The best-performing Junior ISAs

Junior ISAs celebrate their sixth birthday on 1 November 2017. Darius McDermott, managing director of Chelsea Financial Services, looks at which funds have proved the best investments for our children.

The best-performing Junior ISAs

The best-performing fund* over the past six years is Legg Mason IF Japan Equity. It beat 2,242 other funds to the top spot, returning 342.15%* over the period. Anyone investing £3,600** into the fund when the Junior ISA was first introduced, would have a pot of money worth £15,953.50* today.

Japan has been an interesting story in recent years, with Abenomics finally seeming to pull the economy and the stock market out of its 20-30 year lull. Believe it or not, the index has only just got back to 1988 levels, with the Nikkei surpassing 21,000 earlier this month. I really like this fund but it invests in smaller companies and can be very volatile, so it won’t suit every investor.

While the Legg Mason fund was in top spot, the general theme has been that UK smaller companies and biotech were the best sectors to choose. Funds investing in these areas all dominate the top 10 performing funds* since the Junior ISA launched.

It’s good to see that our own smaller companies have excelled in recent years. Smaller companies funds are a popular choice amongst those putting money aside for their children, as the growth prospects are generally greater than those for larger companies. They can be a very rewarding long- term investment and active managers can really add a lot of value. However, given the obvious concerns over Brexit negotiations, I’m not so keen on the sector in the short term.

Biotech is another exciting sector that can also be very volatile – it is very sentiment driven. Investors understandably get very enthusiastic about possible new drugs, but not all come to fruition and there can be big failures as well as big success stories. That said, I think there are some fantastic new advances coming through in the oncology sector in particular at the moment and, with an ageing world population, I remain positive on the sector for the long term.

Junior ISAs have been much more successful than their predecessor, the Child Trust Fund. According to the latest statistics from HMRC***, more than 2,841,000 Junior ISA accounts have been opened and just under £3.45bn put away for those children’s futures, since the product was introduced in 2011.

However, only a third of accounts opened*** are in stocks and shares accounts, despite the long time horizon of the product. With savings rates so low, the money held in cash Junior ISAs is not working as hard as it could be. I think more should be done to educate investors as to the longer-term potential of investments over cash.

Top 10 funds over the past six years

Junior ISAs

*Source FE Analytics, total returns in sterling from 1 November 2011 to 19 October 2017. There were 2,243 funds across all the IA sectors, with a track record spanning back to 1 November 2011.

**The annual subscription limit at the time.

***Source: HMRC, August 2017. Individual savings accounts, Junior ISA annual subscriptions as reported to HMRC by providers for financial years ending 5 April.

 

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