in the context of the experience and approach of the team. But patience has now run out. Together with Morningstar, we still regard the team’s extensive knowledge and experience in analysing European companies, but now note some recent missteps in the pursuit of high growth companies, evidencing a lack of consistency in the process. We have continued to monitor TM CRUX European Special Situations closely and following our recent annual review, conviction has been tested. As such we no longer view the fund as one of our highest conviction ideas.

Removal of IFSL Marlborough Multi Cap Growth fund

A recent review of IFSL Marlborough Multi-Cap Growth raised questions regarding the process and also raised concerns with regard to team resourcing and collaboration. Specifically, given that this fund has substantial small-mid cap exposure, which requires a great degree of analysis and expertise, concerns were raised regarding the size and collaboration of the team. The review also highlighted an elevated level of churn within the portfolio, which raised questions regarding the process and costs to the end investor. As a result, we no longer view the fund as one of our highest conviction ideas.

Removal of Royal London UK Equity Income fund

Following the annual review of the Super 60 fund list we recommend the removal of the Royal London UK Equity Income fund. The long-term fund manager, Martin Cholwill, retired at the end of 2021, and although we did not feel this news warranted immediate concern, our ongoing assessment of the fund has concluded that there are stronger ideas in this category. The new manager, Richard Marwood, is an experienced investor, however he has less direct experience of managing a higher income UK equity fund than some peers. The overall level of resource dedicated to the strategy is also viewed as a little light on a relative basis, particularly given the teams other responsibilities. As a result, we no longer view this fund as one of our highest conviction ideas.

Removal of Mobius Investment Trust 

Following the annual review of the Super 60 fund list we recommend the removal of the Mobius Investment Trust (LSE:MMIT), which has been a Super 60 constituent since late 2020. A recent review of the fund highlighted concerns around resource. There has been significant turnover within the team and a reduction in size and experience. Carlos Hardenberg’s wealth of experience and expertise is viewed positively, however the loss of a number of analysts since inception and the potential for key-person risk gives rise to Morningstar, in partnership with ii, no longer viewing the fund as a highest conviction idea. 

Removal of iShares Environment Low Carbon Tilt Real Estate Index Fund (UK)

Following the annual review of the Super 60 fund list we recommend the removal of the iShares Environment Low Carbon Tilt Real Estate Index Fund. The fund has recently been re-named (formerly iShares Global Property Securities Equity Index Fund) and has seen a change in its investment objective. 

Having previously tracked the FTSE EPRA/NAREIT Developed Index, the fund will now track the FTSE EPRA/NAREIT Green Low Carbon Target Index (an index commissioned by BlackRock), which completely changes the selection rationale. The fund will therefore have an environmental, social and governance (ESG) tilt through the index’s ESG screens and criteria. The change of benchmark has had a limited impact on index constituents at present, but this is expected to increase over time.

Inclusion of Janus Henderson European Selected Opportunities as Core European Equities option 

Janus Henderson European Selected Opportunities has been added as a European Equities Core option on the Super 60 fund list. The fund is managed by John Bennett who is a very experienced manager and has managed European equities for more than two decades, including 17 years at GAM. The managers seek to outperform the FTSE World Europe ex UK Index through a combination of stockpicking and taking into account the wider macroeconomic backdrop to build a portfolio of high-quality European equities.

They pay close attention to global macro and sector trends as these provide valuable insights into the prospects of European companies and also look for contrarian trades. Bennett has added considerable value through stock selection over the years while also proving adept at steering the portfolio in line with his macroeconomic views.

Inclusion of Fidelity Special Values investment trust as an Adventurous UK Equities option

Fidelity Special Values investment trust has been added as an UK Equities Adventurous option on the Super 60 fund list. The trust is managed by Alex Wright who has been at the helm since 2012 and is an experienced manager with particular expertise in smaller companies. The trust’s process looks to identify unloved companies that have the potential to recover based on factors such as a business model/corporate change or industry cycles. The manager may buy into such situations at an early stage which tends to result in a contrarian value biases. The trust has a thorough and well-defined contrarian value approach, which leads us to have a positive view on the fund’s investment process. 

We feel the fund is a strong option for investors seeking a contrarian and value orientated approach to investing across the market cap spectrum of the UK market.

Inclusion of Artemis Income as Core UK Equity Income option

Artemis Income fund has been added as a UK Equity Income Core option on the Super 60 fund list. The strategy aims to outperform the FTSE All-Share benchmark over the long term, while providing a growing income and a dividend yield. Adrian Frost is an experienced investor and has managed the fund since January 2002. He is supported by Nick Shenton who joined the team in mid-2012. 

The co-managers primarily hunt for companies with attractive free cash flow yields, with the goal of constructing a portfolio that generates cash flow in excess of the market. The team spend a significant amount of time appraising company management and believe that management's ability to allocate capital efficiently is crucial. The fund has delivered excellent relative returns over the long term. However, the strategy, in part because of its focus on cash flow, has a value bias compared with the FTSE All-Share Index. While this bias towards value has acted as a headwind in recent years, it is not more pronounced than that of the average UK Equity Income peer.

Reclassification of Man GLG Continental European Growth Fund

The Man GLG Continental European Growth fund currently features on the Super 60 list as a European Equities Core fund option. While we continue to believe the fund has merit for long-term investors, we believe the fund’s profile means that it is better suited to the Adventurous category. The manager typically invests in a concentrated portfolio of 25 to 30 stocks with the top 10 stocks representing in excess of 50% of fund assets. The portfolio pays little or no attention to benchmark allocations. While high conviction portfolios such as these have merit and often deliver excellent returns in the long term, short-term performance can be significantly more volatile than that of the benchmark and peers and as such we believe that the fund is better suited to the Adventurous category.

Source: Morningstar – Total Returns for OE Funds, Market Returns for Trusts (GBP) to 31/12/2022. Past performance is no guide to the future.

Source: Morningstar – Total Returns for OE Funds, Market Returns for Trusts (GBP) to 31/12/2022. Past performance is no guide to the future.

Further details of the Super 60 list are here: https://www.ii.co.uk/ii-super-60