Interactive Investor

Model Portfolios: top fund contributors to performance in 2021

We run through the funds that have had the most and least influence on our five portfolios.

17th December 2021 11:13

Kyle Caldwell from interactive investor

We run through the funds that have had the most and least influence on our five portfolios.

As we approach the end of the year, our monthly review for December looks back at the best fund contributors to performance among our five model portfolios in 2021. For each portfolio, we also reveal the funds that have had the least influence and, in a couple of cases, a negative contribution. But, as we explain below, in many of those cases their role in the portfolio is for diversification purposes, so the funds are not expected to shoot the lights out when equity markets are largely buoyant, which has been the case for most of 2021.

At the start of every quarter, the five portfolios are automatically rebalanced back to their target allocations. Our constituents have target allocations of either 5%, 10% or 15%. The weightings are displayed on our model portfolios page.

The Active Income, Active Growth and Ethical Growth portfolios have 10 constituents, which are all actively managed investment funds and trusts.

The Low-Cost Income and Low-Cost Growth models contain nine index-tracking funds or exchange-traded funds (ETFs).

Performance of models over 12-month time periods

Discrete returns for the periods*:      
  01/12/2020 - 30/11/2021 01/12/2019 - 30/11/2020 01/12/2018 - 30/11/2019
Growth Portfolios      
ii Active Growth 18.1 18.4 N/A
ii Ethical Growth 17 21 N/A
ii Low-Cost Growth 16.6 5.2 N/A
Growth benchmark 17.2 4.2 10.6
Income portfolios      
ii Active Income 14.6 -5.5 N/A
ii Low-Cost Income 14.4 -7.3 N/A
Income benchmark 14.9 -6.7 7.9
Morningstar GBP Adventurous Allocation average 14.6 5.3 9.7

Notes *as at 30 November 2021. Portfolio launch date (for monitoring purposes) was 1 January 2019, except Ethical Growth portfolio, launched on 1 October 2019. Data source: Morningstar Direct. Past performance is not a reliable indicator of future results.

How the portfolios fared in November

First, let’s cover off how the five portfolios fared in November. ii Ethical Growth led the pack, with a return of 0.9%. Most of the 10 funds in the portfolio posted small gains over the month, but performance was boosted by two standout performers: Syncona (LSE:SYNC) and Impax Environmental Markets(LSE:IEM), with returns of 7.5% and 4.2%. The only fund in the model that made a notable loss was Liontrust UK Ethical 2, which declined by 4.1%.

In November, the annual review of our Ethical Growth portfolio was completed, which resulted in no changes to the asset allocation or the constituents.

The two income portfolios were the next best performers, with ii Low-Cost Income up 0.5% and ii Active Income up 0.2%. For both models, returns were largely flat, although mostly in positive territory. It was a similar story for ii Low-Cost Growth, up 0.1% in November.

ii Active Growth, however, was not able to eke out a positive return. Four of its constituents posted a negative return over the month, which was enough to send the model into the red, with a small loss of 0.3%. The four funds that posted a loss were: JPMorgan Emerging Markets (LSE:JMG), CFP SDL UK Buffettology General, Liontrust Special Situations and Scottish Mortgage (LSE:SMT). The respective declines were 3.2%, 3.2%, 2.7% and 0.7%.

% total return (with income reinvested) as of 30 November 2021, after*:          
  1 month 3 mths 6 mths 1 year Since inception*
Growth portfolios          
ii Active Growth -0.3 -0.4 7.3 18.1 65.7
ii Ethical Growth 0.9 -0.3 10.1 17 *42.1
ii Low-Cost Growth 0.1 0.1 5.5 16.6 41.8
Growth benchmark -0.1 0.7 6.4 17.2 41.9
Growth benchmark since 1 October 2019 (date ii Ethical Growth was launched)         22.1
Morningstar GBP Adventurous Allocation average 0.3 0 5 14.6 39.3

Notes *as at 30 November 2021. Portfolio launch date (for monitoring purposes) was 1 January 2019, except Ethical Growth portfolio, launched on 1 October 2019. Data source: Morningstar Direct. Past performance is not a reliable indicator of future results.

How models have fared in 2021 and key drivers of performance

Year-to-date, to the end of November, the growth portfolios have continued to have the upper hand over the income portfolios. ii Low-Cost Growth comes out on top, with a return of 13.1%, followed by gains of 12.8% and 12.4% for ii Ethical Growth and ii Active Growth.

This year, the income portfolios have fared much better than they did in 2020, when both posted losses. As dividends have been recovering, so too have the models. ii Low-Cost Income has returned 12.1% year-to-date, while ii Active Income is up 10%.

For the two passive models, which have so far in 2021 outperformed the active portfolios, the global equity ETFs and index funds have had the biggest influence on performance.

In ii Low-Cost Growth, the top three contributors have been L&G Global 100 Index, the iShares Core MSCI World ETF and Vanguard Global Small-Cap Index, with returns of 23.6%, 21.3% and 15.2%. All three passive funds have sizeable exposure to the US market, which has once again been a strong performer in 2021, with tech shares continuing to be in vogue.

