Monetta Fund (MONTX)
Investment Objective / Approach
The Monetta Fund seeks long-term capital growth. It pursues this objective by employing a bottom-up stock selection process that includes technical and fundamental analysis to identify strong management teams with a record of delivering higher revenue and earnings growth.
The investment team focuses on companies that tend to exceed analysts’ forecasts and raise revenue/earnings guidance.
The team controls risk through sector and company diversification with an emphasis on large-capitalization growth companies.
Our investment philosophy is based on a belief that long-term outperformance can be achieved by investing in large-cap growth companies that can exceed growth expectations over the next three to five years. Our motto is “buy high and sell higher.”
We apply an investment philosophy inspired by well-known investors, including:
“Best returns are achieved by companies that have been producing the same product or service for several years.” (1)
The Monetta Core Growth Fund emphasizes high-quality growth companies with a competitive edge.
“Never invest in any idea you can’t illustrate with a crayon…invest in companies you understand.” (2)
Our Fund tends to have a bias to invest in quality, household names with proven/experienced management teams and strong growth prospects.
“Market-leading firms are considerably less volatile than the market as a whole…Relative strength is a much better indicator of a company prospects than factors such as earnings growth rates.” (3)
The Monetta Core Growth Fund seeks companies with improving relative strength relative to its sector and overall market.
Idea generation begins with technical analysis using external and internal screens that look at price momentum, money flows and relative strength to the market. To further refine our search, we evaluate company fundamentals such as:
- Competitive dynamics
- Management’s track record and ability to execute a growth strategy
- Balance sheet strength
- Positive cash flow
- Quarterly earnings trends that exceed expectations
- Higher company guidance
- Dividend growth opportunities
Portfolio Construction and Sell Discipline
We seek to construct a portfolio of 30-45 positions consisting of companies with market capitalization typically greater than $10 billion.
The average security weighting is typically around 2% of the portfolio at the time of purchase. We are generally quick to sell a stock if management lowers guidance or our investment thesis changes.
(1) Hagstrom, Robert G. The Warren Buffet Way: Third Edition. John Wiley, 2014, p. 78.
(2) Lynch, Peter, and John Rothchild. Beating the Street: a Special Edition for Worth Subscribers. Simon & Schuster, 1994, p. 27, 303.
(3) O’Shaughnessy, James P. What Works on Wall Street: the Classic Guide to the Best-Performing Investment Strategies of All Time. McGraw Hill, 2012, p. 192, 238.
Standard and Poor’s 500® Index is a capitalization-weighted index of 500 stocks. This unmanaged index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The index was developed with a base level of 10 for the 1941-43 base period. You cannot invest directly in an index.
Alpha compares risk-adjusted performance relative to an index. Positive alpha means outperformance on a risk-adjusted basis. Beta measures the volatility of a security or portfolio relative to an index. Less than one means lower volatility than the index; more than one means greater volatility. R-squared (R2) measures the relationship between portfolio and index performance on a scale of 0.00 (0%) to 1.00 (100%). A higher R2 indicates more of the portfolio’s performance is affected by market movements and vice versa. Price-to-Earnings (P/E) is calculated by dividing the current price of a stock by the company’s trailing 12 months’ earnings per share.