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Written by: Darius McDermott
01/04/2022
When you’re investing money on behalf of your children, it’s usually wise to focus on the future – after all, they have time on their side and therefore any money invested has longer to work.

It’s an approach that enables you to consider funds that invest in growing parts of the world and exciting innovative companies with huge potential.

This brings us neatly to our ideas for this year’s Junior Individual Savings Account (JISA) allocation which embrace both these areas in different ways:

Schroder Asian Alpha Plus

Asia is a fascinating area in which to invest. It’s home to innovative companies in countries such as China, South Korea, Singapore, India, and Thailand. Alongside global giants, there are also plenty of young, exciting firms that are growing rapidly, albeit under the radar.

However, there are also issues. Many of the countries in Asia struggle with regulatory changes, political instability, and governance issues – so prudence is key.

The managers of the Schroder Asian Alpha Plus fund invest in the equities of Asian companies, excluding Japan. They have exposure to a broad range of sectors and companies. For example, information technology is the fund’s largest sector weight at 33.8%, followed by 19.7% in financials, 13.2% in consumer discretionary, and 7.3% in communication services.

As far as countries are concerned, China takes the lion’s share with a 19% allocation, followed by Taiwan with 17.5%, and 14.9% in South Korea. Its 10 largest stock holdings meanwhile, include Taiwan Semiconductor Manufacturing, Samsung Electronics, Tencent Holdings, and HDFC Bank.

IFSL Marlborough Global innovation

No-one can deny that the world is changing at a rapid rate – and that’s exactly what the IFSL Marlborough Global Innovation fund aims to capture. Its manager, Guy Feld, invests in highly innovative companies at the “forefront of waves of change” reshaping the way we live and work.

The fund is a high conviction portfolio of 25 to 50 companies from around the world, although half of its assets will generally be invested in US and UK-listed names. Due to its focus on innovation, it won’t be surprising to hear that 50% of the portfolio will also be invested in smaller companies that are seen as the businesses of tomorrow.

Technology is by far the most significant sector in the portfolio, with a 51.8% share of the asset allocation. The next biggest is consumer discretionary with 12.4%. Boku, the mobile payments company founded in 2009, has the largest stock weighting. This company enables people to make purchases for digital content with their mobile phones. Another prominent holding is Bytes Technology Group, which provides a wide range of services, including security, storage, licensing, and digital transformation.

LF Montanaro Better World

There has been a growing focus on tackling inequalities, improving how we live, and working to solve environmental problems over the last few years. And investors have been increasingly keen to put their money into companies that are seen to be acting responsibly, as well as obviously making a profit.

LF Montanaro Better World, whose lead manager is Mark Rogers, focuses on investing in companies that make a positive impact on society or the environment. It will scour the globe for overlooked small and medium-sized companies that are involved in helping to solve some of the world’s major problems.

The fund invests in six impact themes: Environmental Protection; Low Carbon Economy; Healthcare; Innovative Technology; Nutrition; and Wellbeing. The fund’s ten largest holdings include innovative businesses that may not be instantly recognisable names to investors. For example, Sartorius Stedim Biotech provides solutions for the biopharmaceutical industry, while Solaredge Technologies creates smart energy solutions.

Federated Hermes Global Emerging Market SMID Equity

The emerging markets have long been favoured by longer-term investors willing to accept increased risk in the hope of generating decent returns. These areas of the world are extremely attractive because they provide exposure to exciting, rapidly growing countries and companies. Of course, there is a potential downside. With the prospect of bumper returns comes enhanced risk of failure as emerging areas can suffer economic and political instability.

The aim of the Federated Hermes Global Emerging Market SMID Equity fund is to provide diversified exposure to small and medium-sized companies. These stocks will either be based in one of these global emerging markets or be earning substantial revenue from them. Either way, they will be quality companies with potential.

The search includes gathering evidence of firms’ awareness, vision and strategic planning on environmental, social and governance (ESG) issues, such as climate change and employee wellbeing.  SINBON Electronics is one of the fund’s largest stock positions. This Taiwan-based company provides integrated design and production services for electronic components.

Liontrust UK Micro Cap

The attraction of investing in small companies is being able to spot future winners before the rest of the market – and then reaping the rewards as the stocks rise in value. That’s certainly the goal of the experienced five-strong management team that run the Liontrust UK Micro Cap fund, which is focused on UK-listed businesses.

Their process is identifying companies with durable competitive advantages that enable them to defy industry competition and sustain a higher-than-average level of profitability. They also want to see evidence that those at the helm of such firms have a financial interest in them doing well. That’s why companies must have at least 3% equity ownership by senior management.

31.5% of the fund is currently invested in technology, with 17.9% in industrials, 11% in financials, and 10.6% in healthcare. The fund also has exposure to consumer discretionary names, telecommunications, real estate, consumer staples, basic materials, and energy.

Fintel is its largest stock position. This company helps financial services to operate more effectively by connecting and enabling product providers. Eckoh, a provider of secure payment solutions for contact centres, is another prominent name, as well as Gateley, a legal and professional services group.

Darius McDermott is managing director of Chelsea Financial Services & FundCalibre

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