Posted By: Eugene Taylor

Trang HoThu Nov 9, 7:00 PM ET

It's child's play for the mutual fund world. Wheaton, Ill.-based Monetta Financial Services is scheduled to give birth to a children's themed fund, Monetta Young Investor Fund (NASDAQ:MIYFX - News), on Dec. 12.
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Monetta sets itself apart from other child-oriented funds by seeking to invest in companies that provide products or services directly used by children and teenagers.

One fund, USAA First Start Growth (NASDAQ:UFSGX - News), avoids alcohol, tobacco, gambling and pornography stocks. But the businesses it owns don't necessarily relate to kids.

Several other kid-friendly mutual funds, such as Stein Roe's Young Investor (which no longer exists) and Columbia Young Investor (which was merged into Columbia Strategic Investor Fund in April), have catered to youngsters with small investment minimums.

Monetta is marketing its fund to young investors by offering coloring books, a quarterly, kid-friendly investment newsletter with money jokes, games and prizes. It's developed four books that teach economic principles through short stories. They aim to have 12 books.

"It's all about motivating kids and getting them interested in the process and subconsciously teaching them about basic financial principles," said Robert Bacarella, Monetta's chairman the fund's portfolio manager.

The fund requires a $1000 minimum initial investment but no minimum for additional purchases. Automatic investment plans with a $25 minimum monthly investment could be started with just $250. Annual management, distribution and service fees come to 1% of assets.

It also offers a tuition-rewards program in which 5% of a shareholder's account can be accrued each year and applied to tuition at one of 200 private colleges participating in the program.

The no-load fund's prospectus lists annual expenses that investors will bear as 1% of assets. The minimum investment will be $1,000, or $250 for automatic investment plans where at least $25 is invested a month.

Complementing The S&P

About 50% to 60% of the Monetta fund will be indexed to the S&P 500. The other part will invest in mature companies that are projected to grow steadily for the next five to 10 years. They must have low volatility, strong management and low debt along with rising revenue, earnings and margins.

"If our historical information is correct, over the long term these stocks tend to demonstrate a little less volatility relative to the market," he said.

He's found about 55 companies that meet his criteria. Some will be core holdings like Walt Disney (NYSE:DIS - News), McDonald's (NYSE:MCD - News), and PepsiCo (NYSE:PEP - News), which Bacarella intends to hold long term -- even through bear markets. But he says he would sell a stock if its long-term growth prospects diminished.

"This is not about trying to time the market or pick the optimal entry point," he said.

Bacarella plans to change the portfolio only once a year to control trading costs and fees.

The portfolio will be rebalanced in December by trimming back positions in the best-performing stocks and redeploying the proceeds into the index. Each stock will account for 1% to 2% of assets in the actively managed portion of the fund.

Among expected core holdings, Disney is one of Bacarella's favorites. He likes its long-term growth prospects in cable, TV, videos and theme parks.

"The earnings are solid," he said. "The forecasts continue to move up. Margins have held relatively stable."

The entertainment giant accelerated earnings from flat to 9% to 16% to 33% the past four quarters. It eclipsed analysts' profit estimates by 11% to 28% the past five quarters.

Bacarella likes retailer Target (NYSE:TGT - News) because of its low volatility.

"So in a down market, this stock should do better than the market in general," he said. "And at the same time, if you looked at it this year, it sure as heck kept pace with the up market."

Bacarella says Pepsi is the perfect, conservative growth company for the fund because of its dividend, consistent earnings growth, low volatility and high return on equity of 33%.

Copyright 2006 Investor's Business Daily, Inc.

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