Facebook foibles failed to fend off fund managers

A new study conducted by Morningstar for the Wall Street Journal finds that at least 160 U.S.-based mutual funds and exchange-traded funds invested in Facebook in May.

Facebook's "like" sign Facebook

Facebook's stock plummet in May wasn't enough to push away fund managers, according to a new report.

The Wall Street Journal said yesterday that it commissioned Morningstar to compile information on purchases made by U.S.-based mutual funds and exchange-traded funds in May. Among the findings was the revelation that "at least" 160 of those funds bought Facebook shares in May.

According to the Journal, some of the funds that acquired Facebook shares during the month were so enamored of the social network that they disregarded their focus and went after a risky bet. In one instance, a fund for companies that dole out dividends or come in at a low price and offer value invested in Facebook. The social network started trading at $38, pushing it far beyond the low-price range. The company also has no plans to issue dividends.

There are obvious ramifications for investors. In many cases, rather than buy individual stocks, investors dump cash into mutual funds. Retirement plans are typically driven by funds. That fund managers acquired shares in a company that, most agreed at launch, carried risks for investors, and then watched its value plummet, ought to be of concern to individuals.

However, it might not be as bad as some think. The Wall Street Journal didn't say when the funds, including those owned by Fidelity and Morgan Stanley, among others, actually bought shares. It's possible that some of the fund managers watched Facebook shares sink and pounced after that happened.

Facebook went public in May for $38 a share. Soon after, the company's shares started to slide and ended May at a price of $29.60. After continuing to fall in early June, they've started to make a comeback, and are now trading at $32.76.

According to reports following Facebook's IPO, many fund managers were shocked to see that the social network would go public at $38. The Wall Street Journal reported in May, citing sources, that a Capital Research fund manager thought the $38 IPO price was "ridiculous."

 

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