Investment picks for your little prince or princess

Upon the birth of his third child, Prince William captured the reality of parenthood with his comment “thrice the worry”. Worrying is indeed part and parcel of being a parent – from the health of your baby, to their ongoing development, feeding them, their sleeping patterns, and even your own ability as a parent.

What is not talked about as often, however, is the financial concerns surrounding raising a child, from nappies and school fees, to university fees and house deposits.

Building a nest egg

However, it is easier than you might think to build a nest egg for your little prince or princess, with a little help from the eighth wonder of the world: compounding.

If you were to invest £3,600 in a junior SIPP wrapper for just the first two years of your child’s life, they could earn a whopping £123,737 (based on an average return of 5%) by the time they are 57. In contrast, if your child does not start investing until they are 30 and, again, puts £3,600 in their SIPP for the first two years, they would have to stump up an additional £49,320 – or £130 each month – to make similar returns over the next 27 years*.

Looking at a slightly shorter time scale and using the junior ISA wrapper, the power of compounding is also apparent. Again, investing £3,600 during the first two years of your child’s life and holding the money until they are 18 could earn £17,676 alone.

For those who want to get their child’s finances kick-started as soon as possible, or simply want to invest for the very long term, we look at five higher-risk Elite Rated funds which could offer such investors generous rewards over the years.

 

Neptune UK Mid Cap

This fund has a concentrated portfolio of 28 stocks, and is unafraid to hold 10% of the entire fund in some individual holdings. As such, it may suffer some short-term volatility but could well deliver superior and differentiated returns to the FTSE All Share index over the long term.

And, with the usual caveat that past performance is no guide to future returns, companies further down the cap spectrum have historically outperformed their larger counterparts over the long term.

In conjunction with taking top-down views to determine sector weightings, manager Mark Martin invests in companies which fall under three main categories or ‘silos’: recovery stocks, structural growth stocks and turnaround stories.

 

Jupiter Asian Income

This fund could also be a good option for long-term investors, especially if its dividend pay-outs are reinvested.

It is headed up by Jason Pidcock, who tends to focus on large-cap companies in more developed areas of Asia. Almost one-quarter of the overall fund is held in Australian equities and a further 20% is in Hong Kong**.

Jason is unrestricted in terms of a minimum yield requirement. For instance, he uses Australian equities for their high yields, and barbells these with Philippine equities for their growth potential.

He combines both macroeconomic views with individual company analysis to create a concentrated portfolio, which currently consists of 32 stocks. Jupiter Asian Income has a historic yield of 4.1%**.

 

Aberdeen Latin American Equity

Given the previous fund’s bias towards developed Asia, exposure to a country-specific emerging market might dovetail nicely – particularly if you have a very long-term time horizon.

We like Aberdeen Latin American Equity, which is managed using a team-based approach. The fund has an absolute return focus and does not aim to beat an index. The team believes indices don’t provide meaningful guidance of a company’s worth, and that a company being listed on a stock exchange does not guarantee its quality. The team is therefore unafraid to take punchy positions away from its MSCI EM Latin America benchmark.

The fund focuses first and foremost on the quality of an individual company, followed by valuation. A top-down view is then taken to ensure the portfolio is well-diversified.

 

Lazard US Equity Concentrated

For US equity exposure, Lazard US Equity Concentrated might present itself as a good option. It is headed up by Christopher Blake, and has a concentrated, multi-cap portfolio of between 20 and 25 stocks.

Christopher also looks for companies on a benchmark-agnostic basis. He focuses on whether the overall portfolio has a diversified cash flow stream; the manager decides this by understanding the revenue, earnings and cash flow of each stock. Essentially, each holding in the portfolio is ‘best ideas’ pick from across Lazard’s US equity funds.

While the fund has only been available to UK investors since 2016, it was launched back in 2003 and has had the same manager over this time frame.

 

F&C Real Estate Securities

One-third of millenials will never own their own home, according to a recent report from the Resolution Foundation. But with fewer young people struggling to get their foot on the first rung of the property ladder, another way for them to invest in property is through a fund.

F&C Real Estate Securities, which is managed by Marcus Phayre-Mudge, invests in property equities as opposed to physical property, which is a more liquid way to access the asset class.

Marcus and his team first construct a macroeconomic view and decide which sectors to hold. Each individual stock is then given an expected and required return – the higher-risk a holding is, the higher its return requirements will be.

* Source: https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

**Source: Jupiter Asian Income factsheet. April 2018

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views of the author and any people interviewed are their own and do not constitute financial advice. However the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions.