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3 Funds for Your Junior Isa

jisa
jisa

A Junior Isa is a great place to start saving for children and grandchildren. These accounts can be opened any time from when a child is born until they are age 16. One of the most attractive things about the accounts, aside from the tax-free returns, is that the young person cannot access the money until they turn 18.

In the March 2020 Budget, the annual Junior Isa allowance was more than doubled from £4,368. That means, from April 6 this year, relatives can stash away up to £9,000 a year for their children or grandchildren.

Many parents will hope that the money they save over the years will be put to good use in the future, perhaps as a deposit for the child's first home or to pay university fees. Either way, because of the long time horizion that you have to invest, you can often take a bit more risk with these accounts than you might do with your own investments. Here are three highly-rated funds that might fit the bill:

Scottish Mortgage Investment Trust (SMT)

This Gold-rated fund is not for the risk-averse, but is a good fit for long-term investors seeking exposure to the potential winners of tomorrow. Its investment approach focuses on identifying high-growth companies and holding them for the very long term to gain the benefit of compounded growth.

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The portfolio is fairly concentrated, with 41 holdings, of which Amazon and Tesla are two of the largest positions, accounting 8.4% and 7% of the portfolio respectively. Reflecting the fund's tilt to tech stocks, the top two investment regions are US (38.6%) and China (17%).

Managed by James Anderson since 2000, with the help of co-manager Tom Slater, Morningstar analysts say: “The nature of this high-growth portfolio with its bias to information technology, healthcare, and largely Internet-related consumer cyclicals is likely to be volatile. But we are reassured by the experience of Anderson and Slater with this mode of investment and the wider approach at Baillie Gifford."

The trust has the ability to invest up to 25% of its assets in unquoted companies reflecting the managers' belief the company that many companies prefer to stay private for longer these days. While this may make some investors nervous, the closed-end nature of the trust makes such investment eminently more appropriate than for an open-ended structure.

“With ongoing charges of 37 basis points this strategy is exceptionally competitive among its category peers for very active management and in our view a unique approach to investment in today’s world,” Morningstar analysts say. The fund has produced annualsied reutrns of 18.24% of 10 years.

TB Amati UK Smaller Companies

As the name suggests, the Bronze-rated fund invests in smaller companies, and particularly the bottom 10% of the UK equity market by market capitalisation. These stocks have greater potential to grow more quickly than larger counterparts, but can also come with more risk.

Lead manager, Paul Jourdan, staves off some of that risk through diversification; the fund holds 67 names with top holdings including Onesavings Bank and Intermediate Capital Group, as well as some companies listed on the Alternative Investment Market (Aim).

Overall, however, this fund invests in a smaller market-cap profile than the typical small-cap fund, with a slightly larger allocation to micro-caps. “[But] Jourdan and team have built a very strong long-term record, comfortably outperforming the benchmark and category average,” points out Morningstar analyst Samuel Meakin.

The investment team also manages an Aim VCT, which provides a potential source of added value for the fund: “The managers have knowledge of the newest and smallest companies listing on Aim as part of their VCT work,” explains Meakin. “As a result, when a company reaches a stage of development where it is suitable for this portfolio, they have already built a body of knowledge and analysis of the firm and its management team.” The fund has produced annualised returns of 12.15% over 10 years.

Fidelity Emerging Asia

Since 2004, the fund Fidelity Emerging Asia fund has been managed by Dhananjay Phadnis, “one of the best Asian equity managers who applies a well-codified and consistent investment approach”, according to Morningstar analyst Andrew Daniels.

As the name suggests, the fund invest predominantly in companies listed in emerging Asian markets such as China and India, but also has a slice of the portfolio in developed markets including top holdings Taiwan Semiconductor and Samsung.

Daniels is impressed by the manager's intimate knowledge of the companies both inside and outside of his portfolio as well as his "clear passion for investing". He adds that his conviction in the Silver-Rated fund "has increased with each meeting".

Phadnis is backed up by Fidelity's well-resource Asia-Pacific investment team of around 50 analysts, providing an even greater depth of knowledge. Daniels adds: “Phadnis adopts a funnel approach to stock selection, with economic moats, management quality, and valuations being the three tenets. Impressively, Phadnis is able to consistently and clearly articulate why each holding meets all requirements for inclusion in the portfolio of 60-80 stocks,” he says. The fund has produced annualised returns of 6% over five years.