In the year of recovery, here’s how our five Model Portfolios fared

by Kyle Caldwell from interactive investor |

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We highlight the best fund contributors to performance over the past year, and run through winners and losers in March.  

Those who a year ago ‘kept calm and carried on investing’ will now be reaping the rewards for being patient and thinking long term.

In the majority of cases, whether you invest in funds, investment trusts or passively via index funds or exchange-traded funds (ETFs), losses have been recouped from the heavy market sell-off in the first quarter of last year. In some cases, even factoring in the sell-off from the start of 2020, spectacular gains have been made.

The one-year performance figures for our five Model Portfolios showcase how strong the recovery has been. ii Active Growth leads the way (up 44.9%), followed by Ethical Growth (43.7%) and ii Low-Cost Growth (36.1%). Each model has outpaced the growth benchmark, and our two active portfolios beat the MSCI World Index return of 38.4%.

Our income portfolios have lagged the growth models, but this is to be expected following the widespread dividend cuts that took place as various businesses moved to prudently shore up their balance sheets in response to the pandemic. Over one year, ii Active Income and ii Low-Cost Income are up 28.9% and 24%.

In recent months, firms have been returning to the dividend register, which is one of two drivers that has helped boost investor sentiment for income shares. The other factor was the vaccine breakthroughs in early November, which sparked a market rotation towards value shares and away from growth shares. This benefited the UK equity income funds in our income models, which have a value focus.

In turn, the performance of our income models has notably picked up over the past six months. Over this period, our two income models are ahead of our three growth models, as the tables below show. In March, this trend continued, with ii Active Income up 5.4% and ii Low-Cost Income up 5%. In contrast, our ii Low-Cost Growth was the best performer of the trio, up 2.5%, followed by returns of 2.2% and 0.2% for ii Active Growth and ii Ethical Growth.

Following the quarterly review we agreed no changes. 

Below, we highlight three funds in each model that have had the greatest influence on performance over the past year, and run through the winners and losers in March.  

How our growth models have been faring

% total return (with income reinvested) as of 31 March 2021, after:          
  1 month 3 mths 6 mths 1 year Since inception*
Growth portfolios          
ii Active Growth 2.2 0.5 13.2 44.9 48.8
ii Ethical Growth 0.2 0.2 12.5 43.7                                          27.6**
ii Low-Cost Growth 2.5 4.2 15.3 36.1 30.7
Growth benchmark  3 3.6 13 32.1 28.7
Growth benchmark since 1 October 2019 (date ii Ethical Growth was launched)                                                  10.8**
Morningstar GBP Adventurous Allocation average 2 2.8 13 33.5 28.6

Notes *as at 31 March 2021. Portfolio launch date (for monitoring purposes) was 1 January 2019, except **Ethical Growth portfolio, launched 1 October 2019. Data source: Morningstar Direct

ii Active Growth

Scottish Mortgage (LSE: SMT) has been the standout performer over the past year, returning 107.2%. Performance has come off the boil over the past couple of months, negatively impacted by the style rotation that’s taking place in markets, due to the trust's focus on technology companies. This serves as a reminder that Scottish Mortgage is an adventurous option for investors and that it can have shorter-term periods of underperformance. It was announced in March that longstanding joint manager James Anderson will retire from fund management next year and will step down from the trust on 30 April 2022.

JPMorgan Emerging Markets (LSE:JMG) was the second-best contributor to performance, followed by Fundsmith Equity. JPMorgan Emerging Markets has returned 60.5% over the past year and Fundsmith Equity is up 29.7%.

In March, F&C Investment Trust (LSE:FCIT) and Fidelity Global Dividend were the top contributors to performance, returning 6.1% and 5.1%.

The only loss during the month was JP Morgan Emerging Markets, which declined by 4.2%.  

ii Ethical Growth   

Of the six funds that have remained in ii Ethical Growth over the past year, the top three contributors to performance over that period have been Impax Environmental Markets (LSE: IEM), BMO Responsible Global Equity and Stewart Investors Global Emerging Market Sustainability.

On 1 November 2020, following the annual review of the portfolio, four of the original 10 holdings made way for four new constituents: Baillie Gifford Positive Change, Montanaro Better World, Liontrust UK Ethical, and FP Foresight Global Real Infrastructure.    

Over the past year and since launch (1 October 2019), ii Ethical Growth has comfortably outpaced the growth benchmark.

In recent months, however, including in March, performance has cooled. In March and over the past three months, the model has returned 0.2%.

As mentioned in last month’s review, given that such funds tend to be underweight, or completely avoid, certain cyclical sectors on ethical grounds (such as big oil and mining companies), the potential resurgence of value investing has been a headwind of late.

Baillie Gifford Positive Change was the worst performer in March, down 5.2%.

