Sometimes gimmicks work.
So far, that's been the case with Stein Roe Young Investor. The fund was launched more than two years ago, amid a blizzard of advertising, as a way to introduce young people to investing, as well as for their parents to invest for college.By becoming part owners of companies they are familiar with, Stein Roe said, youngsters would be imbued with a lifelong love of investing.
Maybe so, but the more salient question was, "Will the fund make much money?"
In a word, yes. Stein Roe Young Investor is having a torrid year on top of a 40-percent gain in 1995.
Erik Gustafson, 33, one of a troika of managers, attributes the fund's success to its focus on growth companies, whose earnings rise in good and bad economic times. Gustafson isn't afraid to pay premium prices for such stocks - the fund's average stock sells at 22 times next year's expected earnings.
"We're not trying to buy cheap growth companies," he says. "We're trying to buy the best businesses in the world."
The managers use computer screening to identify stocks whose profit/growth rates are higher than their price/earnings ratios. Other desirable attributes include rising revenues and high returns on equity.
In their search for firms with the best chance for rapid and sustained growth, the managers also talk with the officials of companies, their suppliers and their competitors.
About one-third of the fund's assets are invested in what Gustafson calls "global consumer franchises." The rationale: An increasing number of the world's citizens will want to drink Coke, eat at McDonald's, shave with Gillette, brush with Crest, attend Disney movies and watch MTV. The makers of all these products are in the Young Investor portfolio, which is composed largely of big com-panies.
Though the fund is open to investors of any age, most accounts at Young Investor are started by parents as custodians for their children - the minimum initial investment is $1,000. Shareholders, whose average age is 9, get a quarterly newsletter aimed at young investors.
Nit-pickers will point out that many of the fund's holdings - such as Atmel, Edmark and Strata-Com - aren't exactly household names for most kids.
But while the fund is still young, its performance has been good enough that adults might want to keep an eye on it, too.