Interactive Investor

Six funds buck the trend in our model portfolios

Most funds had a month to forget, but a small number managed to keep their heads above water.

21st March 2022 09:40

Kyle Caldwell from interactive investor

Most funds had a month to forget, but a small number managed to keep their heads above water.

Russia’s invasion of Ukraine on 24 February sent global stock markets sharply lower, which in turn negatively impacted the performances of our five model portfolios in February.

The portfolios, which comprise between 9 and 10 holdings, saw the majority of constituents post losses during the month.

Six, however, managed to buck the trend by producing a positive return. The top performers, up 6.6%, 1.7% and 1.4% were: WisdomTree Enhanced Commodity ETF (held in ii Low-Cost Growth), FP Foresight Global Real Infrastructure (held in ii Ethical Growth) and Murray International (held in Active Income).

The other three just about managed to grind out a positive return: Vanguard FTSE UK Equity Income Index (held in Low-Cost Income), SPDR® S&P Global Dividend Aristocrats ETF (held in Low-Cost Income) and Vanguard Global Small-Cap Index (held in ii Low-Cost Growth). The respective gains were 0.6%, 0.4% and 0.2%.

Performance of models over 12-month time periods

Discrete returns for the periods*:      
  01/03/2021 - 28/02/2022 01/03/2020 - 28/02/2021 01/03/2019 - 29/02/2020
Growth Portfolios      
ii Active Growth 2.4 28.6 7.6
ii Ethical Growth -2.2 27.2 N/A*
ii Low-Cost Growth 8.4 16.8 3
Growth benchmark 11.9 13.1 4.9
Income portfolios      
ii Active Income 14.6 3.4 1.6
ii Low-Cost Income 14 1.1 1
Income benchmark 14.4 4.1 0.4
Morningstar GBP Adventurous Allocation average 4.5 14.5 4.1

Notes *as at 28 February 2022. Portfolio launch date (for monitoring purposes) was 1 January 2019, except Ethical Growth portfolio, launched 1 October 2019. Data source: Morningstar Direct. Past performance is not a reliable indicator of future results.

Russia’s invasion of Ukraine is not the only headwind that’s unsettling stock markets. Rising inflation, higher interest rates and central bank policy have been affecting sentiment for months.

Growth shares, particularly technology firms, have been hit hard since the start of the year. Such companies see the value of their future earnings devalued by high inflation and increases in interest rates.

At the other side of the trade, value shares, which tend to benefit from a tightening in monetary policy, have been back in favour with investors.

Below we run through how the five model portfolios fared in February.

Growth portfolios

ii Active Growth declined the most, down 4.2%. ii Ethical Growth and ii Low-Cost Growth were also in the red, with respective losses of 2.9% and 1.4%.

The three biggest fallers in ii Active Growth were Standard Life Private Equity (LSE:SLPE), JPMorgan Emerging Markets (LSE:JMG) and Scottish Mortgage (LSE:SMT), down 8.4%, 7.1% and 6.4%.

At the other end of the table, the defensively positioned Capital Gearing (LSE:CGT) held up well, down 1.2%.

As previously reported, two changes to ii Active Growth took effect from 1 February; Ninety One UK Alpha and Jupiter UK Special Situations entered the portfolio replacing Liontrust Special Situations and CFP SDL UK Buffettology

In ii Ethical Growth it was another month to forget for Syncona (LSE:SYNC), down 9.4%. The life sciences focused investment trust has been out for form for some time. Over one year its share price is down 32.7%.

Witan (LSE:WTAN), the multi-manager investment trust, points out that Syncona’s net asset value (NAV) performance has performed better – declining by 4% in 2022, for example. Witan puts the recent sluggish performance down to “substantial declines in three holdings listed on the Nasdaq market, where early-stage biotech stocks were out of favour.” It is continuing to back Syncona, with Andrew Bell, chief executive officer of Witan, pointing out: “Syncona gives Witan access to a differentiated and successful investment area that mainstream managers cannot offer.”

FP Foresight Global Real Infrastructure was the only member of ii Ethical Growth to produce a positive return in February.

In ii Low-Cost Growth the individual losses were more contained. The two biggest fallers, down 3.9% and 3.4%, were Vanguard FTSE 250 UCITS ETF (LSE:VMID) and Fidelity Index Emerging Markets.

The standout performer was WisdomTree Enhanced CommodityCutting Russia – and its metal, grain, oil and gas – off from the global trade has caused commodity prices to spike. This has fuelled returns for funds investing in mining and oil firms, as well as commodities.

Performance of the three growth portfolios 

% total return (with income reinvested) as of 28 February 2022, after*:          
  1 month 3 mths 6 mths 1 year Since inception*
Growth portfolios          
ii Active Growth -4.2 -10.4 -10.7 2.4 48.5
ii Ethical Growth -2.9 -13.3 -13.6 -2.2 23.2**
ii Low-Cost Growth -1.4 -2.7 -2.6 8.4 38
Growth benchmark -1.6 -1.4 -0.7 11.9 39.9
Growth benchmark since 1 October 2019 (date ii Ethical Growth was launched)         20.3
Morningstar GBP Adventurous Allocation average -1.8 -5.5 -5.4 4.5 31.7

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

Income portfolios

Overall, our two income portfolios held up better than the growth models. ii Active Income was down 2.2%, while ii Low-Cost Income declined by 0.8%.

Standard Life Private Equity, down 8.4%, was the biggest faller in ii Active Income.

Topping the table was Murray International (LSE:MYI), which adopts a value focus and is managed by Bruce Stout, who recently appeared on our fund insider interview series. City of London Ord (LSE:CTY), a dividend hero having raised payouts for 55 consecutive years, was the next best performer, down 0.1%.

In Low-Cost Income there were no major individual losses, with the majority down less than 1.5%. WisdomTree Emerging Markets Equity Income ETF was the exception, giving up 2.2%.

The two positive contributors to performance were Vanguard FTSE UK Equity Income Index and SPDR® S&P Global Dividend Aristocrats ETF.

Performance of the two income portfolios 

% total return (with income reinvested) as of 28 February 2022, after*:          
  1 month 3 mths 6 mths 1 year Since inception*
Income portfolios          
ii Active Income -2.2 1.9 0.8 14.6 28
ii Low-Cost Income -0.8 1.6 1.8 14 21.3
Income benchmark -1 3.7 3.8 14.4 24.6
Morningstar GBP Adventurous Allocation average -1.8 -5.5 -5.4 4.5 31.7

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

Playing the long game

Four of the five models, launched in January 2019, now have a three-year performance track record. Our two growth portfolios lead the way, with ii Active Growth and Low-Cost Growth returning 48.5% and 38%.

Our two income models have produced lower returns. This reflects the dividend drought during the early stages of the Covid-19 pandemic, when scores of companies paused or cancelled payments in a bid to shore up balance sheets. Active Income is up 28%, while Low-Cost Income has returned 21.3%.

Our Ethical Growth portfolio, which launched in October 2019 and comprises actively managed funds and trusts, has returned 23.2%. Over this period, only Active Growth has performed better, up 27.5%.

As history shows, for those willing to take a long-term perspective, sharp short-term dips end up being a mere footnote in the grand scheme of things.

Indeed, at times of stock market turbulence, it is worth remembering that volatility is part of the deal when investing in equities. It is the price investors pay for the fact that, in the long run, putting money into shares rather than leaving it in cash will yield greater rewards.

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