ii ACE 40 review: Q3 2021

Here’s how interactive investor’s ethical funds performed in the three months up to the end of September.

A significant sell-off in China during the summer months, followed by more widespread volatility across global markets throughout September, put a damper on third-quarter numbers for both developed and emerging markets. Against this backdrop it was pleasing to see that the ACE 40 list of ethical investments performed in line with expectations.

Over the three-month period, most funds in interactive investors' ACE 40 list performed as anticipated. A total of 81% of active funds delivered positive returns over the quarter. In addition, 71% both outperformed their respective benchmark index and beat the average fund in its sector. 

Over the long term, performance numbers for the ACE 40 funds remain strong. Over a five-year period, all active funds have delivered positive returns, with 78% outperforming their respective benchmark index and 91% outpacing sector averages. 

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Passive funds also performed in line with expectations. Most ACE 40 passive funds kept tight tracking errors over the quarter, and most premium/discounts remained stable over the period. 

Top five ii ACE 40 funds in Q3 2021

Source: Morningstar, total returns in GBP

Over the quarter to 30 September 2021, the top performer was Impax Environmental Markets (LSE:IEM), which returned 10.3%. Around half its portfolio is invested in North America and around one-third is within the energy sector.

Taking the silver medal was Brown Advisory US Sustainable Growth fund, which returned 7.5%. Its exposure to US technology giants had a meaningful impact on performance.

In third place was the Montanaro Better World fund, up 6.9% over the period. Its North America and healthcare exposure buoyed performance.

Next was Baillie Gifford Positive Change, which returned 6.3%. Over the three-month period, a top contributor for the fund was Moderna (NASDAQ:MRNA), now a household name having successfully developed a vaccine for Covid-19

Completing the top five is UBS(Lux)FS MSCI Pacific SRI ETF, returning 5.2%. The ETF tracks the MSCI Pacific SRI Low Carbon Select 5% Issuer Capped Index.

Top five ii ACE 40 funds over five years

Source: Morningstar, total returns in GBP

Over a longer time period of five years, top performers include Baillie Gifford Global Stewardship fund (up 180.3%); Impax Environmental Markets Trust (up 161.4%); iShares Global Clean Energy ETF (up 149.2%); iShares MSCI USA SRI ETF (up (126.9%); and BMO Responsible Global Equity fund (up 112.6%).

Such returns reflect the strength of global equities and the US market over the longer term.

Bottom five ii ACE 40 funds in Q3 2021

Source: Morningstar, total returns in GBP

At the other end of the table, the worst performer in the third quarter was Syncona, which lost 18.9%. A sharp fall in the premium as well as some volatility from its listed holdings harmed performance.

The next worst performer was iShares MSCI EM SRI ETF, which declined by 5.4%. The three-month period was a tough time for the emerging market region as a result of the volatility in the China market.

Elsewhere, iShares Global Clean Energy ETF gave up 5.1% over the period, Baillie Gifford Global Stewardship fell by 4.2% and, Liontrust Sustainable Future Corporate Bond completed the bottom five, with relatively flat returns of -0.74% over the quarter.

Bottom ii ACE 40 funds over five years

Source: Morningstar, total returns in GBP

Over five years, the five bottom performers are: Threadneedle UK Social Bond fund (up 9.1%); Liontrust Sustainable Future Corporate Bond fund (up 20%); Royal London Ethical Bond fund (up 21.2%); BMO Responsible UK Income fund (up 30%) and Rathbone Ethical Bond fund (up 30.1%). The latter fund’s inclusion in the five worst performers demonstrates the lower risk/reward properties of fixed income investing.

Most-traded ACE 40 funds in Q3 2021

Changes to the ii ACE 40 list

On 11 August 2021, Syncona was placed under formal review due to concerns regarding the trust’s performance. The investment trust, which aims to achieve superior long-term capital appreciation from investing in life science companies, has been very volatile in share price terms and posted negative returns year to date, which has damaged its long-term track record. We are currently investigating its performance and assessing whether the trust continues to be appropriate for our customers in the ii ACE 40 best ideas list.

ACE 40 annual review

We are currently undertaking the annual review of the ACE 40 list as part of the ongoing monitoring of the list. The results from this review will be announced shortly. 

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