Parents more cautious with Junior ISAs than they are with their own ISAs

• Parents have a higher portfolio weighting to direct equities (29.6% versus 16.9% for Junior ISA) and a lower exposure to cash (7.3% versus 10.2% for Junior ISA)
• Funds for kids, UK blue-chip stocks for parents
• Funds and investment trusts account for eight of the top 10 most-held Junior ISA investments on interactive investor – five of which are passively managed
• Parents appear income-focused: UK dividend-paying blue chip stocks account for seven of the top 10 most-held investments among parent ISAs
• Less active trading: parents seemingly adopt a more hands-off approach when managing their child’s investments (less than two active trades made a year via a JISA – four times less than the figure for the parent ISA).

Parents adopt a more cautious approach when managing their child’s investments than they do with their own portfolio, new analysis by interactive investor, the UK’s second-largest investment platform, suggests.

• Invest with ii: Transferring a Junior ISA | The Junior ISA Annual Allowance | ii Friends & Family

Analysis of ISA accounts held by parents who also manage a Junior ISA (JISA) on interactive investor shows that parents have, on average, a higher portfolio weighting to direct equities (29.6% versus 16.9% for JISA) and a lower exposure to cash (7.3% versus 10.2% for JISA).

JISA accounts also have a greater weighting to funds (40.9% vs 34% for parent ISAs), investment trusts (16.2% versus 14.6%) and exchange-traded products (ETFs) (15% versus 13.7%).

When it comes to direct equity geographical exposure, JISAs typically have a higher exposure to UK shares (66.54% versus 61.62% for parent ISA cohort). The reverse is true when it comes to exposure to North American (34.90% versus 30.39% for JISAs).

Source: interactive investor.

Funds for kids, UK blue-chips stocks for parents

There is significant crossover when it comes to the top 10 most-held investments (by number of customers holding) among JISAs and parent ISAs, with five investments featuring on both lists. Scottish Mortgage and Fundsmith Equity are the first and second-most held investments among both cohorts, with Vanguard LifeStrategy 80% Equity fund, Lloyds Banking Group and Legal & General also featuring on both lists.

One key difference is the popularity of funds and trusts. They dominate the list of most-held investments among JISA customers, accounting for eight of the top 10 – five of which are passively managed (vs only one for Parent ISA). In contrast, only three funds/trusts (Fundsmith Equity, Vanguard LifeStrategy 80% Equity Fund and Scottish Mortgage) make the top 10 cut among the parent ISA cohort (with only one of them being passively managed). When investing for themselves, parents seem to favour UK dividend-paying blue chip stocks, which account of seven of the top 10 most-held investments.

Source: interactive investor.

Average trades

Parents seemingly adopt a more cautious and hands-off approach when managing their child’s investments, with, on average, less than two active (1.8) trades made a year via a JISA – four times less than the figure for the parent ISA cohort (8.2).

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Parents may be more cautious when managing their child's investments because they feel a greater sense of responsibility and duty to protect their child's financial future.

“But investment risk is relative – what may be considered risky for a child may not be perceived as risky for a parent. When it comes to JISAs, our data suggest that most parents adopt a more hands-off approach with their child’s JISA, averaging less than active two trades a year, preferring the monthly drip-feeding approach via direct debit. This perhaps reflects the popularity of diversified funds and investment trusts with solid track records of generating strong returns over the long term.

“The higher weighting to cash among JISAs might raise some eyebrows, but this could be for good reason. If the child is nearing the age of 18 when they can access the funds, parents might opt to hold cash to ensure the money is readily available for immediate needs like university costs.

“Parents typically have a longer-term perspective when investing for their child, but their own financial goals could come a lot sooner. The prevalence of stocks paying an attractive dividend in the top 10 most-held investments list among the parent ISA cohort, suggests they value investments with the potential to supplement their income, which could be used to help fund school fees or family holidays for example.

“The current maximum amount you can put into a JISA each tax year is £9,000. That means a family of four can shelter £58,000 each year from the taxman. That is a sizeable chunk of money that could snowball into an impressive amount, turbocharged by the wonders of compounding and help build financial resilience for the entire family.”

ii Friends & Family

interactive investor offers Junior ISAs (JISAs) only to existing customers, but at no extra cost. Customers can have as many free JISAs as they have children, and they can invest with just £25 per month.

interactive investor offers a ‘Friends & Family’ subscription, allowing customers to gift free investing to up to five people for just £5 per month extra.

That means that friends and family can each join ii without paying a monthly subscription fee (otherwise £11.99 per month for ii’s core Investor plan). The offer comes with free regular investing, the full range of investments and exclusive, engaging educational guidance and support.

More details can be found here.