Star portfolio manager Dan Davidowitz, who co-manages the $2.6 billion Polen Growth fund, has increased the portfolio’s position in Facebook to 6.5% of assets, taking advantage of the stock's price drop after a series of negative news stories about the social media giant this year.
Davidowitz (pictured below) told Citywire that he had trimmed the fund’s position in Facebook about a year ago on concerns that the firm’s revenue was likely going to slow as a result of its decision to overhaul its news feed from displaying content from publishers and brands to focusing on those posted by family and friends.
At the time, Davidowitz’s highly concentrated portfolio of 20 stocks allocated 7% of assets to Facebook. He reduced this position to around 4%.
‘Of course, the bigger issue is that rogue nations and hate speech peddlers and other bad actors were kind of corrupting the platform. So they needed to spend a lot of money to secure the platform, hire data scientists and screeners and build big data centers with AI to find all this bad content,’ he explained. ‘So that was going to likely negatively impact our profit margin so we saw these potential issues coming.’
In the following quarters, Facebook continued to attract criticism for how it allowed its users' data to be accessed by third parties. Most notably, the firm’s stock suffered a nearly 20% collapse in late July after posting disappointing earnings, marking the worst single-day stock loss in American history.
However, what eventually restored Davidowitz’s confidence and conviction in Facebook and led him to bring the fund’s position in Facebook back up to about 6.5% in November was the company’s ability to stabilize user time spent on the platform and its commitment to the fixing its problems.
‘So what that tells us is, despite all the rhetoric and people saying they're going to leave Facebook forever, and The New York Times going after them pretty much every day, users are not leaving the platform,’ he said.
‘In fact, they're spending the same amount of time that they usually spend on Facebook, which means advertisers are going to be there as well.
‘So as we're getting now close to the trough on profit margins and revenue growth still looks very vibrant over the next five years and user engagement is good, we decided to bring back the position.’
Davidowitz said that because the fund does not usually hold much in cash, it had increased its position in Facebook by trimming positions in Starbucks and Nike, whose weightings had grown due to stock price appreciation.
‘We still like Nike and Starbucks. We actually added to Starbucks when they hit their slowdown because we felt that was a very temporary slowdown, we thought we understood the causes of it so we added to it opportunistically and it looks like it's accelerating,’ he said.
‘Nike's also had a really good year. And so both of those companies are now a little bit expensive and the weightings have gotten big because of their appreciation. So we just brought them back down to average size 5% positions.’
Launched in 2010, the Polen Growth fund, co-managed by Davidowitz and Damon Ficklin, is ranked 55 out of 143 Large-Cap Growth Funds tracked by Citywire for three-year total returns to the end of October.
Over that period, it returned 41.5% compared to the average fund in the category, which returned 38.8% and the S&P 500 TR index, which rose 38.7%.