Fed up with Facebook, US fund managers look for alternatives

People hold smartphones with the Facebook logo in front of displayed "top secret" and "email" words. (Reuters)
Updated 06 December 2018
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Fed up with Facebook, US fund managers look for alternatives

  • Concerns about Facebook’s declining profit margins and battered reputation have prompted 93 US mutual funds to completely sell out of their positions in the company so far this year
  • Facebook was rocked by disclosures earlier this year that the personal information of up to 87 million users may have been improperly shared

NEW YORK: Facebook Inc’s losses are becoming other companies’ gains.
Concerns about the social media giant’s declining profit margins and battered reputation have prompted 93 US mutual funds to completely sell out of their positions in the company so far this year, exacerbating a roughly 35 percent decline in Facebook’s share price from its highs, according to Refinitiv’s Lipper research service.
The selling by fund firms including Fidelity Investments, The Hartford and Putnam Investments combined for a total of nearly 12 million shares, and came amid similar moves to liquidate positions in the company by prominent growth-focused hedge funds. Jana Partners and Third Point LLC, for instance, together sold nearly 3.7 million Facebook shares in the third quarter, according to securities filings.
Funds that have dumped Facebook, whose shares helped lead the broad US market higher the last two years, are now favoring investments ranging from payments companies like Visa Inc. and Worldpay Inc. to consumer companies including PepsiCo. Inc. and Chef’s Warehouse Inc. because they expect the troubles at the social media company to continue as it leaves its era of rapid growth behind.
Facebook was rocked by disclosures earlier this year that the personal information of up to 87 million users may have been improperly shared with political consultancy Cambridge Analytica.
“The revelations in the first quarter of 2018 about data privacy issues and the growing global concerns about data security and the potential for increased regulation made it challenging to handicap the required investments to remedy some of these issues, which we anticipated would weigh meaningfully on earnings growth in coming quarters,” said Jim Hamel, portfolio manager of the Artisan Global Opportunities Fund.
Hamel’s fund, which liquidated its position in May, reaped a nearly 400 percent gain on Facebook after buying during its initial public offering in May 2012, which was priced at $38 a share. Hamel said he has used the gains to add to positions in the fast-growing global digital payments industry such as Worldpay, whose shares are up 12 percent for the year to date.
Greg Woodard, managing director at Manning & Napier, said his firm, which began buying Facebook in November 2012 at around $20 per share, sold all its Facebook shares this year as part of a broad move away from cyclical technology companies.
Facebook’s “most recent guidance really substantiated the margin contraction that we had started to worry about, and when we looked at the price and our future growth expectations they didn’t match up with what the market was forecasting,” he said.
Woodard said his firm has added positions in software developer EPam Systems Inc. and global beverage company PepsiCo, and has been adding to its position in Amazon.com Inc. on dips.

While Facebook is now trading at a more compelling valuation following the steep declines in its share price, questions about its ability to maintain and accelerate its growth rate may leave Facebook in a no-man’s land between a growth stock that appeals to investors focused on rapid expansion and a value stock that appeals to investors looking for companies that trade at a discount or offer attractive dividends.
“Once a company gets put into the penalty box by a growth investor it’s hard to get out,” said Todd Rosenbluth, director of mutual fund research at independent research firm CFRA. “When a stock is perceived as a broken growth stock it loses its appeal, whereas a declining stock price for a value stock can often make it more appealing.”
Woodard, the Manning & Napier fund manager, said his firm would not purchase shares of Facebook again in its growth strategies, and instead would put the company into a fund that focuses on “companies that need to fix themselves” if he were to buy it again.
For that to happen, Facebook’s stock price would need to be “significantly lower,” he said. “The gap is not worth putting a number on it.”


