Positive end to first quarter: fund winners and losers in model portfolios

We run through how the model portfolios fared in March, ahead of Morningstar taking over the decision-making. 

The final month of the first quarter of 2022 was a stronger showing for global stock markets, which boosted the performance of interactive investor’s five model portfolios.

Leading the way with a gain of 3.9% was ii Ethical Growth, followed by ii Low-Cost Growth, which returned 3.6%. ii Active Income took the bronze medal, up 3.4%, ahead of ii Low-Cost Income and ii Active Growth, which delivered respective returns of 2.7% and 2.4%.

Year-to-date, however, it has been a challenging period for the five portfolios, particularly for the three growth models. Each has posted losses, with ii Ethical Growth and ii Active Growth down notably, 10.3% and 9.6%.    

Performance of models over 12-month time periods

Notes *as at 31 March 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.

As we announced recently, Morningstar’s Manager Selection Services Group took over the day care of the five model portfolios from 1 April.

As a result, various changes have been made, with new constituents, ejections and tweaks to the percentage weightings of some of the holdings.

The new percentage weightings for all the constituents in the five models can be found on the model portfolio page. 

In future, Morningstar will be providing editorial updates on performance.

Below, we run through the best- and worst-performing funds in the models in March – ahead of Morningstar making a number of changes that were effective from 1 April.

• Your guide to interactive investor’s five model portfolios
• The funds in and out of our model portfolios 
• Five key takeaways for fund investors from the first quarter of 2022 

Growth portfolios

Most of the holdings in ii Ethical Growth had a good month, but two stood out: Baillie Gifford Positive Change and FP Foresight Global Real Infrastructure, with returns of 11.7% and 9.1%.

Baillie Gifford Positive Change is a high-conviction portfolio of around 25 to 50 stocks, with a focus on high-quality growth companies. As a result of its investment style, its short-term performance (down 9.7% in the first quarter of 2022) has been negatively impacted by the market rotation that’s played out since the start of 2022. In short, growth companies have become less popular on the grounds that such stocks are negatively impacted by high inflation and increases in interest rates because both devalue their expected future earnings.

Foresight Global Real Infrastructure, in contrast, made a positive return of 1.8% in the first three months of 2022. This is no mean feat given that most fund sectors posted losses. The fund is a potential hedge against increases in the cost of living, as it has 70% of its underlying assets directly linked to inflation, with the remaining 30% indirectly exposed.

Bringing up the rear was Syncona (LSE:SYNC). The life science-focused trust lost 7.1% in March. It has posted big losses over one and three years. It was ditched by Morningstar on 1 April, which said the decision to sell was to “reallocate to less risky alternatives”.

In ii Low-Cost Growth, the biggest contributor to returns in March was L&G Global 100 Index, which was up 7%. The big tech shares saw their share prices recover some of the lost ground from January and February, which boosted the performance of this passive fund. The index has significant weightings to the US technology behemoths that have delivered exceptional performance after benefiting from loose monetary policy. The four largest holdings, comprising more than 40% of the passive fund, are Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT),  Alphabet (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN).

As our recent editorial article pointed out, L&G Global 100 Index has outperformed most active funds over one, three and five years. However, going forward, its performance faces the headwind of tech being likely to be less dominant given the tightening of monetary policy.

Just one holding in ii Low-Cost Growth produced a negative return during the month – Vanguard Global Bond Index – which lost 2.5%.

The same pattern played out in ii Active Growth. Jupiter Strategic Bond was the sole active fund in the red, down 2.2%.

Investors have been ditching bond funds. The latest statistics from the Investment Association (IA) show that in February a total of £2.5 billion was withdrawn from funds. Of that amount, £2.4 billion was outflows from bond funds. Investors are selling due to inflation being at its highest level in decades. This is bad news for bonds, as inflation erodes the purchasing power of the income investors are paid.

Fundsmith Equity was the biggest contributor to performance for ii Active Growth in March, up 4%.

Performance of the three growth model portfolios 

Notes *as at 31 March 2022. Portfolio launch date (for monitoring purposes) was 1 January 2019. Data source: Morningstar Direct. Past performance is not a reliable indicator of future results.

Income portfolios

Murray International (LSE:MYI), which has a value focus, had the greatest influence on the performance of ii Active Income. The trust, managed by Bruce Stout, returned 5.7% in March.

In a recent video interview with interactive investor, Stout explained that the trust’s high dividend yield offers a defence against inflation. He also ran through why the trust has very low exposure to UK shares.

• Bruce Stout: our 5% yield defends against high inflation 
• 11 investment trusts to earn £10,000 income in 2022 
• Bruce Stout: why I think UK shares are not a buy 

Three other constituents had a strong month: Utilico Emerging Markets (LSE:UEM), BMO Commercial Property Trust (LSE:BCPT) and abrdn Private Equity Opportunities (LSE:APEO). The respective returns were 6.9%, 6.4% and 4.7%.

As was the case with ii Active Growth, posting a loss of 2.2% for ii Active Income was Jupiter Strategic Bond.

In ii Low-Cost Income, the worst performer was Vanguard Global Bond, which is also held in ii Low-Cost Growth. The passive fund was down 2.5%.

Topping the charts was iShares Global Property Securities Equity Index, the WisdomTree Global Equity Dividend Growth ETF and the SPDR® S&P Global Dividend Aristocrats ETF GBP (LSE:GBDV), which returned 7.5%, 5.7% and 4.1%.

Performance of the two income model portfolios 

Notes *as at 31 March 2022. Portfolio launch date (for monitoring purposes) was 1 January 2019. Data source: Morningstar Direct. Past performance is not a reliable indicator of future results.