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UK smaller companies, global and emerging markets offer great JISA potential

Posted by Adrian Lowcock in Press releases category on 22 Feb 19

  • Fund picks include Merian UK Smaller Companies, Artemis Global Select and JPM Emerging Markets Income
The strong long-term prospects for the UK Smaller Companies, Global and Emerging Market equity sectors make them attractive themes for investment in junior individual savings accounts (JISAs), according to Willis Owen, the online investment service provider.

UK smaller companies offer exceptional long-term growth prospects and are particularly attractive when investments are run by an excellent active manager, while the global equities sector offers added diversification benefits, giving access to the best companies in the world, says Adrian Lowcock, Head of Personal Investing at Willis Owen. While emerging markets also offer growth potential, a good strategy is to access them via companies offering good dividends because their boards tend to have greater shareholder focus, reducing risks, he adds. 

Funds that Adrian would recommend as investments in these themes include the Merian UK Smaller Companies, Artemis Global Select and JPM Emerging Markets Income funds.

Adrian commented:

“A JISA has the advantage of being able to invest early on behalf of a child, giving any savings or investments extra time to grow before the money can be accessed. Money could be invested for 18 years or even longer if the child continues to hold the investments inside an adult ISA.

“Because holders are entitled to the ISAs assets when they turn 18, it is important that families using JISAs discuss them with their children as early as possible. However, Willis Owen research1 has shown that 80% of parents plan to wait until their children are 16 or over before telling them they have money invested, which is surprising, given the importance of teaching them about the value of saving and investing.

“Families should remember though that the money isn’t theirs - a JISA becomes the child’s property when they turn 18 and any investment should be made with that in mind.”

The Willis Owen research1 also revealed that 19% of the people saving or investing into Junior ISAs (JISAs) expect the funds to be worth over £40,000 by the time the children they have been opened for reach 18. When it comes to what those with JISA accounts want the money to be used for when the child reaches 18, 47% said to pay for university and further education, followed by 43% who said to help buy a property.  Just 42% said they hoped all, or part of the money would stay invested.

Data from HM Revenue & Customs also show that Around 907,000 Junior ISA accounts were subscribed to in 2017-18, up from 794,000 in 2016-17, while £902 million was subscribed to Junior ISA accounts in 2017-18, around 57% of which was in cash.

Adrian’s fund picks are detailed below:

Merian UK Smaller Companies Fund– Merian has one of the most highly regarded small and mid-cap teams, headed by Dan Nickols, who is the manager of this fund. Companies must demonstrate one or more of the following characteristics: the ability to grow earnings faster than the market average for an extended period; the scope to generate a positive surprise; or the potential to be re-rated relative to the market. A pragmatic approach is taken towards stock valuations, with various ratios and timescales used, depending upon the wider context. This flexible approach allows growth, value, and recovery companies to be held, but the portfolio has tended to show a growth bias.

Artemis Global Select Fund – At the helm are co-managers Alex Illingworth, Rosanna Burcheri and Simon Edelsten. All managers research and contribute to the portfolio construction but Edelsten is the ultimate decision-maker. The managers seek quality companies that are trading at attractive valuations and are poised to benefit from identified long-term secular growth trends. They typically prefer companies that exhibit high and sustainable barriers to entry, sustainable cash flows, a clear capital structure, good management, and limited exposure to external factors. They follow a disciplined valuation approach and are willing to hold up to 20% cash if they do not find any attractive investments. The portfolio does not follow the benchmark but the managers are careful to avoid any unintended risks.

JPM Emerging Markets Income Fund – Manager Omar Negyal takes advantage of deep research coverage by the team of 18 emerging market analysts plus 12 China specialists. This means the fund benefits from proximity to companies in the region. The rigorous investment process assesses five-year dividend prospects to uncover quality companies with growing earnings and dividends. Although around 60% of the holdings will have a dividend yield of 3-6% there is flexibility to invest in companies with lower yields but greater potential for dividend growth.

Key facts about Junior ISAs

A Junior ISA is a tax-efficient savings and investment account for children. There are two types available: cash Junior ISAs and stocks & shares Junior ISAs. A child can hold one of each. The annual limit until the 5th April 2019 is £4,260, rising to £4,368 for the 2019/20 tax year. Only a parent or legal guardian can open a Junior ISA and they will also manage it until at least the child’s 16th birthday. Other than in limited circumstances, no withdrawals are permitted until they turn 18.

Investment decisions surrounding the Junior ISA become the child’s from the age of 16 from which point they can take control of it. They then gain access to all the money at the age of 18 to do with as they wish, irrespective of the parents’ views. Education is therefore critical to the success of the JISA so that the money gets put to a good use.

Source: (1) 478 JISA Investors were interviewed online between October 17th and 23rd 2018 by independent research company Consumer Intelligence