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With the school year well underway, and Christmas fast approaching, now could be the opportune time for parents to consider their children’s futures and how they can give them the best start in life.
For many, this will include a desire to provide their children with a nest egg to give them a financial head start in life. One of the most tax-effective and simple means of doing this is to open a junior ISA, invested in a suitable investment fund. But which one?
There is, if anything, too much choice. However, parents will have several key requirements, and considering these criteria helps simplify their options. Firstly, they will want the reassurance of investing in a fund that comes with a strong pedigree. The fund will also need a long-term focus, given that the investment will be in place for up to 18 years, and possibly longer, depending on the needs of their child once they turn 18 and gain access the junior ISA. The investment vehicle should also aim to provide strong long-term returns on this money. And the investment vehicle needs to offer high liquidity, to allow the beneficiary to easily withdraw funds to finance gap year adventures, education fees, or a home deposit. It goes without saying that the ongoing management charge needs to be low, especially for such a long-term investment, as high fees paid over many years seriously erode total returns. In sum, the parents need a low stress, steady performer, that will deliver when required.
The Mercantile Investment Trust satisfies all these requirements. The Trust, which invests in the UK’s medium and smaller-sized companies, boasts an impressive pedigree. It has a 140-year history, and with £2.3bn in assets under management1, it is the largest UK equity investment trust. This makes it the flagship investment trust of JPMorgan Asset Management, one of the world’s leading investment managers. As further reassurance, the Mercantile’s managers have a wealth of investment experience, and they have the support of JPMorgan’s large, experienced team of research analysts, including a dedicated team focused on mid and smaller cap stocks, an area of the market that needs careful, firsthand scrutiny, as many companies in this sector are not widely researched by other investors.
The trust adopts the long-term perspective required by an investment that will be in place for up to 18 years, or possibly much longer. The medium and smaller-sized companies it targets have the capacity to grow into larger businesses, but they need time – five to ten years and possibly more - to realise their full potential.
The Mercantile also meets parents’ performance criteria. It has delivered strong gains for its shareholders over the past five years.2 Britain’s medium and smaller companies have, historically, generated higher returns than the UK’s largest companies. This is the case because smaller businesses tend to be innovative, flexible and nimble, and these characteristics help them forge new markets and compete successfully with larger, more hidebound organisations.
In addition to the managers’ skill at identifying tomorrow’s winners, the trust’s performance may also benefit over time from the ability to use gearing, or borrowing money to invest. This can boost performance when the market is rising, or by not being fully invested, provide some downside protection during bouts of market weakness. And of course, the regular dividends paid by the Mercantile can be reinvested tax free in junior ISAs, and this, combined with the benefits of returns which compound over time, can also help grow the pot over the long term.
It is possible for parents to open a junior ISA any time before a child’s 18th birthday, and it is simple to add funds over time via the purchase of more shares. When the child reaches 18, the Mercantile’s size means its shares are highly liquid, and thus easy to access. And if the beneficiary has no immediate need for the funds, the junior ISA will automatically convert to an adult ISA. The trust’s size also provides economies of scale, which it passes on to investors in the form of a very competitive ongoing charge - one of the lowest within its peer group, The Association of Investment Companies (AIC) All UK Companies.3
In all, the Mercantile can be a good choice for parents seeking a fund which will meet their investment requirements, and those of their children, not just today, but more importantly, well into the future. And they can rest easy, knowing their funds are in the care of a team of seasoned professionals with an impressive performance track record.
And now may be an ideal time to start such an investment. Interest rates are on a downward path around the world, and there is great excitement about the potential for the artificial intelligence revolution to transform businesses and boost productivity in many sectors. These factors have provided a significant boost to sentiment in all major equity markets, including in the UK. Yet UK equity valuations are still low, relative to history and compared to other markets, so there are many exciting, attractively valued investment opportunities among the medium and smaller companies targeted by the Mercantile’s managers. This means they are especially well-positioned to continue delivering strong returns and outperformance for their shareholders - young and older - well into the future.
Summary Risk Indicator
The risk indicator assumes you keep the product for 5 year(s). The risk of the product may be significantly higher if held for less than the recommended holding period.
Investment objective: Aims to achieve capital growth through investing in a diversified portfolio of UK medium and smaller companies. It pays quarterly dividends and aims to grow its dividend at least in line with inflation. The Company’s gearing policy is to operate within a range of 10% net cash to 20% geared.
Key Risks: External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds and income could decline at the same time, or fluctuate in response to the performance of individual companies and general market conditions. This Company may utilise gearing (borrowing) which will exaggerate market movements both up and down. This Company may also invest in smaller companies which may increase its risk profile. The share price may trade at a discount to the Net Asset Value of the Company. The single market in which the Company primarily invests, in this case the UK, may be subject to particular political and economic risks and, as a result, the Company may be more volatile than more broadly diversified companies. Companies listed on AIM tend to be smaller and early-stage companies and may carry greater risks than an investment in a Company with a full listing on the London Stock Exchange.
This is a marketing communication and as such the views contained herein do not form part of an offer, nor are they to be taken as advice or a recommendation, to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the products or underlying overseas investments. Past performance and yield are not reliable indicators of current and future results. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment products, there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. Investment is subject to documentation. The Annual Reports and Financial Statements, AIFMD art. 23 Investor Disclosure Document and PRIIPs Key Information Document can be obtained in English from JPMorgan Funds Limited or at www.jpmam.co.uk/investmenttrust. This communication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.
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