Child trust funds: The winners and losers
But experts are stressing the lifespan of these plans is long term at 18 years and by switching now they would only crystallise losses.
David White of The Children's Mutual, a CTF provider, says: 'While in these credit crunched times finding significant sums for saving may be difficult, we believe it will be far harder for families to find the same amount as a cash lump sum in the future.'
In the three years to 30 January, just three funds have managed to produce a positive return, according to research carried out for This is Money by AWD Chase de Vere, an independent financial adviser.
Child trust funds and how else to make your children rich
CTFs were launched on April 6, 2005, back-dated to 1 September 2002, with more than four million children now eligible for plans.
There are three types: • Savings accounts, which holders are allowed to switch between at any time. Read the latest on cash CTF accounts;
• Stakeholder CTFs which have charges capped at 1.5% a year and invest in stocks until the child reaches 13 years of age. The money is then gradually transferred into less risky investments such as bonds and cash, similar to how pensions operate. They must allow a minimum monthly investment of £10;
Equity based accounts, where charges may be higher, although they are can be lower particularly in the case of index tracker funds. With these non-stakeholder accounts, run largely by investment companies or stockbrokers, investors can choose from a wide variety of funds.
>>Read more about how child trust funds work
>>Editor’s Blog: ‘My child trust funds’
The best
Presently, around 76% of CTFs are invested in stakeholder accounts, 18% in cash accounts, and 6% in equity accounts. The list of top performers is dominated by non-stakeholders.
Over three years, the iShares FTSE/Xinhua China CTF, provided by stock broker Redmayne-Bentley, has posted 11% growth. Arguably, it also tops the league tables in terms of risk.
Its nearest rival, with a return of 9%, is the Close UK Escalator 100 fund, from the Share Centre, while in third is the Invesco Perpetual Income fund, with 4% - not bad given that, the area in which it invests, the FTSE All-Share, has collapsed by 21% over the three years.
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The top two performers are essentially specialist funds. The iShares portfolio, is an exchange traded fund (ETF), which mirrors the movements of a particular index or market like a tracker fund, in this case the Xinhua China 25 index, which is up 15%.
The booming but highly volatile emerging market of China has enjoyed massive gains in recent years but has not been immune to the recent slowdown. Over 12 months, the iShares fund, is down 44%, one of the worst performers.
The Close UK Escalator 100 invests in the UK stock market but offers investors 100% protection from falls and locks in some of the gains. It is not, therefore, a fund that will bounce when markets do. But it does offer protection, achieving a 3% return in the past year making it the best of the bunch.