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BY WARREN BOROSON
NEWJERSEYNEWSROOM.COM
BOROSON ON MONEY
A mutual fund just for kids! What a good idea!
Well, actually, there was one a few years ago – SteinRoe Young Investor. (And I think I deserved a little credit for suggesting the idea.) But alas, SteinRoe Young Investor was sold to Columbia Management, wound up on someone's list of "worst funds," and died a quiet, humiliating death by being folded into another fund.
Now there's a new fund aimed at getting kids interested in investing, keeping them informed, and making them good money to boot. This fund has one really compelling thing going for it. It has earned Morningstar's five-star (top) rating.
Other virtues: a low minimum first investment ($100, if investors sign up with an automatic investment plan). No sales charges. Well diversified.
The fund is Monetta Young Investor, the word "moneta" (one t) meaning money in Italian, and it's managed out of Wharton, Ill. The portfolio manager is Robert Bacarella, who runs other Monetta funds. And, as he argues, the Young Investor fund may be suitable to older investors, too.
Half of Young Investor's assets are invested in exchange traded funds that buy the Standard & Poor's 500 Index.
Some 40 percent go into blue-chip growth companies familiar to most kids, like Coca-Cola, McDonald's, Disney, Apple, Walmart, Amazon, Google, Verizon, Chipotle, and Ford.The last 10 percent is opportunity money -- for Bacarella to take advantage of stocks that are grossly undervalued.
The fund was launched over three years ago, enough time to allow Morningstar to give it a rating. Over those three years, Young Investor has returned 5.56 percent a year versus the Standard & Poor's 6.77 loss.
The fund's expense ratio will be limited to 1% or less through Dec. 31, 2012.
Some other things: Young Investor is part of a college tuition-reward system; shareholders receive educational materials; prizes are parceled out, too.
Sounds good, doesn't it? To contact the fund, call 1-800-MONETTA.
But not so fast.
The chief fund in the family, called just Monetta, has had its ups and downs. Hot over five years, below average over ten. In 1996, in fact, Kiplinger's, the financial magazine, called the fund a "stinky fish." Today Morningstar rates it average.
Kiplinger's has also weighed in on Young Investor, and not very kindly. The magazine is "not completely sold" on the fund because Bacarella does technical analysis in choosing stocks – looking at such things as price and volume movement – and "We'd prefer to invest with a manager who thoroughly vets companies." (I'm not a big fan of technical analysis, either.)
When Young Investor was first launched, Chuck Jaffe, a mutual fund columnist, actually named the fund its Stupid Investment of the Week. Among other things, he had objected to its expense ratio, which is high for a mostly passive investment.
I myself would be happier with the fund if it got rid of the 10 percent that Bacarella himself manages, and if the expense ratio went down further.
In short, not all funds with five-star Morningstar ratings may be worth buying. As Morningstar itself concedes.
Readers are invited to send any financial questions to This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
