Jeremy Gleeson, manager of the Global Technology fund for Axa, which Morningstar data showed has a 6.9 per cent portfolio weighting to the social media giant, spoke out on the impact of Facebook’s lower than expected earnings announced this week.
He said his fund invests for the long term and he believe that the trends supporting the investment case for Facebook remain intact.
He said the share price move - which saw - were a combination of profit taking on a stock that had been up significantly in the last few months, and an over-reaction to the company flagging some near term issues that they are facing.
Mr Gleeson said: "We continue to back the management team to be able to resolve any issues, and to ensure they are compliant with the General Data Protection Regulation (GDPR) principles more broadly.
"To put the quarter two numbers in context, they were a little below expectations, impacted by a number of factors that were out of their control, for example FX considerations and the GDPR regulation.
"Despite this, they still added 228 million monthly active users (MAUs) over 12 months to their core Facebook platform, which now has 2.23 billion monthly active users.
"In Europe, where the GDPR impact was felt most – monthly active users dropped by just one million, to 376 million monthly active users in the first quarter - a decline of just 0.27 per cent. Revenues were up 42 per cent year-on-year and Facebook's share price is up 15 per cent since the Cambridge Analytica news first hit in late March.
"Whilst Facebook is our thirrd largest position in the Axa Framlington Global Technology fund, the active weight as of the end of June was 0.83 per cent, so the relative impact is minimal – a benefit of a diversified actively managed portfolio.”
10 UK investment funds with highest weightings to Facebook:
Fund | Portfolio Weighting % | Position Market Value, GBP | As at |
AXA Framlington Global Technology Fund | 6.90 | 36,895,496.00 | 31/05/2018 |
Baillie Gifford L/T Global Growth Invmt Fund | 6.45 | 194,542,883.00 | 30/04/2018 |
Janus Henderson Global Technology Fund | 6.25 | 53,887,023.00 | 31/05/2018 |
Loomis Sayles US Equity Leaders Fund | 6.21 | 32,424,780.73 | 31/05/2018 |
Polar Capital Technology | 5.47 | 84,826,152.00 | 30/04/2018 |
Thesis Eldon Fund | 5.40 | 3,257,801.87 | 31/05/2018 |
Morgan Stanley US Advantage Fund | 4.96 | 12,425,835.00 | 30/06/2018 |
L&G Global Technology Index Trust | 4.60 | 10,601,386.00 | 30/04/2018 |
Baillie Gifford American Fund | 4.52 | 56,286,277.00 | 30/04/2018 |
Franklin US Opportunities Fund | 4.03 | 5,895,816.00 | 30/06/2018 |
A spokesman for Legal & General, whose L&G Global Technology Index trust is also in the top 10 list for investment funds with highest weightings to Facebook, said: “We don’t comment on specific stocks as a corporate policy but it’s worth nothing that this is an index fund that tracks companies in the FTSE World index, which are engaged in information technology activities, not an active fund so we are not taking active positions."
A spokesperson for Morgan Stanley, which has Morgan Stanley US Advantage fund in the top 10 list , said: “We do not have a comment on Facebook.”
Facebook lost more than $100bn in value, and its share price dropped by nearly 20 per cent, last week.
Ben Barringer, equity research analyst at Quilter Cheviot, believes investors need to sort through the media noise in order to understand the underlying business case of Facebook.
He said: "Facebook is making the changes to ensure that its place as the leading social media network is maintained following considerable scrutiny in the press and on Capitol Hill. Facebook’s user base remains large with over two billion monthly active users and over 1.4 billion daily active users.
"Ahead of the mid-term elections it is vital that it takes action on fake news, any political advertising on Facebook and of course data security. This involves considerable investment in staff and artificial intelligence and these costs will grow faster than revenue for the next two to three years.
"However, for advertisers, the size and targeting offered by Facebook and increasingly Instagram, is highly attractive and this will continue to drive the growth of revenues and profits."
Jonathan Miller, head of UK manager research at Morningstar, said: “The steep fall in Facebook’s share price sees it move to a level last seen in early May 2018, so back to where it was around three months ago.
"I believe this is important for context as there is often a tendency to emphasise the negative, while little has been written about the stock rallying since the depths of the Cambridge Analytica scandal in March. However, it is safe to say there are still worries and for what is perceived as a high growth stock, this shows the extent of the market’s reaction to a miss in forecasts.”
Alex Reynolds, an adviser with Advies Private Clients, said: “Markets are always quick to react to lower earnings but Facebook is still at the same share price now that it was at back April, and has suffered similar drops in the past few years. I would be surprised if any of the funds sell out of Facebook given the performance of the stock, but they may trim their holdings.
"Investors should understand that investing in technology funds is high risk and these funds are by nature very volatile and not for every investors. These are longer term holdings that will have winners and losers over the short term, but I would expect them to do very well over the long term."
aamina.zafar@ft.com
