Asset management giants Vanguard, Fidelity and BlackRock are the social network’s three biggest investors globally.
Other Australian fund managers with smaller positions in Facebook said they preferred to speak anonymously as they did not wish to seem insensitive to those affected by the horrific events in New Zealand last week.
“There absolutely needs to be greater regulatory scrutiny around the media function,” of companies like Facebook and Google’s Youtube, one fund manager said.
But “to the extent that it dropped the ball [around privacy and data protection], there’s a good case for Facebook in that it’s making the right moves to repair the relationship with customers and governments”, the fund manager said.
“Ultimately my job is to make money for investors. And in the context of a fairly expensive market we would argue there are few situations where the company is still growing sustainably and is not on a high multiple [valuation] for that growth.”
“A lot of people are still investing in the stock,” another fund manager with a position in Facebook said. They did, however, concede that during presentations their own investors often raised questions around the position.
‘The good outweighs the bad’
When it comes to contrasting the positives from Facebook – the markets the social network opens up to small businesses, the usefulness to community groups – “our personal view is that the good outweighs the bad”, they said.
Even so, the portfolio manager’s position in the stock was much smaller than a year ago, and as an investment proposition Facebook was “close to the too-hard basket”.
“Ultimately, institutional investors will generally follow dividend yield and cash flow, and they will focus on how much more money Facebook is going to have to spend and what will that do to cash flows. Already expenses are growing faster than 40 per cent over the past few years.”
While many investors appear happy to balance those regulatory risks against the current attractive valuations, ethical fund managers are generally avoiding any exposure to social media firms.
“Very few, if any, [ethical fund managers] would be comfortable investing in a social media company,” Stewart Investors portfolio manager Nick Edgerton said, pointing to issues around bullying and trolling, data use and privacy and the impact of fake news on elections. Mr Edgerton said his fund had never invested in Facebook.
“That’s the risk to Facebook: is there a technology fix and what will it cost? And what will that mean for investors in terms of profitability? And if they can’t find a solution – are consumers willing to use it?”