Where the Kepler team are investing their Junior ISAs

Some parents may register their newborn for their alma mater before they’ve even left the hospital but a savvier first step might well be opening a Junior ISA.

Around two million children in the UK already hold one, with almost £10 billion squirrelled away tax-free. Most accounts sit below £25,000 but more than 50 lucky youngsters are already sitting on £200,000-plus nest eggs, according to Standard Life.

That might sound like an eye-watering sum but the potential is even greater: the annual allowance has risen from less than £4,000 at launch to £9,000 a year today. Max out your allowances and plump for the higher-octane returns of a stocks & shares JISA over cash, and compounding has nearly two decades to weave its magic.

Putting some numbers to it, contribute the full £9,000 every year from birth to 18, assume a 9.6% annual return (the average annual return for a stocks & shares ISA over the last 10 years according to Moneyfarm) and you’re looking at a pot of almost £500,000. Even £1,000 a year could grow to more than £50,000.

Whether you’d trust an 18-year-old with that many zeroes, however, may hinge on whether or not they’re inclined to save it wisely for a house deposit…or blow it all on a Vauxhall Corsa with questionable body kit.

The first decision is which platform to use and fees can have a surprisingly large impact. To help with this, we’ve published a guide to the best Junior ISA providers in the UK.

Next comes the fun part: what to invest in. With that in mind, we’ve asked some of our colleagues to reveal where they’ve invested their Junior ISAs.

William Heathcoat Amory, Managing Partner, Kepler Partners

I hope my children will use the proceeds of their JISAs for something useful and long lasting. University perhaps, or a deposit on a first flat? Either way, I have assumed that they won’t spend it all on their 18th birthday! The key is that my JISA investments are likely to have a mean timeframe of a decade but could be more.

I’ve long been a fan of trying to apply portfolio theory, which essentially uses diversification across different return drivers to deliver higher risk adjusted returns, as I set out in this article a few years ago. Aside from looking for exposure to private markets and other alternatives to maximise diversification, the other principal is that this needs to be a fire and forget approach, without the need to trade the portfolio – for time and cost reasons.

I think investment trusts are an excellent place to ‘fire and forget’ and to compound returns. A good example is the newly-merged Alliance Witan (ALW)which continues to provide a low cost, active global exposure and so I’ve been happy to continue to hold it. In my view, the reassurance that a board being on the front foot looking after the different nest eggs in the portfolio is very much worth it.

As a long-term investment trust follower, it is perhaps not surprising that the first JISA investment I made was AVI Global (AGT), which offers a global exposure but with the added kicker of the potential for underlying companies’ discounts narrowing. This trust has done very well for me over the years, and is the best performer in absolute terms. Overall, I have 42% in equity trusts, including Rockwood Strategic (RKW) which has grown into a meaningful position through strong performance.

Alternatives represent 18% of the portfolio, represented by BH Macro (BHMG)and Greencoat UK Wind (UKW), the latter of which has seen its discount widen dramatically since I bought it. It remains in the portfolio, not least because of the income it generates, but I also have confidence that over time share price returns will improve.

Elsewhere, I have c. 26% in private equity trusts, which is below the Yale model allocation, but meaningful enough to be a driver of long-term returns. Despite discounts currently at very wide levels, my holdings have delivered strong returns over the years. These include CT Private Equity (CTPE),HarbourVest Global Private Equity (HVPE)andOakley Capital Investments (OCI).

Finally, around 10% of the portfolio is made up of RIT Capital Partners (RCP)which encapsulates all that I think my JISA portfolio is trying to do, but currently trades on a discount of close to 30%.

 
William Heathcoat Amory is a co-founding partner of Kepler Partners LLP and leads the Kepler investment trust research team. William has over 20 years of experience as an investment company analyst. Prior to co-founding Kepler Partners in 2008, he was part of the Extel number 1 rated research team at JPMorgan Cazenove.
 

Anjula Andersson, Managing Director, Kepler Partners

It’s been a while since those fond days when my husband Peter and I were D.I.N.K.S “double income, no kids.” Back then, our biggest financial decision was whether to order takeaway or eat out. Nowadays, life is a whirlwind with our little ones Nina (6) and Axel (3), plus full-time jobs.

Thankfully, we’ve been investing into their Junior ISAs through a monthly savings plan since Nina was born, giving us a little peace of mind that one day they might fund their own coffee addiction or perhaps education. This felt like a natural decision, especially since we’ve been saving into our own ISAs for years and who doesn’t love a good tax break?

Although my professional focus is very much on alternatives, the core growth engine of both their portfolios is global equity index funds given their long term investment horizon. On top of that, I sprinkle in a few actively managed funds, like the Franklin Templeton Royce US Small Cap Opportunity Fund for US small-cap exposure and the Artemis UK Select Fund, which has outperformed both the index and its peers across all major time periods. There’s even a very small allocation to hedge funds for additional portfolio diversification.

Knowing that Axel and Nina’s futures are already getting a head start through their Junior ISAs makes the financial side of parenting a whole lot easier. It’s one less thing to stress about in the whirlwind of toddler tantrums and school projects and we can focus on what really matters.

 
Anjula is Managing Director and Head of Sales for UK and Ireland and joined the team in August 2016. She previously worked for JP Morgan Asset Management, focusing primarily on distributing funds to National Discretionary Fund Managers and has also previously held sales positions at Legg Mason Asset Management, UBS Global Asset Management and Fidelity International. Anjula graduated from Queen Mary University of London with a BSc in Mathematics.
 

David Brenchley, Investment specialist, Kepler Trust Intelligence

As the only person in my family both aware of the long-term benefits of investing and in a financial position to do so, I wanted to help give my niece a head start, so I opened a Junior ISA.

It had been suggested that a Junior SIPP would be a better option as it would have a full 60-odd years to compound and there’s less of a temptation of withdrawing a big lump sum and spending it on something superfluous but if that’s really what she wants to do, then it’s her cash.

With her being a 21st century baby, we have a minimum of 14 more years to build up her pot. I chose Fidelity because they don’t charge a platform fee, but they do offer a broad range of funds from which to choose.

I decided to go passive for my fund choices because I’d rather not let any personal prejudices get in the way, but have some additions around the edges of a global stock market tracker. My brother’s one stipulation was no investments in Chinese companies.

Therefore, the main part of the portfolio is simply an investment into the Fidelity Index World fund, which has a low 0.12% OCF and gives exposure to large and mid-sized developed market stocks.

The bolt-ons revolve around eking out some extra returns, for which I’ve decided to go small- and mid-cap where possible. I would have plumped for Scottish Mortgage (SMT) as a good long-term compounder, but its 10% allocation to China makes it a no-go.

In the end, I’ve invested in the Vanguard Global Small-Cap Index fund, where the OCF again was lower than peers at 0.29%, and the Vanguard FTSE 250 UCITS ETF.

 
David is an investment specialist for Kepler Trust Intelligence and joined Kepler Partners in June 2024. Before joining, he worked as money reporter for The Times and The Sunday Times where he wrote about all facets of investment for retail investors. He has previously worked for Money Observer magazine, Interactive Investor, Morningstar and Investment Week. He graduated from the University of Huddersfield with a degree in Media and Sports Journalism.