3 Funds for Your Junior Isa

Investors putting money aside for their children and grandchildren have a long time horizon in which to invest, so could consider these racier fund options 

Holly Black 24 March, 2021 | 11:19PM
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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. 

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 horizon 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: 

BlackRock UK Special Situations

Special situations funds take a value approach to investing, choosing stocks the manager believes are out of favour and therefore undervalued, but where there are signs of change ahead. In this offering, manager Roland Arnold focuses on the UK market. He first joined the fund as an analyst, before being promoted to co-manager in 2012 and taking sole control in 2019. Morningstar analyst Fatima Khizou upgraded the fund to a Silver Rating last year, as a result of “increased conviction in the manager’s ability and investment approach”.

Top holdings include offerings from the unloved energy and commodities sectors including Rio Tinto (RIO), Royal Dutch Shell (RDSB) and BP (BP.). A more recent addition is Dr Martens (DOCS), which made its debut on the stock market earlier this year

Khizou adds: “Arnold practices a bottom-up approach, targeting quality growth firms that are undervalued relative to their growth potential. A key part of the process is meeting with and assessing company management, many of which will be well-known to the team.”

The discrete annual performance of the fund depicts the volatile place that the UK stock market has been in recent years; the fund was down 7.2% in 2020 and up 32.6% the year before. Annualised returns are more stable, at 10.62% over the past five years.

Fidelity Emerging Asia

A year ago, investors might have balked at the idea of owning an Asia-focused fund, but the region was one of the strongest performers of 2020 thanks to being first into and first out of lockdown. Coronavirus aside, Asia’s appeal lies in its first growing economies and young and expanding middle-classes, as well as being a hub of disruptive and innovative businesses. 

The Fidelity Emerging Asia fund taps into some of the regions hottest trends, with top holdings including chip-maker Taiwan Semiconductor, a favourite of many fund global and Asia fund managers, as well as Samsung Electronics and e-commerce giant Alibaba. Up 25% in 2020, the fund has also delivered over the long-term with annualised returns of 18.12% over five years.

Morningstar analyst Andrew Daniels praises the Gold-rated fund’s “robust approach” and “top-notch lead manager”, Dhananjay Phadnis. “Phadnis consistently demonstrates an intimate knowledge of names both inside and outside of his portfolios and has a clear passion for investing,” says Daniels. “Our conviction in his has increased with each meeting and we believe he is one of the best Asian equity managers.”

ASI Global Smaller Companies

Smaller companies are known for their growth potential and can make an excellent long-term investment but there are often ups and downs along the way. ASI Global Smaller Companies delivered a return of 32% in 2020, and has achieved annualised returns of 18% over five years.

The fund’s two managers, Alan Rowsell and Imogen Harris, left the business last year and were replaced by Harry Nimmo, a renowned small-cap manager who actually helped to launch this strategy in 2012. Morningstar analyst Bhavik Parekh said the changes created “some turbulence, but we believe the investment process remains robust” adding that the presence of the experienced Nimmo provide some “comfort”. As a result, the fund retained its Bronze Analyst Rating. 

Almost a third of the portfolio is in the industrial sector through holdings such as Kornit Digital (KRNT), which provides printing solutions to the textile and apparel industries, and Axon Enterprise (AXON), an Arizona-based weapons developer. With a global remit, half of the assets are in US stocks, with further investments in Europe, UK and Japan.

Parekh adds: “So far [the process] has proved itself successful in a variety of market environments and performance has been strong. On the other hand, US stock selection has been average, which is concerning given the US makes up more than half of the benchmark.”

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Holly Black  is Senior Editor, Morningstar.co.uk