The Royal Treatment: build a Junior ISA fit for a monarch

As the country celebrates the birth of a Royal baby, we provide some tips on the stocks new parents should consider for a Junior ISA fit for a prince or princess.

Article updated: 24 April 2018 12:00pm Author: Graham Spooner

While Prince William and Kate Middleton’s first thoughts may not be about investing for the future, most other expecting couples should think about how they can build a nest egg for their baby. If you want to give a gift that lasts a lifetime, The Share Centre recommends that new parents should approach this by investing little and often into a Junior ISA.

A Junior stocks and shares ISA will allow you to invest in the stock market on behalf of your child. The annual subscription limit is £4,260 this tax year, and the investment period could span up to 18 years. Parents putting away the maximum of around £355 pcm could have saved £70,000-80,000 by adulthood. And in addition, we always strongly recommend that any income generated is automatically re-invested to add greater weight to the power of compounding returns. Data shows that, over the long term, shares almost always produce a better return than cash held in savings accounts. The key is to achieve a good balance of growth and risk. This means that even parents who save little and often may be able to build up a reasonable nest egg by the time the young person reaches adulthood.

As the Junior ISA rolls into an adult ISA at the age of 18, it helps build familiarisation with the benefits of investment and financial house-keeping at an early age, setting up young adults with financial knowledge for life. It can help young people fund the important milestones in life, such as contributing to ever-increasing student fees or as a deposit for first-time home buyers.

Here are a variety of stocks we hope will grow and flourish hopefully along with the babies of 2018.

Low Risk

Specialising in educational and scientific publications, Relx describes itself as a world-leading provider of information and analytics. The Anglo-Dutch group has been undergoing major restructuring, the majority of which is now over. The changes have moved the group away from its core business in journals towards one providing digital professional information services to doctors, lawyers and academics, as well as exhibitions, including the London Book Fair. In line with this modernisation programme, the group has prioritised digital content, transitioning from print to electronic and electronic decision tools in order to drive higher customer value. This transformation will provide broader data sets, enhance analytics and situates the group in a position to leverage more powerful technology and innovation.

Results earlier this year reported an increase in revenue to £7,355m and an operating profit of £1,905m. Management remain confident of achieving further growth and investors should appreciate the 10% increase in the dividend to 39.4 pence. Relx’s impressive portfolio of growth across all divisions and an improvement in its margins has cemented its strong position in the market. Following on from improved results, the share price made impressive progress in 2017. Since then, however, the share price has fallen back by around 10% year to date, giving investors a potentially better entry point to a company with a strong track record of sales growth.

Medium risk

Leading challenger bank, Virgin Money, is a stock to watch on the back of the digital banking band wagon. Last year the group spent £38.3m in the development of a new digital bank to take on the likes of Monzo and Revolut. A better known name, it is expected that Virgin will reap the rewards of this investment. The landscape of the financial industry has somewhat changed since the days of the financial crash, with a new breed of challenger banks who are more appealing, especially to Millennials. Technology has changed the way young people bank, untarnished by the misdeeds of the past, expectations for the sector are positive with a greater appeal to the young.

Results in February were slightly ahead of expectations helped by lower costs with a rise in profit to £262.6m and an 18% increase in the dividend to 6 pence. A forward price-earnings ratio of 8.3 is attractive and suggests that there could be rewards to be had with this investment decision. Whilst there are other challenger banks on a lower rating, we regard Virgin Money to be a safer option and one that will be snapping at the heels of the bigger banks. A medium risk, long-term buy for investors with a portfolio geared to growth, Virgin Money is a buy for parents seeking to invest for their child’s future.

Medium-High risk

Operating mainly in the UK, Sweden, and the Netherlands, Chesnara, is an established life and pensions consolidator. We have witnessed the group advance at an impressive rate; the share price is up by around 145% since our first recommendation and hit a new all-time high in April. The life insurance group is also expanding its acquisition and partnership portfolio, the attainment of Legal and General’s Dutch business for Euro160m in 2017 has helped to build the company’s potential as a leader in its particular niche market segment.

Results in March reported a pre-tax profit of £89.6m, boosted by aforementioned acquisitions. Potential investors should also note the increase in annual dividends, up 3% to 20.07pence; the dividend growth has been consistent over the years. Suited to medium-high risk income seekers, it is hoped that the expanding company will continue to reward shareholders handsomely.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Graham Spooner portrait photo
Graham Spooner

Investment Research Analyst

Graham started out as a fully authorised dealer on the Stock Exchange trading floor and for various banks, before becoming an FSA-approved investment adviser. Now a respected voice in the media, Graham’s share tips and comments on the markets are frequently sought by the national press.