Seven fund ideas to mark seven years of Junior ISAs
It’s been seven years to the day since the launch of the Junior ISA, the tax-free savings account for children.
JISAs replaced child trust funds, which have now been phased out.
In 2011, the annual contribution limit was £3,000. In this week’s Budget, the government announced the threshold was going up from £4,260 to £4,368 next April.
JISAs come in two forms – cash, and stocks and shares. With both, any income or capital gains are protected from the taxman.
These products continue to grow in popularity with 907,000 accounts opened in 2017/18, up from 794,000 the previous year, according to HMRC figures.
A total of £902m was put into JISAs in 2017/18 (up from £858m the year before), around 57% of which was in cash.
To mark the JISA’s 7th birthday, here are some fund ideas to consider for your kids’ nest egg:
Adrian Lowcock, head of personal investing at Willis Owen:
Lindsell Train Global Equity
The fund is run with a long-term focus on investment performance. The team looks for companies with excellent brands, franchises and unique market positions. The fund is highly concentrated with between 25-30 stocks and trading is very infrequent.
Franklin UK Smaller Cos
The approach is very much one of making long-term investments in companies with attractive risk/reward profiles. The managers are willing to take a contrarian stance when market mispricing creates outstanding investment opportunities. While economic and industry drivers are important considerations, the fund is built from the bottom up, with each stock included in the portfolio on its own merit.
Lazard Emerging Markets
The team focuses on firms with improving financial productivity that haven’t been widely recognised by the market. The investment universe is filtered based on valuations and from that shorter list the analysts carry out detailed research to understand the drivers of a companies’ profitability. They pay particular attention to cash flow and its impact on the balance sheet, and consequently shareholder value.
Top-down risks are also considered, including macroeconomic; political; and environmental, social, and governance factors. These are then factored into the analysts calculations to produce a conservative valuation. This fund run by James Donald requires a long-term investment.
Darius McDermott, managing director of FundCalibre:
Standard Life Investments Global Smaller Companies
This fund is concentrated in 50-60 names, and run by experienced manager Alan Rowsell, with the supportive backing of Aberdeen Standard’s vast resource. Alan identifies smaller companies from all around the globe – including emerging markets – that he believes have the best growth prospects.
When valuing a company, Alan wants to see what expectations are built into the current price, and identify the drivers that could lead to an increase. Smaller companies tend to be hit harder when markets fall as they have done recently, but we think this could make it an even better entry point into an asset class that tends to outperform over the longer-term.
T. Rowe Price European Smaller Companies
The fund is pan-European, investing around 30% in the UK. Its manager is highly experienced, with a proven track record managing small- and mid-cap portfolios in Europe. The manager looks for high quality, durable franchises with good capital allocation and high standards of corporate governance.
This area of the market is less well covered by analysts generally, which gives the manager plenty of scope to find unloved and undervalued companies. Buying early, or in a contrarian fashion with a long-term view, allows him to compound his winners.
LF Livingbridge UK Micro Cap
This a highly concentrated, high conviction fund that invests in the UK’s very smallest companies. It has been managed by Ken Wotton since its launch in 2009, with the support of the 50-strong specialist team at Livingbridge.
The fund only invests in companies in a select number of sectors where the team have specific expertise. With such a focused fund, both in terms of portfolio size and sectors, there is a considerable amount of risk. However there is the potential for an associated high reward too.
Manager William Lam invests primarily in the shares of companies in Asia and Australasia (excluding Japan) in this concentrated, value-orientated fund. He looks for companies where the market is underestimating earnings growth and stocks are chosen with a three-year investment horizon, to give the share price time to appreciate to a level he believes to be fair value.
The behavioural error of mixing up good business with good investments can often lead to trouble, but William’s very pragmatic approach and flexible strategy is designed to separate these two elements.