ii ACE 40 performance review: Q2 2023

Here’s how interactive investor’s sustainable funds performed in the three months to the end of June.

There was close to a 50:50 split between ACE 40 funds showing positive and negative returns over the quarter. Those with average market-capitalisations at the larger end of the scale generally fared better.

For the second quarter in a row, the top performer on the ACE 40 investment ideas list was the Brown Advisory US Sustainable Growth fund with a 5.8% return. The fund benefited from the strength of the US equity market over the quarter and from its style biases, with large-cap growth being the top-performing area of the market. The fund’s managers incorporate sustainable investing traits into their long-term fundamental research process.

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The UBS(Lux)FS MSCI World SRI is the next fund on the top performers' list for Q2, benefiting from the World Index’s high US exposure. The fund tracks the MSCI World SRI Low Carbon Select 5% Issuer Capped TR Index and this gives it a slight growth bias (lower exposure to energy, higher exposure to IT) versus mainstream indices which helped returns over the quarter.

The iShares MSCI USA SRI ETF (LSE:SUUS) invests in a sub-set of equities within the MSCI USA Index that demonstrate higher ESG ratings than other sector peers, as well as excluding companies involved in controversial businesses such as weapons, thermal coal, tobacco and oil sands. The fund showed positive returns but was slightly behind the S&P 500 index.

The next fund on the list is a departure, having no US equity exposure. Pacific Assets (LSE:PAC) is managed by Stewart Investors and follows 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. The positive market return of 3.8% was driven by exposure to India, which has been a feature of the fund for some time and stands at over 40%.

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Rounding out the top five performers is Royal London Sustainable World. The fund has a reasonably high allocation to US equities and a growth investment style with a bias to large-caps and IT, and away from commodities, all of which have been beneficial over the quarter. The fund is an asset allocation product with a near 85% allocation to equities and the remainder in fixed income and cash.

At the bottom end of the list were three funds with exposure to alternative energy. This sector reflected the weakness seen in energy prices. The lowest returns were seen from the iShares Global Clean Energy ETF (LSE:INRG), which posted a negative 9.2%. The fund passively tracks the S&P Global Clean Energy Index, which is also the benchmark for VT Gravis Clean Energy Income. That fund has a focus on providing an income in region of 4.5% and primarily invests in closed-ended investment companies and yield companies that are involved in the provision, storage and consumption of clean energy. This can, at times, result in a more stable return profile than that obtained through investing in the S&P Global Clean Energy Index, but over Q1 and Q2 2023 the fund had very similar losses to the index.

The third fund with exposure to alternative energy is FP Foresight Global Real Infrastructure. The fund invests in companies that own or operate physical infrastructure or renewable energy assets globally and has significant exposure to the utilities (primarily renewables exposure) and real estate sectors. Both of these came under pressure during Q1 and Q2 2023, as uncertainty regarding demand and returns in a rising rate environment continued.

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Impax Environmental Markets (LSE:IEM) suffered from NAV weakness and discount widening in equal measure to end up with a quarterly loss of 4.3%. The investable universe for the fund is defined by applying a screen on environmental, financial quality, and valuation criteria. Portfolio candidates must derive at least 50% of their sales from environmental activities, such as energy efficiency, water infrastructure, and pollution control. Attractive prospects are then vetted in a detailed and structured 10-step process. The portfolio tends to favour growth stocks in the mid-cap space and show sector bets that deviate significantly from broad global indexes. The underweight to the US, the mid-cap growth bias and overweights to the utilities and materials sectors, were headwinds over the quarter versus the mainstream MSCI ACWI Index. However, NAV returns were closer to those of the fund’s Ecology peer group average and have been good over the longer term.

The final fund on the underperformers' list is Impax Asian Environmental Markets with a negative 3.6% return. The fund is managed with a similar approach to Impax Environmental Markets and uses a custom benchmark comprising 80% MSCI AC Asia Pacific ex Japan and 20% MSCI AC Japan, which allows the managers to include exposure to Japan where companies form part of the industrialisation and energy efficiency initiatives for broader Asia. Returns in Asia were slightly negative over the quarter, dragged down by the weakness in Chinese equities. This fund, despite posting a negative return of 3.6% over the quarter, narrowly outperformed mainstream benchmarks, with its mid-cap exposure and the underweight to China being positives.  

Top five ACE 40 funds in Q2 2023

Source: Morningstar Returns (GBP) - Total returns for OE Funds and Market Returns for Inv Trusts. To 30/06/2023. Past performance is not a guide to future performance.

Bottom five ACE 40 funds in Q2 2023

Source: Morningstar Returns (GBP) - Total returns for OE Funds and Market Returns for Inv Trusts. To 30/06/2023. Past performance is not a guide to future performance.

Top five ACE 40 funds over five years

Source: Morningstar Returns (GBP) - Total returns for OE Funds and Market Returns for Inv Trusts. To 30/06/2023. Past performance is not a guide to future performance.

Bottom five ACE 40 funds over five years

Source: Morningstar Returns (GBP) - Total returns for OE Funds and Market Returns for Inv Trusts. To 30/06/2023. Past performance is not a guide to future performance.

Most-bought ACE 40 funds in Q2 2023

Most-sold ACE 40 funds in Q2 2023

Changes to the ACE 40 list (under review/developments)

No changes.

ACE 40 videos in Q2

None in Q2.
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