You Might be Invested in Facebook Stock and Not Even Know it
Investors who boast that they were smart enough to avoid the hype of investing in Facebook (Nasdaq: FB) stock might want to check their mutual funds' holdings before relishing in their bravado.
According to data compiled by investment research firm Morningstar for The Wall Street Journal, some 160 U.S.-based mutual and exchange-traded funds bought shares of Facebook in May. And since only some fund companies choose to reveal their holdings on a monthly basis, the ones that chose to invest in Facebook will be disclosed over the next two months as fund companies file quarterly reports.
"Even if John Q. Public didn't buy [Facebook] directly, he may own one of the hundreds of mutual funds that did," Geoff Bobroff, a mutual fund consultant in East Greenwich, RI, told TheJournal.
What is notable in many cases about the purchases, including those by lead underwriter Morgan Stanley (NYSE: MS), is that some of the funds that purchased shares wouldn't normally invest in a high-growth technology company like Facebook. And some wouldn't invest such a high percentage, like Morgan Stanley that had at least seven funds with over 5% of portfolio holdings in Facebook stock.
"That's a huge gamble," Michael Kalscheur, a financial planner with Castle Wealth Advisors LLC, told The Journal. "Are you really going to put an IPO as a top-five holding in a fund?"
Others that took a curious liking to Facebook shares include the Fidelity Dividend Growth Fund, which bought 167,400 shares in May. Also unusual was the Fidelity Advisor Dividend Growth Fund, which grabbed 18,200 shares - even though Facebook doesn't pay a dividend.
Other head-scratching purchases came from a handful of value funds, including JPMorgan Intrepid Value Fund and a trio of value funds from mutual fund company Principal Financial Group (NYSE: PFG). Facebook is not widely recognized as a "value stock."
And then there were purchases from Fidelity's behemoth Contrafund, which bought 9,983,600 shares of Facebook in May, and Oppenheimer Main Street Fund, which loaded up with 1,498,530 shares.
These purchases are noteworthy because funds that make up the core of ordinary investors' portfolios don't typically buy IPOs.
What's Ahead for Facebook (Nasdaq: FB)
Fund managers may have some explaining to do if their investment performance is weakened by Facebook stock holdings.
Falling to a low of $25.52 on June 6, Facebook shares have gained some ground and were last changing hands around $31.87 - but still well below the IPO price of $38.
Facebook is struggling to lure investors as concerns grow over its weakening ad revenue and late foray into the mobile arena.
A telling sign will come on July 26 when Facebook reports its first quarterly results as a public company.
The Street is looking for 9 cents a share. Anything less will certainly stoke naysayers who have been negative from the start.
Also, any move that Morgan Stanley makes away from FB could sink the stock.
A growing agreement among many traders is that Morgan Stanley mutual funds are propping up Facebook shares. If fund managers, Morgan Stanley in particular, start to "un-friend" Facebook stock and dump shares, then any upward momentum will vanish.