Chart of the Week: Facebook

While Facebook’s IPO was a landmark event for so many reasons, we thought it would be interesting to see what quantitative analysis of a galaxy of mutual funds using daily data can show a savvy fund investor.

With any large, much-heralded new offering, buyers of the security must emerge. In the case of Facebook, buyers of $16 billion came to the market. What if it was possible to identify potential holders before the required filings and shareholder letters are drafted? Particularly in the case of such an offering whose valuation was so hotly debated, would such information not be useful for investors in monitoring their portfolio’s exposures? The purpose of this analysis is to use performance-based factor analysis to identify funds that appear to have the largest exposure to Facebook (FB) stock.

To start, a significant number of mutual funds took pre-IPO positions in Facebook over the course of the year. Media reports list T. Rowe Price, Fidelity and Morgan Stanley among major shareholders – based on SEC filings released prior to the May 18th IPO.  Mutual funds reportedly bought into FB at prices in the $25-35. Comprising 3.6% of its $1.7 billion portfolio at the date of the filing, Morgan’s Focus Growth fund (AMOBX) held the largest pre-IPO position, as measured by percentage of its portfolio, among funds with AUM>$1bn.

To detect these funds and potential post-IPO buyers, we conducted performance analysis of several hundred of the largest (AUM>$1B) non-specialty large-cap US equity funds using a typical set of market factors for such funds – Russell 6-style indices, MSCI EAFE, Cash and Facebook (Ticker: FB).¹ We also utilized MPI’s patented dynamic factor analysis engine, DSA, as its ability to parse daily data for such a short term is crucial for the precision of the study.

In the scatter chart above, we show estimated portfolio exposures to FB (average over the time interval, Y-axis) vs. latest AUM (X-axis).  Some notable findings:

• Morgan Stanley’s Focus Growth Fund appears as an outlier with the highest estimated portfolio exposure to FB, albeit higher than reported pre-IPO.
• The presence of funds from families including T. Rowe, Fidelity and Capital Research, all targets of the Facebook road show and buyers at the IPO, as reported by The Wall Street Journal.
• As expected, several funds that did not file a pre-IPO position are also detected. In fact, a few of these are amongst the largest potential exposures to FB in absolute dollar terms (by our estimates) – many times higher than the absolute dollar amount that Morgan Stanley’s Focus Growth Fund may hold.

While we will follow the filings that will be made in the coming months, we see that with only a month’s worth of trading data, quantitative analysis provides investors a powerful method to examine potential portfolio exposures to certain factors, even in extremely short-term windows.

Footnotes

• 1MPI conducts performance-based analyses and, beyond any public information, does not claim to know or insinuate what the actual strategy, positions or holdings of the funds discussed are, nor are we commenting on the quality or merits of the strategies. This analysis is purely returns-based and does not reflect actual holdings. Deviations between our analysis and the actual holdings and/or management decisions made by funds are expected and inherent in any quantitative analysis. MPI makes no warranties or guarantees as to the accuracy of this statistical analysis, nor does it take any responsibility for investment decisions made by any parties based on this analysis.