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.”


India names Modi demonetization backer as cenbank head

Visitors are seen standing next to a logo of the Reserve Bank of India (RBI) at the bank's head office in Mumbai on December 5, 2018. (AFP)
Updated 12 December 2018
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India names Modi demonetization backer as cenbank head

  • Das — a high-profile backer of Modi’s controversial 2016 move to scrap high-value currency notes, known as demonetization

MUMBAI: Ex-finance ministry official Shaktikanta Das took charge of the Reserve Bank of India on Tuesday, in a swift appointment expected to ease a dispute with the government as it pushes for looser credit rules ahead of a general election.
The announcement by Prime Minister Narendra Modi’s administration came just a day after Urjit Patel resigned from the post, following months of clashes between the two institutions over lending curbs and how to deploy the central bank’s surplus reserves.
Pressure on the RBI to take immediate steps to boost the economy, including a transfer of the excess reserves to the government, could well rise after Modi’s ruling Bharatiya Janata Party (BJP) suffered likely election losses in three key states on Tuesday.
Das — a high-profile backer of Modi’s controversial 2016 move to scrap high-value currency notes, known as demonetization — will serve a three-year term as governor, effective immediately.
RBI watchers said they expected the 61-year-old, who retired last year as secretary of the department of economic affairs having previously served on the RBI’s board, to put relations between the Mumbai-based bank and the finance ministry in New Delhi on a stabler footing.
Investors will also look closely at his ability to hold up against outside influences after recent efforts by the Modi government to gain greater control over the central bank’s regulatory powers.
“The incoming governor will have to work hard to prove that he has his own independent mind,” said Deepak Jasani, head of retail research at Hdfc Securities.
Investors said any openly political appointee with little macro-economic experience, would not sit well with financial markets that already sold off following the BJP’s election setbacks.
But Ashish Vaidya, executive director and head of trading at DBS Bank in Mumbai, said he expected India’s debt and currency markets to react positively.
“He is a bureaucrat...We expect the RBI to take a pragmatic approach under him, be pro-growth and change its stance going ahead given that inflation has come off sharply,” he said.
Finance Minister Arun Jaitley told Reuters partner ANI that the government acknowledged the bank’s independence.
“Government will fully support the RBI and coordinate with it in areas where consultations of government are required to make sure India’s economy benefits from both government policy decisions and areas which fall within domain of the RBI,” ANI tweeted, quoting Jaitley.

SWIFT APPOINTMENT
Pronab Sen, India’s former chief statistician, said he was surprised by the speed of Das’s appointment.
“If you have a situation where a position as important as the governor of the RBI is filled within 24 hours of the resignation of the incumbent, that will raise eyebrows,” Sen told Reuters.
“People are going to say, clearly this guy had already been identified. And, the situation was created where Urjit Patel had to quit.”
Das — widely seen as a contender for the top RBI job after Raghuram Rajan’s term ended in 2016 — did not answer calls from Reuters to his mobile phone.
RBI officials who have worked with him closely said Das was likely to be more inclusive in the decision-making process than Patel.
“He has a balanced approach and is good at consensus building,” said a former deputy governor. .”..We have had our fair share of differences. But he has always been solution-centric rather than festering on those differences.”
Das worked in the finance ministry under both Modi’s government and the previous coalition led by the main opposition Congress party and was also involved in drafting the Insolvency and Bankruptcy code aimed at protecting small investors.
He came under fire for his pro-demonetization stance and was the most vocal bureaucrat at the time Modi withdrew the high-value bank notes to fight tax evasion.
Das last year criticized the methodology of global rating agencies and sought a sovereign rating upgrade for India.