Junior ISAs (JISAs) offers an ideal way for parents to save for their children’s futures, especially with no income or capital gains taxes to worry about.
They also have a much longer investment period than most adult investors’ portfolios as children can only access their capital once they turn 18.
This gives investments in a Junior ISA much longer to appreciate, opening up more volatile opportunities that young investors can afford to make.
With £20,000 of tax-free investments to work with, Trustnet asked fund pickers for the top holdings to add ahead of this year’s deadline on 5th April.
Robert Burdett, co-head of multi-manager services at BMO Global Asset Management, said that buyers should “pick up the binoculars, not the microscope” when investing, especially during times of short-term volatility.
With many investor’s eyes focused on the conflict in Ukraine, he recommended the Berenberg European Small Cap fund.
Although the war has made some people wary of the region, Burdett said that investors can expect an “impressive performance” from the portfolio over the long term.
The fund, which is predominantly invested in Sweden (30.6% of holdings) and Switzerland (17.5%), has made 73.7% since it launched in 2017.
Burdett added: “It’s a high-octane performer that has recently corrected sharply. It is run by Peter Kraus’s excellent team in a boutique-like structure with a capacity limit to prevent it becoming unwieldy.”
Another example of a potential long-term performer is the ICG Enterprise trust, recommended by James Calder, research director at City Asset Management.
Private equity can be a riskier option for investors as it can be difficult to liquidate shares, but this is not as big of a concern for long-term holders.
The trust buys shares in companies that are not publicly listed, so investors can make large returns if the managers get it right and buy into a company from its infancy, holding it as it grows.
Although growth strategies have fallen out of favour in recent months, good stock picking could result in high returns later down the line.
Calder noted that there is a growing trend of private equity exposure overtaking global equity as many companies stay private for longer.
Sam Buckingham identified the green energy transition as a potential long-term investment opportunity for parents investing for the next generation.
He suggested the Blackrock Sustainable Energy fund because it can be held through multiple market cycles and withstand a lot of volatility, all while making high returns.
The portfolio has accumulated $7.2bn (£5.5bn) in assets under management (AUM) and is up 225% over that past decade.
Total return of fund over past 10 years
Source: FE Analytics
That being said, it underperformed the MSCI World benchmark by 16 percentage points over that period and continues to lag by 10.8 percentage points in the past year.
Buckingham said: “The fund’s growth style has caused the relative underperformance in the short-term but this is expected in the recent market environment, and we remain positive on it for the long-term.”
The push for sustainable energy sources has an institutional backing, with more than 190 countries committed to reaching net-zero emissions by 2050.
This could be a positive sign for environmental, social and governance (ESG) investing for the next few decades.
Buckingham added: “Governments, the private sector and consumers are all aligned on this objective. That is a rare achievement that has, and will, generate fantastic investment opportunities.”
Richard Philbin, chief investment officer at Hawksmoor Investment Management suggested that Junior ISA investors seek out funds with a high beta, meaning their holdings differentiate significantly from the benchmark.
Drifting too far from an index can be a scary prospect for many, but investors can afford to take more risk when investing in a JISA.
As such, he recommended the Oakley Capital Investment trust, which invests globally in private equities.
It has returned 195.2% over the past five years, beating the IT Private Equity sector by 135.4 percentage points but shares in the trust are currently selling at a 25% discount making it an advantageous time to buy.
Likewise, Frostrow Capital’s Augmentum Fintech trust is selling at a 13.8% discount, although it has underperformed the IT Technology and Media index by 45.6 percentage points over the past five years.
It was still up 25.5% in that period, but Philbin said that it is likely to rebound over the coming years as the fintech market grows. He said that it would be an appropriate choice for investors with “slightly less of a risk appetite”.
