Laura Fenn is currently reviewing her children’s Junior ISA portfolios, after some disappointing returns.
Fenn, who works in internal communications, opened the accounts three years ago. “I had a Child Trust Fund for my eldest child, who is now 12. But my younger son missed out on CTFs, as the scheme had already been closed.”
When she decided to open a Junior ISA for her younger son, she converted her elder son’s CTF into a JISA at the same time. She explained: “We were getting money for their birthdays and at Christmas. To start with I just tucked the money in a drawer for emergencies, or in a savings account, but now I look at how I can invest on their behalf.”
As the children have longer-term investment horizons, Fenn has decided to split the money between two leading equity fund managers.
She says: “With interest rates so low I didn’t want to keep the money in cash savings. I do have some passive investments in my own pension and ISA, but I prefer to back fund managers who have a good track record of beating the market. I realise that this can be a higher risk option, but I hope this strategy will deliver superior returns over the longer term.
“At the moment I invest £250 a month into each of these accounts. This monthly direct debit is then split between Fundsmith Equity, managed by Terry Smith and Woodford Equity Income, managed by Neil Woodford.”
Contrasting Returns Breeds Uncertainty
However, the returns from these funds have been very different. Over the past three years the Fundsmith Equity has delivered annualised returns of 23.15%, according to Morningstar data.
In contrast, over the past three years, Woodford Equity Income has delivered 0.4% a year over the same period. This year alone this fund is down 7%.
Fenn says: “I know all funds go through periods of patchy performance, but I’m not sure whether I should stick with this fund or switch in a bid to boost returns.
“Overall – given the fantastic returns on the other fund – these JISAs are looking fairly healthy. At the moment I guess I am just treading water. I worry that if I do switch, this will be when returns start to improve for this style of fund management.”
Morningstar fund analysts give Woodford a Bronze Rating. But it earns just a one-star performance rating.
Analyst Peter Brunt, a says: “While we remain positive overall on this fund, a shift in the complexion of the portfolio, combined with concerns of the nature of some stock-specific problems has resulted in a lower level of conviction.
“But Woodford has created an impressively strong and consistent track record over the past three decades.”
Brunt points out that Woodford’s approach – contrarian, high-conviction, and long-term – will produce periods of underperformance. “For investors who can tolerate this we believe the fund still has long-term investment merit.”
Fenn adds that there seems to be a lot of uncertainty around at the moment. “I’m minded to put off any decision for another year. I am worried about how Brexit might affect the markets, so I’m hoping a fund manager like Woodford might be well placed to weather these storms.”
Fundsmith Delivers
Fundsmith Equity has a Gold Analyst Rating and a five-star performance rating. Brunt says: “This is one of the strongest options for investors seeking exposure to high-quality global equities.”
Fenn, who lives in South London, with her husband and two children is responsible for making financial decisions in her household. “After having my first child I moved to part-time work, so became quite focussed on managing our money effectively. Paying for childcare and a mortgage on a reduced wage does focus the mind.
“Surprisingly, although our finances were stretched then, this is when we started investing more into our own retirement savings. Both myself and my husband have a workplace pension. He currently invests the maximum into it. I am in my 40s but he is now in his 50s so is more focused on building a decent retirement fund.”
Choices for an Adult ISA
Fenn invests her own ISA through the Charles Stanley platform. She says: “When it comes to my ISA I have a bit of a mish-mash of funds. I started off with some higher risk funds, which largely invest in technology and other related areas.
“But over the past few years I’ve tried to diversify a bit, and now have some more general global funds.”
Of these higher-risk funds, the best performing has been Polar Capital Global Technology. This fund, managed by Nick Evans, has a Silver Analyst Rating and five-star rating.
Morningstar analyst Samuel Meakin says: “This fund benefits from experienced managers backed by a well-resourced team. This approach is characterised by the managers’ belief that they can add value by investing in companies offering new, disruptive technologies.”
Fenn tries to balance out these more specialist investments with some global funds. “Here I’ve tended to favour more passive funds which track major stock market indices.”
These include HSBC American Index – which has a Gold Analyst Rating, and Vanguard Emerging Markets Stock Index Fund, which as a Bronze Rating.
