Five investment ideas for your child’s future

Junior Individual Savings Accounts (JISAs) have been growing in popularity over the past 13 years – but what funds can provide the best returns for your child?

Official figures reveal a record £1.5 billion was held in these products during the 2022-2023 tax year, with £879 million (58%) tucked away in Stocks and Shares JISAs*. But where should investors be focusing if they want to make the most of these tax-free saving accounts for the youngsters in their lives? Here we recap the key points about JISAs and highlight five very different funds that could be worth considering for longer-term investing.

What are JISAs?

Junior ISA accounts, which were launched back in November 2011, are tax-free savings and investment vehicles for those aged under 18.

There are two types: cash JISAs, on which holders don’t have to pay tax on accumulated interest, and stocks and shares JISAs, where nothing is owed on capital growth or dividends received. A child can have a stocks and shares JISA as well as a cash JISA. However, any savings can’t be withdrawn until the child reaches 18.

In the current 2024-2025 tax year, the savings limit for JISAs is £9,000.

Please remember that the value of investments will fluctuate and returns may be less than the amount originally invested. Tax treatment depends on your individual circumstances and the ISA and tax rules can change. Chelsea does not offer advice and so you must manage your ISA yourself.

What funds should I choose for my child’s JISA?

Of course, that decision is up to you but there are a few things to consider. Arguably the most important is how many years before the youngster in question turns 18 and can finally get access to the money saved? If there are still another 15 years to go, you can potentially take more of a risk with the holdings. If their 18th birthday is fast approaching and the money is needed, you may opt for more caution.

By their very nature, JISAs are forward looking so it can make sense to consider investment funds that are tuned in to future trends. Environmental portfolios, technology funds and emerging markets are all popular areas with longer-term investors, as are those funds whose managers take a contrarian stance.

Here we look at five very different portfolios and outline why we believe they could play an important role in your child’s JISA plans if you have a decent investment horizon.

The environmental fund

There’s no doubt the environment is an important long-term theme and our suggestion is a fund that only invests in companies contributing to the decarbonisation of the world economy. We believe the Ninety One Global Environment fund will benefit from some of the $2.4 trillion annual spend that’s required to meet global temperature goals. Its managers, Deirdre Cooper and Graeme Baker, have developed a proprietary screen that reduces the global universe of stocks to around 700 companies.

The technology play

Technological change is happening all around us and one portfolio that aims to take advantage of this theme is the Sanlam Global Artificial Intelligence fund. Few developments have captured the imagination as well as artificial intelligence – and this portfolio even uses an AI system to pick stocks benefiting from similar technology. We see this fund, which is managed by Chris Ford and Tim Day, as a diversified play on a theme that’s growing in popularity.

The emerging markets focus

Investing in the emerging markets is always a popular choice for those whose investment time horizons are sufficiently long enough to smooth out volatility. The aim of the GQG Partners Emerging Markets Equity fund is to seek long-term capital appreciation from investing in high-quality, attractively-priced stocks with competitive advantages. We like how they’ve invested in research, as well as the use of former investigative journalists and specialist accountants to help give them an edge.

The contrarian approach

The attraction of a contrarian investor is that they don’t follow the crowd. They will make their own calls and take pride in going against the herd. One such manager is Rob Burnett. He manages the WS Lightman European fund, which aims to provide long-term capital growth. It invests at least 80% of its assets in the shares of 40-50 companies that are listed and domiciled in Europe (excluding the UK). We believe this could be a great option for those with the stomach to endure potential volatility. As this is less of an issue over the longer term, it may suit a JISA investor.

The one-stop shop

Our VT Chelsea Managed Aggressive Growth fund invests heavily in stock markets around the world, aiming to achieve long-term, sustainable growth for investors, making it a good fit for a JISA. Up to 100% of the fund may be invested in UK and overseas equities, with currently 40% in US and 20% in UK equities**, although other assets could include bonds, property, gold and targeted absolute return strategies. The VT Chelsea Managed funds are for investors who prefer not to do their own fund research and rather leave the fund-picking decisions to the research team.

*Source: gov.uk, Commentary for Annual savings statistics: September 2024
**Source: fund factsheet, September 2024

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.