By Michael Wursthorn
Some big investors are facing a moment of soul-searching about
whether to abandon part of a long-profitable trade: a bet on a
group of tech stocks known as "FANG."
The stocks -- Facebook Inc., Amazon.com Inc., Netflix Inc. and
Google-parent Alphabet Inc. -- have long risen in lockstep and
helped power the long-running market rally.
But since Facebook's disclosure last month that millions of
users' data were compromised, stock-picking fund managers have
soured on the social network's shares, with some either partially
or completely abandoning their investments.
While some money managers believe Facebook's trouble threatens
to cool user and revenue growth, many say the three other stocks
remain among the market's best bets.
"Investors have been trying to lump these stocks all together
for years" even though they have different business models, said
Rob Sharps, head of investments and group chief investment officer
at T. Rowe Price Group Inc. Now that Facebook's struggles have come
to light, "there may be some greater differences among the FANG
stocks than in the past."
The NYSE FANG+ index, which tracks 10 global tech heavyweights,
has bounced back after last month's slide and is outperforming the
S&P 500 in April: It is up 1.8% versus 1.4% for the broad
market index.
Brad Slingerlend -- portfolio manager of the Janus Henderson
Global Technology Fund, which has stakes in all four FANG stocks,
as well as other big tech companies like Apple Inc., Tencent
Holdings Ltd. and Alibaba Group Holding Ltd. -- says his fund
started reducing its position in Facebook before the data-privacy
controversy.
He sees further declines ahead for the social-network company
despite the shares already trading 16% below a 52-week high hit in
February. "I'm not sure [Facebook shares] have come down enough to
reflect that risk" of how it handles its data, Mr. Slingerlend
said, adding that Chief Executive Mark Zuckerberg's tight control
of the company's voting shares creates added uncertainty for
investors. "The range of outcomes for Facebook has widened
significantly."
Vontobel Asset Management, the nearly $40 billion
asset-management arm of Zurich-based Vontobel Holding AG, also sold
shares of Facebook in the past month, according to a FactSet
analysis of the social network's stakeholders, while Copper Rock
Capital Partners LLC, a boutique asset-manager that overseas more
than $5 billion, also pared down its holding.
Smaller retail investors appeared to be getting out of the stock
as well, as several brokerage firms, including LPL Financial
Holdings Inc., reported Facebook share sales in the past month,
according to FactSet's data.
A spokeswoman for Facebook declined to comment.
The FANG stocks have together shed more than $200 billion in
market value since mid-March when Facebook plunged after
acknowledging its data-privacy issues. Facebook, Amazon and
Alphabet are still off about 9% or more each over that time,
compared with a 4.1% drop for Netflix.
But investors remain generally optimistic about the prospects
for Amazon and Netflix as those companies continue to upend the
business segments in which they operate -- retail for Amazon and
media for Netflix. And Alphabet's diversified operations, from
advertising to search to tech hardware, make it a dominant force in
many fields.
Mr. Slingerlend says he doesn't plan to significantly reduce his
fund's holdings in Alphabet and Amazon and expects them to maintain
their heady growth paths, even if lawmakers push for more
regulation of tech companies. Investors who group those tech giants
with Facebook are missing the intricacies of each business, he
said, dismissing President Donald Trump's criticism of Amazon's tax
treatment and its relationship with the U.S. Postal Service.
Many actively managed funds have a higher exposure to the FANG
stocks than to the broader tech and internet segments, Bank of
America Merrill Lynch said in a recent report, with Alphabet and
Amazon among the most crowded stocks. Those same investments helped
fuel the funds' gains last year when all four stocks notched
double-digit-percentage increases.
But the FANG stocks have lost some of their influence over the
broader market. Amazon and Netflix, which are up 23% and 60%,
respectively, for the year, accounted for more than 30% of the
S&P 500's 2018 gain at one point in February, according to
S&P Dow Jones Indices. That contribution slipped to about 24%
as of April 6. Facebook, meanwhile, is among the biggest drags on
the index, overshadowing the declines of even General Electric
Co.
"These companies are of a size and have an amount of influence
now that, going forward, are going to have to contend with these
sorts of challenges," T. Rowe's Mr. Sharps said of data-privacy
concerns and the potential for regulation, though his firm hasn't
significantly reduced its exposure to FANG stocks.
The declines in the FANG stocks last month wiped out nearly half
of the year-to-date gains of some of the best performing actively
managed funds, including Mr. Slingerlend's Janus fund, according to
a ranking of funds by data provider Morningstar Inc.
That fund shed 5.2% from mid-March through Monday, paring its
gain this year to 7.5%. Meanwhile, the Morgan Stanley Institutional
Fund Growth Portfolio, which has positions in Facebook, Amazon and
Alphabet, fell 5.8% over the same period to cut its year-to-date
gain to 10%.
In comparison, about 70% of growth funds that focus on large-cap
stocks like Facebook, Google and Amazon outpaced the S&P 500
over the first three months of the year to return 3.1%, compared
with 1.9% for growth stocks in the broader index, according to the
Bank of America Merrill Lynch data.
While March proved to be rough, 81% of those managers were able
to post better returns than the negative performance of growth
stocks in the S&P 500.
Even an exchange-traded fund that touts its FANG exposure and
aims to invest in modern tech companies has soured on Facebook. The
AdvisorShares New Tech & Media exchange-traded fund sold out of
its Facebook position shortly before the data mishap was disclosed,
said Scott Freeze, chief investment officer of Sabretooth Advisors,
which manages the fund.
Instead, Mr. Freeze is telling current and prospective investors
that his fund aims to find the next FANG stocks that are set to
expand at rates similar to how the original quartet performed in
prior years, such as payment-processing company Square Inc., a tech
stock that is up 36% this year.
"FANG is not a set of four companies. It's an idea," Mr. Freeze
said. "There are FANG stocks every generation, every decade.
Nothing stays on top forever."
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
(END) Dow Jones Newswires
April 16, 2018 19:51 ET (23:51 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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