AMZN Amazon.com Inc

By Michael Wursthorn 

Wall Street's most crowded trade could be splitting up.

Since Facebook Inc.'s revelation last month that millions of users' data were compromised, stock-picking fund managers have soured on the social-network's stock, with some either partially or completely abandoning their positions.

Although the plunge in Facebook shares has pulled down its cohorts in the popular FANG trade -- Amazon.com Inc., Netflix Inc. and Google-parent Alphabet Inc. -- even some of Facebook's most bearish investors say those stocks remain among the market's best bets.

The NYSE FANG+ index, which tracks 10 global tech heavyweights, has bounced back after last month's slide and is outperforming the S&P 500 in April -- it is up 1.9% versus 0.6% for the broad market index.

"Investors have been trying to lump these stocks all together for years, " said Rob Sharps, head of investments and group chief investment officer for T. Rowe Price Group. "It's perplexing," he added, considering their different business models. "There may be some greater differences among the FANG stocks than in the past."

Other active fund managers echo that sentiment and say Facebook's recent trouble threatens to cool user and revenue growth, forcing them to look to the "ANG" stocks and other highflying growth companies for bigger gains going forward.

Brad Slingerlend -- portfolio manager of the Janus Henderson Global Technology Fund, which has stakes in all four FANG stocks, as well as other big tech names like Apple Inc., Tencent Holdings Ltd. and Alibaba Group Holding Ltd. -- says his fund started reducing its position in Facebook before the data-privacy controversy.

He sees further declines ahead for the social-network company despite the shares already trading 16% below their February high. "I'm not sure [Facebook shares] have come down enough to reflect that risk" of how it handles its data, Mr. Slingerlend said, adding Chief Executive Mark Zuckerberg's tight control of the company creates added uncertainty for investors. "The range of outcomes for Facebook has widened significantly."

A spokeswoman for Facebook declined to comment.

The FANG stocks have together shed more than $200 billion in market value since mid-March when Facebook plunged after acknowledging its data privacy issues. Facebook, Amazon and Alphabet are still off 10% or more over that time, compared with a more modest 2.9% drop for Netflix, which didn't slide as much as peers.

But investors remain generally optimistic about the prospects for Amazon and Netflix as those companies continue to disrupt and upend the business segments they operate in -- retail for Amazon and media for Netflix. And Alphabet's diversified operations -- from advertising to search to hardware -- make it a dominant force in many fields.

Mr. Slingerlend says he doesn't plan to significantly reduce his fund's holdings in Alphabet and Amazon and expects them to maintain their heady growth paths, even if lawmakers push for more regulation of tech companies. Investors who group those tech giants with Facebook are missing the intricacies of each business, he said, dismissing President Donald Trump's criticism of Amazon's tax treatment and its relationship with the U.S. Postal Service.

Many active funds have a higher exposure to the FANG stocks than the broader tech and internet segments, Bank of America Merrill Lynch said in a recent report, with Alphabet and Amazon among the most crowded stocks. Those same positions helped fuel the funds' gains last year when all four stocks notched double-digit increases.

But the FANG stocks have lost some of their influence over the broader market. Amazon and Netflix, which are up 22% and 62%, respectively, for the year, accounted for more than 30% of the S&P 500's 2018 gain at one point in February, according to S&P Dow Jones Indices. That contribution slipped to about 24% as of April 6. Facebook, meanwhile, is among the biggest drags on the index, overshadowing the declines of even General Electric Co.

"These companies are of a size and have an amount of influence now that, going forward, are going to have to contend with these sorts of challenges," T. Rowe's Mr. Sharps said of data-privacy concerns and the potential for regulation, though his firm hasn't significantly reduced its exposure to FANG stocks.

The declines in the FANG stocks last month wiped out nearly half of the year-to-date gains of some of the best-performing actively managed funds, including Mr. Slingerlend's Janus fund, according to a ranking of funds by data provider Morningstar LLC.

That fund shed 4.6% from mid-March through Friday, paring its gain so far this year to 8.2%. Meanwhile, the Morgan Stanley Institutional Fund Growth Portfolio, which has positions in Facebook, Amazon and Alphabet, fell 5.4% over the same period to cut its year-to-date gain to 11%.

In comparison, about 70% of growth funds that focus on large-cap stocks like Facebook, Google and Amazon outpaced the S&P 500 over the first three months of the year to return 3.1%, compared with 1.9% for growth stocks in the broader index, according to the Bank of America Merrill Lynch data. While March proved to be rough, 81% of those managers managed to post better returns than the negative performance of growth stocks in the S&P 500.

"We've come out of this period of everything going well in one direction for everybody," Mr. Slingerlend said. "We're now entering a different period of returns in the market.

Even an exchange-traded fund that touts its FANG exposure and aims to invest in so-called modern tech companies has soured on Facebook. The AdvisorShares New Tech & Media exchange-traded fund, which trades by the ticker symbol FNG, sold out of its Facebook position shortly before the data mishap was revealed, according to Scott Freeze, chief investment officer of Sabretooth Advisors, which manages the fund.

Instead, Mr. Freeze is telling current and prospective investors that his fund aims to find the next FANG trade of stocks that are set to grow at rates similar to how the original quartet performed in prior years, such as payment processing company Square Inc., a tech stock that is up 37% so far this year.

"FANG is not a set of four companies. It's an idea," Mr. Freeze said. "There are FANG stocks every generation, every decade. Nothing stays on top forever."

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com

(END) Dow Jones Newswires

April 16, 2018 12:59 ET (16:59 GMT)

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