Three investment ideas for Junior ISAs

• The average lump sum contribution to Junior ISAs on ii in December 2022 was £712 - 33% more than combined average for the preceding 11 month – excluding ISA season months
• interactive investor outlines investment ideas for Junior ISA

Parents actively give their children the gift of investments for Christmas by upping Junior ISA contributions, new data from interactive investor, the UK's second-largest investment platform for private investors, suggests.

• Invest with ii: Open a Junior ISA | Transfer a CTF to Junior ISA | Junior ISA Allowance

Stripping out contributions made during the ISA season (February-April), December was the busiest month for Junior ISA contributions in 2022 and 2021. The average lump sum contribution in December 2022 was £712 – some 31% (or £167.46) more than the combined average for the preceding 11 month apart from February, March, and April (ISA season). 2021 tells a similar story.

However, the average lump sum contribution in December 2022 was down slightly (2%) compared to December 2021 – a 12-month period which say a dramatic uptick in the cost of living.

Average lump sum contributions into Junior ISAs

Source: interactive investor.

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “In truth, the gift of investment is unlikely to feature on a child’s wish list to Santa, but it can be the ultimate gift that keeps on giving for years to come. It’s encouraging to see parents looking beyond the traditional presents and exploring the potentially transformative power of gifting investments which could give their child a solid financial footing when they reach adulthood.

“You don’t have to be parent or guardian to contribute to the Junior ISA. Anyone can pay into it – up to the £9,000 annual limit. So grandparents, aunts, uncles, and family friends could all chip in this festive period.

“Funds in a Junior ISA cannot be accessed until a child is 18, and it could help teach them good financial sense. As an example, buying The Walt Disney Co (NYSE:DIS) if you child is hooked on Marvel films could be the gentle introduction to the world of investments that helps them form sound lifelong habits. Of course, it is important to remember that diversification is key when it comes to investments.

“It can be difficult enough investing for yourself, so the prospect of investing for your children and the possibility it may go wrong is a challenge for even the most experienced investor - which may explain why so many parents choose to save their Junior ISA in cash. However, it is important to remember while cash may feel safe, the Achilles’ heel is that inflation slowly but surely erodes its real value over time. A potential 18-year time period is sufficiently long enough for the inevitable ebbs and flows that come with the territory of stock market investing to be smoothed out. 

“The same rules apply as with normal investing with a stocks and shares Junior ISA. The investment risk level should be linked to goals and the time frame you have – and diversification is the name of the game.”

Investment ideas

Need JISA inspiration?Dzmitry Lipski, Head of Funds Research, interactive investor, outlines some ideas:

Polar Capital Smart Energy Fund

“Polar Capital Smart Energy fund is a strategic option that aligns with the global shift towards cleaner energy solutions. Spearheaded by the seasoned manager Thiemo Land, the fund focuses on innovative companies driving the decarbonisation and electrification of the future energy sector. The fund's top two positions are held in Vertiv Holdings Co Class A (NYSE:VRT), a key player in digital infrastructure solutions fostering energy and water efficiency, and Marvell Technology Inc (NASDAQ:MRVL), producer of semiconductors and cutting-edge technology with a targeted focus on enhancing energy efficiency across many sectors.

“With a proven bottom-up investment approach, the fund strategically selects companies based on technological advancements, sustainability trends, and valuation screenings. While short-term volatility may arise from the emphasis on technology and sustainability, the fund's long-term outlook and regulatory support position it as a robust option for a Junior ISA with an extended time frame.”

Fidelity Special Values Trust (ii Super 60 rated) 

“Fidelity Special Values (LSE:FSV) Trust offers a value play to investors wishing to invest on home soil. The trust, led by Alex Wright and co-manager Jonathon Winton, seeks unloved companies across various sectors which the team believe to be undervalued or where the potential has not been recognised by the market. This investment trust has a value bias and heavy tilt towards smaller and mid-cap companies, thriving on volatility and uncertainty. 

“Over the longer term, UK smaller-caps have succeeded in providing superior capital growth opportunities and management supported by the Fidelity analyst team have a successful track record of implementing this strategy. A key contributor to recent performance has been the trust’s top holding AIB Group (LSE:AIBG), which benefited from improving its position in Ireland’s banking market along with rising interest rates, which has driven growth. The long-term Investment horizon of a JISA can withstand the short-term volatility of investing in smaller companies and benefit from a stock-picking approach to the UK market.”

Scottish Mortgage Trust (ii Super 60 rated):

“Scottish Mortgage Ord (LSE:SMT) employs a patient and long-term approach to investing in best-in-class growth companies across the globe. Managers Tom Slater and Lawrence Burns seek to identify themes of major change and invest in a select number of visionary and disruptive companies that they believe are well positioned to be long-term beneficiaries of these transitional themes. To find these winning companies, at any stage of a company’s growth journey, the trust’s management can allocate up to 30% of the portfolio to private companies. The thesis is not one of early-stage venture capitalism, but rather that companies are choosing to stay unlisted for longer. It’s notable that the unlisted companies within the portfolio are broadly sizeable and established businesses, a number of which have been valued in excess of $10 billion such as Epic Games, Stripe, Bytedance and SpaceX.

“The speculative nature of investing in winning companies of the future means that short-term performance can and has been extreme, both to the upside and downside. Accordingly, this is a trust more appropriate for investors with far-out investment horizons (at least five years). 

“While recent performance through 2022 and 2023 has disappointed, over the long term Scottish Mortgage has delivered strong returns. Positions taken in now household names, such as Tesla Inc (NASDAQ:TSLA), Netflix Inc (NASDAQ:NFLX), and Amazon.com Inc (NASDAQ:AMZN), have been examples of long-term winning picks, helping drive these returns. The trust offers a unique and long-term approach to identifying winning companies and transitional themes, as well as exposure to operationally strong and growing businesses beyond the realms of just exchange-listed equities.”