How our income models have been faring

% total return (with income reinvested) as of 31 March 2021, after:           
  1 month 3 mths 6 mths 1 year Since inception*
Income portfolios          
ii Active Income 5.4 3 16.1 28.9 17.9
ii Low-Cost Income 5 5 12.9 24 11.5
Income benchmark 4.6 6.2 18.1 24.7 14
Morningstar GBP Adventurous Allocation average 2 2.8 13 33.5 28.6

Notes *as at 31 March 2021. Portfolio launch date (for monitoring purposes) was 1 January 2019, except Ethical Growth portfolio, launched 1 October 2019. Data source: Morningstar Direct

ii Low-Cost Growth 

Smaller-sized shares have led the market recovery over the past year, so it is not a surprise to report that Vanguard Global Small-Cap Index was the best contributor to performance in our passive growth model during this period. The index fund is up 62.8% over the past year.

Fidelity Index Emerging Markets and L&G Global 100 Index were in second and third place, with one-year returns of 42.5% and 38.8%.

In March, all of our five developed-market passive constituents had a good month, with returns above 3%. The best performer was the iShares Core MSCI World ETF (LSE: SWDA), up 4.4%.

There were small losses, though, for the WisdomTree Enhanced Commodity ETF (LSE: WCOB), Fidelity Index Emerging Markets and Vanguard Global Bond Index, of -1%, -0.8% and -0.6%.

ii Active Income

Murray International (LSE: MYI) was the top contributor to performance over the past year. The value-focused trust, managed by veteran investor Bruce Stout, returned 48.1% over the period.

Standard Life Private Equity (LSE:SLPE) and Fidelity Global Dividend were the second and third best contributors to performance, up 78.8% and 26% over the past year. Despite being the best overall performer, Standard Life Private Equity was the second-best contributor to performance due to only comprising 5% of the model. Most other funds in the model have a 10% weighting. Both Murray International and Fidelity Global Dividend have higher weightings, of 15%.

Over the past six months, two of the four best performers in the model have been UK equity income funds. Man GLG Income Professional has returned 26.5%, closely followed by City of London (LSE:CTY), which has gained 23.8%. The best performers, though, were Standard Life Private Equity and Murray International, returning 38.8% and 30.1%.

In March this trend continued. Murray International was the best performer, up 11.3%, followed by Standard Life Private Equity, which returned 7.4%. In third and fourth place were City of London followed by Man GLG Income Professional, with gains of 7.1% and 5.4%.

ii Low-Cost Income

Two of our global ETF selections have been the best contributors to performance over the past year: the WisdomTree Global Equity Dividend Growth ETF (LSE:GGRA) and the SPDR® S&P Global Dividend Aristocrats ETF (LSE:GBDV), up 35.7% and 32.5%.

The WisdomTree Emerging Markets Equity Income ETF (DEMD) takes the bronze medal, returning 31%.

Over the past six months, the performance of Vanguard FTSE UK Equity Income Index catches the eye. It is up 20.9%, a return only bettered in the model over this period by the SPDR® S&P Global Dividend Aristocrats ETF, which returned 22.5%.

The SPDR® S&P UK Dividend Aristocrats ETF (LSE:UKDV) has lagged the broader recovery for UK income-paying shares over the past six months, up 8.4%. This ETF aims to track the performance of the high dividend-yielding companies within the S&P Global Dividend Aristocrats index that have increased or held their dividends for at least seven years.

In March, there were solid gains for all five equity ETFs and the one equity index fund in this model. The two best contributors were the Vanguard FTSE All World High Dividend Yield ETF (LSE:VHYL) and the SPDR® S&P Global Dividend Aristocrats ETF, up 6.9% and 6.5%.

These articles are provided for information purposes only. The information we provide in respect of the ii Model Portfoliosii Super60 or ACE40 is an opinion provided by ii or one of its partners on whether to buy a specific investment or portfolio. Please note that none of the opinions we provide are a “personal recommendation”, which means that we have not assessed your investing knowledge and experience, your financial situation or your investment objectives. Therefore, you should ensure that any investment decisions you make are suitable for your personal circumstances. If you are unsure about the suitability of a particular investment or think that you need a personal recommendation, you should speak to a suitably qualified financial advisor.

The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. 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.

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

ii adheres to a strict code of conduct. Members of ii staff may hold shares or units in investments which make up the ii Model Portfolios, which could create a conflict of interest. Any member of staff intending to complete some 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 ii Model Portfolios are subject to a personal account dealing restriction. This prevents them from placing a transaction in these portfolios or the underlying specified constituents of each portfolio for five working days before and after an investment is included or amended and made public within the list. This is to avoid personal interests conflicting with the interests of the recipients of the ii Model Portfolio options

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