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31/10/20182 mins

What does Dracula have in common with FANGs investors?

 

Q: What did Dracula say when his girlfriend turned down a kiss?

A: “All my love is in vein.”

Halloween humour aside, we reckon investors in FANGs (Facebook, Amazon, Netflix and Google) have something in common with old Dracula this month. The FANG stocks rout in October has been little short of a bloodbath and the devotion they’ve been accorded may have been in vain.

But unlike Dracula, it’s investors who’ve been on the receiving end of the feeding frenzy. So far this month, Amazon and Netflix have shed almost a quarter of their value while Facebook and Google are both down by more than 10% in October.

Equity markets have declined through the month and there are a few possible explanations. The pace of global economic growth appears to be slowing while interest rates and bond yields have crept up. And let’s not forget the sepulchral spectre of a global trade war. The more superstitious out there might also be intrigued to discover that, historically, October is often a wild month for equity investors.

As contrarian investors, it’s our job not to be spooked by a bout of bloodletting. We like to invest in out of favour stocks that other investors have shunned. This is a keystone to our contrarian investment approach: the ability to assess companies dispassionately, and resist themes that we believe look suspiciously like a bubble (we’re looking at you, FANGs).

An area of the market that we’ve been concentrating on is value. Collectively, value stocks have long been out of favour while many growth stocks have boomed. As we’ve explained, we believe the set of circumstances that has propped up growth stocks is changing. And value may be primed to take advantage. Perhaps it’s time for value to come back from the dead…

As contrarians, we seek underappreciated and out of favour stocks – that we believe have a realistic prospect of improvement. We look for new management, a turn in the cycle in which the company operates or another factor that the broader market has overlooked. When any improvement comes, we’re positioned to reap the rewards. And conversely, when markets go for the jugular, we aim to be less exposed – not by superstition, but rationality.

 

Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations. You may not get back the amount you invest.

Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this blog should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your financial advisor.

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