Kid-friendly fund is gaining a name among investors
Are kids taking over Wall Street?
A stock mutual fund with a dual mission of earning strong returns while teaching children about investing is at the top of the performance charts. Credit its investments in consumer names that kids know something about: Apple Inc., McDonald’s Corp., and Walt Disney Co.
Those stocks are faring well, which explains why Monetta Young Investor Fund ranks in the top 1 percent over the past three years among funds that invest primarily in large-cap growth stocks.
The tiny $12 million fund has posted an average annual return of 9 percent during that span, compared with a 4 percent average loss for its peers.
This year, Monetta Young Investor is in the top 2 percent of its category, up 18 percent. The returns for three of its top five stock holdings: Apple is up 46 percent, McDonald’s 27 percent, and Disney 17 percent. Offsetting those strong returns are a couple laggards among the top five: Google is down nearly 4 percent, and American Airlines parent AMR Corp. is up just 6 percent.
A 13-year-old investor in the fund, Alexis Savage, has seen her initial $250 — actually, money her dad put up — nearly double from investment gains since she got in during January 2009. It was a scary time to invest, just after the worst of the financial crisis. In hindsight, she’s glad she was a buyer just before the market hit bottom in March 2009.
”It was a great time to invest, because it couldn’t go down much more,” the Naugatuck, Conn., teen says, sounding a little like investing legend Warren Buffett.
Her investment account is now above $1,000. Her father chips in $25 a month to that account and another he set up in Monetta Young Investor for Alexis’s sister, Alina, also 13.
David Savage got his daughters into the fund to teach them about finances, not just to make money.
Savage studied a handful of funds he believed might be suitable for his daughters because investors can start with just a few hundred dollars. They aren’t assessed upfront, one-time sales fees called loads.
Many funds set minimum initial investments of $2,500 or more, with loads as much as 5.75 percent of the amount invested.
Monetta Young Investor requires either a $1,000 initial investment, or just $100 if the investor contributes at least $25 a month through an automatic investment plan. Investors can either keep a regular account, or enroll in a program to apply their fund holdings toward tuition rewards points that help pay for college.
Other funds suitable for children because of their low investment minimums, solid long-term performance records and modest expenses include Vanguard Star ($1,000 minimum); Amana Trust Growth ($250 minimum); and T. Rowe Price Spectrum Growth. However, the funds don’t directly target children.
The T. Rowe Price fund charges a minimum of $2,500 to open an account, but a parent could open a second account for a child with another $100. Opening an account in the fund through an individual retirement account requires a minimum $1,000, with $50 to add another IRA account.
Another fund aimed at building savings for children is American Century Giftrust, intended to be held for 18 years once purchased, with the sum invested given as a gift by a relative or friend. The fund, with an investment minimum of $2,500, was launched in 1983 to save for a child’s college years. That was before parents had as many college savings options as they do now, including 529 plans.
Savage likes Monetta Young Investor because it mails his daughters age-appropriate materials about money, such as coin collecting albums and activity books with savings themes. His daughters also play educational games on the fund’s website.
He also likes the fact that they’re familiar with many of the fund’s stocks, which helps keep the girls interested.
”My daughters spend a lot of time at McDonald’s, and now they’re partial owners, even if they’re only small owners,” he says.
Monetta Young Investor, launched four years ago, is also unique because it keeps half its portfolio in exchange-traded funds that seek to track the S&P 500. ETFs bundle together the investments that are in a particular market index.
Monetta Young Investor Fund comanager Robert S. Bacarella says the ETF half or the portfolio helps balance the risk from the stocks that he and his comanager — Robert J. Bacarella, his son — pick for the other half.
If a shift in the economy hits the fund’s consumer oriented stocks hard, the more broadly invested ETF portion of the portfolio is designed to soften the blow.
”It’s diversified, and that’s how we control risk,” Robert S. Bacarella says.
The four-year-old fund is tiny, but its $12 million in assets is up from just $1.5 million at the start of this year.
Investors young and old — the fund isn’t restricted to young investors, despite its name — have been flocking to the fund, some impressed by its performance.
Whether Monetta Young Investor can continue posting better returns than its peers is anyone’s guess. It’s rare for a fund manager to consistently beat rivals in good markets and bad. But even if the fund lags, or the market turns and the Savage sisters lose some money, they will have learned a lesson.
”It’s good,” Alexis says, ”to start your life out early, and understand how things work.”