By JOE LIGHT
Investors who thought they steered clear of Facebook (FB) Inc.'s
At least 160 U.S.-based mutual funds and exchange-traded funds, including those run by Fidelity Investments, Morgan Stanley Investment Management Inc. and OppenheimerFunds Inc., bought shares of Facebook in May, according to monthly disclosures made in June and July compiled by investment-research firm Morningstar Inc. for The Wall Street Journal.
Some of the funds that bought shares wouldn't normally be considered natural investors in a high-growth technology company like Facebook. For example, some of the demand for Facebook came from funds designed primarily to invest in dividend-paying companies or low-priced "value" stocks. Facebook is neither.
See a table of U.S. mutual funds the held shares of Facebook as of May 31.
The disclosures show the wide latitude afforded to mutual-fund managers, and serve as a reminder for investors of the herd mentality that governs many asset managers' buying decisions, say fund analysts and financial planners.
"Even if John Q. Public didn't buy [Facebook] directly, he may own one of the hundreds of mutual funds that did," said Geoff Bobroff, a mutual-fund consultant in East Greenwich, R.I.
About 55% of the funds known to own Facebook appear in companies' defined-contribution plans, such as 401(k)s, according to plan tracker BrightScope Inc.
"There's pretty broad ownership right out of the box," said Russel Kinnel, director of fund research for Morningstar. "You have to think that a chunk of those [fund managers] were doing so for a quick bounce that they didn't actually get."
Only some fund companies choose to disclose their holdings monthly. So a full picture of who picked up the stock won't emerge until fund companies file quarterly reports over the next two months. But the monthly disclosures, which show fund assets as of May 31, offer an early look at who bet on what was widely considered the hottest IPO in years.
Facebook's stock began trading at $38 a share on May 18, but faltered almost immediately amid trading glitches on the Nasdaq Stock Exchange. Its share price fell as low as $25.52 on June 6, before rebounding. On Friday, shares closed at $31.73.
Because the disclosures are monthly, it isn't clear which funds bought at the IPO and which bought afterward, possibly picking up shares at lower prices.
Funds run by Morgan Stanley Investment Management put the highest percentage of their portfolios in Facebook. Morgan Stanley (ms)
More than 6.5% of the Morgan Stanley Focus Growth Fund was invested in Facebook at the end of May, including some shares it bought on the private market before the IPO, according to portfolio disclosures. A Morgan Stanley spokeswoman declined to comment.
The firm has at least seven funds that had more than 5% of their portfolios in Facebook stock. That's about 50 times the weighting that Facebook now carries in the Russell 1000 index of large-capitalization stocks.
"That's a huge gamble," said Michael Kalscheur, a financial planner with Castle Wealth Advisors LLC in Indianapolis, Ind. "Are you really going to put an IPO as a top-five holding in a fund?"
Also among the buyers were a handful of funds whose main mandate seemingly wouldn't include an investment in Facebook.
Facebook isn't considered a value stock, for example, because those stocks normally trade at low prices relative to their earnings or assets. Nevertheless, JPMorgan Intrepid Value fund picked up 38,300 shares in May, according to Morningstar.
JPMorgan Investment Management Inc.'s website says the fund invests primarily in stocks within the Russell 1000 Value Index of large-cap stocks, which doesn't include Facebook.
A J.P. Morgan (jpm)
Another value fund, Principal LargeCap Value fund, bought more than 124,000 shares of Facebook. In a statement, a Principal spokesman said the fund's primary focus is to invest in stocks trading at a discount, "but it can opportunistically participate in names that we feel may offer value," adding that the fund no longer holds Facebook shares.
The inclusion of Facebook in value funds surprised some financial planners.
"I don't see how any value mutual fund could buy [Facebook] because it was not value priced at all," said Rob Moody, a financial planner with Compass Advisors LLC in Big Canoe, Ga.
Facebook doesn't pay a dividend. Still, the Fidelity Dividend Growth fund bought 167,400 shares of Facebook in May, bringing its total allocation to 0.24% of its portfolio.
Fidelity's website says the fund normally invests in dividend-paying securities or those that might pay dividends in the future. In the past, Dividend Growth has allocated some of its assets to non-dividend paying stocks, such as Apple (aapl),
A Fidelity spokeswoman declined to comment.
The biggest buyers who have disclosed holdings so far have been managers who specialize in large companies with high growth potential.
Fidelity's Contrafund, which has $81 billion in assets and is a common component of 401(k) plans, bought nearly 10 million shares, the most of any mutual fund, according to Morningstar.