BLOG: How fast are your children’s investments growing?
It is 11 years ago this week that the Junior ISA replaced the Child Trust Fund. How much could your investment be worth and where are the opportunities for future growth?
Like the standard ISA, the Junior ISA (JISA) is a tax-efficient wrapper which shields income and capital gains from the taxman and was designed to help parents, grandparents, guardians, and family friends save or invest money for children.
What your investment could be worth
In 2011 it was possible to squirrel away up to £3,600 a year in a Junior ISA. Today the maximum annual allowance is £9,000 – a substantial amount of money that can give children a solid financial start in life.
Of course, that amount is beyond the means of many people. But even a one-off investment of £1,000 when the Junior ISA was introduced could be worth many times that today.
Because, despite several stock market crises, a pandemic, war, and dismal returns in 2022, some of the most popular sectors for Junior ISAs have done extremely well over the past 11 years.
Best performing sectors and funds
The best performing sector has been the IA Healthcare sector, with the average fund turning an initial £1,000 investment into a pot of money worth £4,833.82 (Source: FE fundinfo, total returns in sterling, 1 November 2011 to 31 October 2022).
The best performing fund in this sector has been Polar Capital Healthcare Opportunities, which would have turned the same £1,000 into £6,041.57.
The next best sector on average was IA Technology and Technology Innovations, followed by IA North America in third place.
The table below shows the top 10 sectors and their respective best performing funds since the launch of Junior ISAs in 2011 (based on average £1,000 invested) :
Where to invest today?
Past performance is by no means a guide to future performance. But over the long-term, I believe these areas should continue to do well for investors.
Gareth Powell, co-manager of the Polar Capital Healthcare Opportunities fund, is very positive on the outlook for the sector and believes the sector could be about to experience another bull market. Among his reasons for optimism, he cites demographics as a major positive growth driver, the potential for merger and acquisitions in the sector, and the huge opportunities in emerging markets.
Meanwhile, technology companies – the darlings of the last decade – have been hit hard in recent months but are much better value as a result. It is hard to imagine that technology will become less influential in our lives in the future, so the long-term trends are still attractive.
India has been described as a “bright spot on a dark horizon” by the International Monetary Fund. Its fast-growing economy and structural reforms have also been a positive for the stock market, which has risen in value this year while everything else around it has fallen. While the stock market is quite expensive now, the long-term opportunities are unmistakable.
And while the world seems to be heading into recession today, once we start to emerge the other side, broader equities should perform better. According to Goldman Sachs, history suggests that the US equity market tends to rally strongly in the six-months following a bear market bottom. For US small caps, the recovery is especially pronounced in the early innings of an economic cycle.
Juliet Schooling Latter is research director at FundCalibre