To fight off unemployment, Iraqi youth plant start-up seeds

Updated 34 min 24 sec ago
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To fight off unemployment, Iraqi youth plant start-up seeds

  • Iraqi entrepreneurs are taking on staggering unemployment by establishing their own start-ups
  • Under current legislation, private sector employees are not offered the same labor protections or social benefits as those in the public sector

BAGHDAD: Stuck between an endless waitlist for a government job and a frail private sector, Iraqi entrepreneurs are taking on staggering unemployment by establishing their own start-ups.
The first murmurs of this creative spirit were felt in 2013, but the Daesh group’s sweep across a third of the country the following year put many projects on hold.
Now, with Daesh defeated, co-working spaces and incubators are flourishing in a country whose unemployment rate hovers around 10 percent but whose public sector is too bloated to hire.
Many self-starters begin their journey at an aptly named glass building in central Baghdad: The Station.
There, they sip on coffee, peruse floor-to-ceiling bookshelves for ideas and grab a seat at clusters of desks where other stylish Iraqis click away at their laptops.
“We’re trying to create a new generation with a different state of mind,” said executive director Haidar Hamzoz.
“We want to tell youth that they can start their own project, achieve their dreams and not just be happy in a government job they didn’t even want,” he said.
Youth make up around 60 percent of Iraq’s nearly 40 million people.
After graduating from university, many spend years waiting to be appointed to a job in the government, Iraq’s biggest employer.
Four out of five jobs created in Iraq in recent years are in the public sector, according to the World Bank.
And in its 2019 budget, the government proposed $52 billion in salaries, pensions, and social security for its workers — a 15 percent jump from 2018 and more than half the total budget.
But with graduates entering the workforce faster than jobs are created, many still wait indefinitely for work.
Among youth, 17 percent of men and a whopping 27 percent of women are unemployed, the World Bank says.
When Daesh declared Mosul its seat of power in Iraq back in 2014, resident Saleh Mahmud was forced to shutter the city’s incubator for would-be entrepreneurs.
With Mosul now cautiously rebuilding after the militants were ousted in 2017, Mahmud is back in business.
“Around 600-700 youth have already passed by Mosul Space” to attend a seminar or seek out resources as they start their own ventures, said the 23-year-old.
He was inspired after watching fellow Mosul University graduates hopelessly “try to hunt down a connection to get a job in the public sphere.”
“A university education isn’t something that gets you a fulfilling job,” he said.
Another start-up, Dakkakena, is capitalizing on Mosul’s rebuilding spirit, too.
The online shopping service delivers a lorry-full of home goods every day to at least a dozen families refurnishing after the war.
“On the web, we can sell things for cheaper than stores because we have fewer costs, like no showrooms,” said founder Yussef Al-Noaime, 27.
Noaime fled Daesh to the Netherlands, where he was introduced to e-commerce. When he returned home, the computer engineer partnered with another local to found their venture.
A similar service, Miswag, was set-up in the capital Baghdad in 2014 and last year reported hundreds of thousands of dollars in profits.
On an autumn day, some 70 young Iraqi innovators converged for a three-day workshop in Baghdad on founding start-ups.
They flitted among round tables planning projects, their Arabic conversations sprinkled with English terms.
“What we’re doing is showing youth what entrepreneurship is — not necessarily so they succeed, but so they at least try,” said organizer Ibrahim Al-Zarari.
He said attendees should understand two things: first, that the public sector is saturated. And second, that oil isn’t the only resource on which Iraq — OPEC’s second-largest producer — should capitalize.
More than 65 percent of Iraq’s GDP and nearly 90 percent of state revenues hail from the oil sector. Many youths turn to it for work, but it only employs one percent of the workforce.
Widespread corruption and bureaucracy also weaken Iraq’s appeal for private investors. The World Bank ranks it 168th out of 190 for states with a good business environment.
Under current legislation, private sector employees are not offered the same labor protections or social benefits as those in the public sector.
And Iraq’s stuttering banking industry appears too cautious to dive in, said Tamara Raad, 26, who researches start-ups.
“The banks have a role to play. They must make loans without interest and help young entrepreneurs,” she said.
Banks or no banks, Mahmud in Mosul is already planning how he’ll grow his business in 2019.
“We will open a new, larger space for new gatherings,” he said excitedly, to bring together returning designers, developers and other inventors.