There were two constituents that, since the start of the year, have negatively contributed to Low-Cost Growth’s performance. Fidelity Index Emerging Markets declined by 2.5%. It has been a tough year for investors with money in the region, with the underperformance of China’s equity market largely to blame. In addition, Vanguard Global Bond Index is down 1.6%. This passive fund is held for diversification benefits to protect capital when equity markets suffer a correction.

For ii-Low Cost Income, the top three contributors were the WisdomTree Global Equity Dividend Growth ETF, the Vanguard FTSE All World High Dividend Yield ETF and the SPDR® S&P Global Dividend Aristocrats ETF, with returns of 16%, 14.8% and 13.2%. The best overall performer, however, was iShares Global Property Securities Equity Index, up 23.5%. But it accounts for only 5% of the model, so has less influence on overall performance. The only negative contributor was Vanguard Global Bond Index.

The ii Ethical Growth portfolio has year-to-date been the best performer among the three active models. In this model, the standout performer was Impax Environmental Markets (LSE:IEM), up 31.3%. Four other members have notably pulled their weight: Montanaro Better World, Royal London Sustainable Leaders, BMO Responsible Global Equity 2 and Baillie Gifford Positive Change, up 22.9%, 17.7%, 16.9% and 16.7%.

At the other end of the table, three funds posted losses. Two are diversifiers and the losses were so small that they had a minimal impact on the portfolio’s performance. FP Foresight Global Real Infrastructure and Rathbone Ethical Bond, were down 1.6% and 0.3%. The laggard, down 18%, is Syncona (LSE:SYNC). As mentioned in last month’s review, it has been a challenging period for investors, with the trust’s performance weighed down mainly by falls in the share price of two of the trust’s listed holdings: Freeline Therapeutics Holdings (NASDAQ:FRLN) and Achilles Therapeutics (NASDAQ:ACHL). Syncona attributes the falls to “operational challenges” and “market sentiment”.

For ii Active Growth, it was another solid year for its two largest holdings, which have weightings of 15%. Scottish Mortgage (LSE:SMT) has returned 23%, while Fundsmith Equity is up 18.6%. Both adopt the quality growth style of investing, which has proved to be a headwind for some of their competitors in 2021, including funds and trusts managed by Nick Train. The best overall performer was Standard Life Private Equity (LSE:SLPE), up 28.5%. But with a weighting of 5%, it had less impact.

One fund in ii Active Growth posted a loss; JPMorgan Emerging Markets (LSE:JMG), down 3.3%. Performance was hit by its exposure to China, a market that was negatively impacted in the summer months by political crackdowns in its tech and education industries. Yet manager Austin Forey is sticking to his guns, and in a recent video interview with interactive investor, he explained why he is continuing to back the region.

Finally, ii Active Income’s biggest contributor so far in 2021 was one of the alternative selections that comprises only 5% of the portfolio. BMO Commercial Property Trust (LSE:BCPT) is up 32.3%. Property-focused funds and trusts were hit hard by the pandemic, but have been recovering this year. The other alternative, Standard Life Private Equity (LSE:SLPE), also performed very well, up 28.5%.

The best performer among the equity funds and trusts was Morgan Stanley Global Brands Equity Income, which has returned 15.1%. The worst performer was Murray International (LSE:MYI), up 1.6%.

None of the constituents posted a loss. The worst performer was Jupiter Strategic Bond, up 0.8%. But, given that it invests in bonds, this fund is a defensive player in the portfolio and if there’s a pick-up in volatility in 2022, it should provide some resilience. 

% total return (with income reinvested) as of 30 November 2021, after*:          
  1 month 3 mths 6 mths 1 year Since inception*
Income portfolios          
ii Active Income 0.2 -1.1 2.6 14.6 25.6
ii Low-Cost Income 0.5 0.2 4.2 14.4 19.4
Income benchmark -0.2 0.1 2.3 14.9 20.1
Morningstar GBP Adventurous Allocation average 0.3 0 5 14.6 39.3

Notes *as at 30 November 2021. Portfolio launch date (for monitoring purposes) was on 1 January 2019, except Ethical Growth portfolio, launched on 1 October 2019. Data source: Morningstar Direct. Past performance is not a reliable indicator of future results.

Our Model Portfolios have been compiled by investment experts to help investors who do not have the time or the confidence to make their own investment choices. There are a variety of financial goals they are designed to help people meet.

However, you should note that the selection of our Model Portfolios 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 Model Portfolios 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)

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 Model Portfolio constituents and the rationale behind those decisions will be communicated through the Quarterly Investment Outlook.

To see a list of previous updates to Model Portfolio constituent investments, please go to the relevant Model Portfolio’s ‘Timeline’.

ii adheres to a strict code of conduct. Members of ii staff may have holdings in one or more Model Portfolios (or the constituent 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 to add/remove a constituent investment to/from a Model Portfolio.

In addition, staff involved in compiling the Model Portfolios 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 a Model Portfolio. This is to avoid personal interests conflicting with the interests of investors in the Model Portfolios and their constituent investments.