How fund pros invest in Junior ISAs for children or grandchildren

Parenthood is a constant tug of war between instincts and practicality: eat that sprout, put the bread knife down, no you can’t shave the hamster. Investing for children can pitch instinct against reality in a similar way. Only this time, it can be worth letting the risk-taking side triumph – the financial equivalent of playing in dirt to boost the immune system.

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Why? After all, in every other part of parenting, the focus is on avoiding risk. But children have the luxury of time. Any money invested in a Junior ISA is earmarked for almost two decades and largely inaccessible until the child turns 18. That means you don’t need to be swayed by the latest missive from the White House and can keep your focus firmly on the future. Sheridan Admans, founder of Infundly, says: “It allows you to tolerate periods of discomfort in pursuit of much stronger long-term outcomes.”

That said, it needs to be tempered by the reality that at some point you will need to look your child in the eye and explain what you’ve done with ‘their’ money. While Junior ISAs are a great way to invest for children, allowing anyone to contribute up to an annual limit of £9,000, at age 18 the capital belongs to the child.

Admans says: “A Junior ISA is not a theoretical exercise. It may be used for university costs, a house deposit, something far less predictable or simply be left to compound in an ISA. As parents, we invest in good faith without knowing the eventual destination. That uncertainty shapes how I think about structure and risk.”

He says it also changes how he engages with his children now they are getting closer to having access to the money. While parents always have the option of simply not telling their children that they have a pot of cash, involving them in the process may be a better long-term strategy.

While only parents or a legal guardian can open a Junior ISA, anyone can pay into it. Therefore, it is a great savings vehicle for grandparents to make contributions, as well as parents.

A question of risk

Admans believes parents and grandparents should get comfortable with a high equity strategy from the start. “I do not see early volatility as something that needs to be smoothed away with cash or bonds. Attempts to overly dampen returns early on often undermine long-term outcomes. The stock market remains the primary engine of real wealth creation over multi-decade periods.”

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Controversially, parents also don’t necessarily have to worry about some of the risk mitigation techniques that they might employ elsewhere, such as regular savings. Oliver Pile, private client investment director at Tyndall Investment Management, prefers making a lump sum investment as close to the start of the tax year as possible. While regular investing gives peace of mind, Pile notes the risk of getting market timing wrong with a lump sum investment is reduced due to the long-term timescale involved when investing in a Junior ISA.

He points out: “This maximises the time that the funds are invested – lump-sum investing has historically produced better returns than cost averaging. If subscriptions were being made each year, there would be an element of long-term cost averaging anyway.”

Where to invest?

In terms of where to invest, parents and grandparents can look to long-term themes that are reshaping the global economy. Pile puts the WisdomTree Megatrends ETF USD Acc GBP (LSE:WMGG) at the heart of his Junior ISA portfolio. “This is a thematic fund designed to capture global structural shifts. While it may be more volatile than buying a simple market tracker, its diversification across several themes – technological shifts, environmental pressures, demographic/social shifts, and geopolitical shifts – should help to dampen volatility.” 

He also likes Scottish Mortgage Ord (LSE:SMT) Investment Trust. “The team at Baillie Gifford look for industry disruptors and the winners of tomorrow, and it also benefits from early stage access to some exciting private companies - SpaceX being it’s largest holding.”  If those options are a little spicy, he suggests balancing them out with the Latitude Global GBP Acc fund and the Ranmore Global Equity Institutional GBP fund. 

James Scott-Hopkins, the founder of EXE Capital Management, has created a “legacy portfolio” equally weighted across four core funds, offering differing styles to protect and grow capital over the longer term.

“The first of our quartet is the Fidelity Index World P Acc fund, which serves as the growth play, particularly given its large exposure to artificial intelligence (AI) and technology and at a low cost. But it’s important to add balance to a portfolio, given the concentration risk and this is met by the team at Redwheel and their Redwheel Global Intrinsic Value R GBP Acc fund. For access to fixed interest, Treasuries and gold, we believe Personal Assets Ord (LSE:PNL) trust is perfect. The ethos of this investment trust is to protect investors’ capital – it provides balance and will put the brakes on if markets slide.”

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Evangelos Assimakos, investment director at Rathbones, likes the TM Natixis Loomis Sayles US Equity Leaders I/A£ fund, which invests in North American companies with sustainable competitive advantages trading at attractive valuations compared to their long-term potential. “As a result, the fund invariably holds some of the best-established ‘titans’ of the global economy and is not afraid to demonstrate its high conviction through a relatively concentrated portfolio.” He says many of the stocks will have been held for 10 years or more. 

Technology is an obvious area of focus for a long-term portfolio as it edges into more sectors. Assimakos likes the Polar Capital Technology Ord (LSE:PCT) Trust, whose holdings span areas such as AI, robotics and semiconductors. “The team there has built a very strong track record navigating a number of technology themes over the years and offers a great option for those looking to tap into future technological breakthroughs.”

Spicier options

If you are willing to take a bit more risk, and have a good excuse lined up for your kids if it all goes wrong (“I was tired”, “Who’s money is it anyway?” and so on), then there are higher-octane options you could choose, which could deliver a higher return. Pile says you may need to be more active with these holdings.

He likes UK mid and small companies, which have had a tough time, but might be reaching a turning point. “Valuation discounts are the steepest in many years, driven by sentiment rather than operational performance, and we’ve seen a significant pick-up in M&A activity. A turning tide could mean exciting returns ahead for the sector.” He suggests the Aberforth Geared Value & Income Ord (LSE:AGVI) Trust. Other options include Fidelity Special Values Ord (LSE:FSV) and Diverse Income Trust Ord (LSE:DIVI), which invest in UK companies of all sizes, but have a bias to smaller firms.

The final member of Scott-Hopkins’ quartet in his legacy portfolio is the Pantheon International Ord (LSE:PIN) Investment Trust. “It is a stalwart member of the listed private equity trust sector, providing investors with access to handpicked, fast-growing private companies worldwide. A long-term play that sits perfectly with children’s time horizon.”

Admans highlights commodities as another option to consider. He has used investment trusts such as BlackRock World Mining Trust Ord (LSE:BRWM) in his children’s Junior ISA portfolios. “This provides exposure to essential commodities and mining companies that are central to the energy transition, infrastructure investment and the electrification of transport. Demand for metals like copper and lithium is likely to remain strong over many years, and mining equities can offer both inflation protection and attractive total return potential over the long term.”

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For parents who prefer a less volatile option, he suggests the Polar Capital Global Insurance F Acc fund. Insurance isn’t exciting, but the sector has delivered consistent cash flows, dividends and long-term capital growth, supported by structural trends such as ageing populations, rising climate risk and increasing demand for protection. It may provide a balance to some of the punchier options.

Just as playing in dirt can boost a child’s immune system, erring on the riskier side should be a good option for their long-term wealth. Parents need to go against their instincts and embrace their inner risk taker.