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Henderson's O'Gorman blasts 'disastrous' Facebook IPO

Overinflated initial public offerings are damaging trust in the tech sector, says Henderson Global Technology fund manager Stuart O'Gorman.

 
Henderson's O'Gorman blasts 'disastrous' Facebook IPO

(Update) Buying into Facebook cost the fund 0.005% rather than 0.5% of performance. Apologies for the inaccuracy

Facebook's overinflated initial public offering (IPO) has left many retail investors 'horrifically burnt' and gives the whole technology sector a bad name, according to Henderson Global Technology fund manager Stuart O'Gorman.

O'Gorman and co-manager Ian Warmerdam bought into Facebook's IPO in May at $38, because they knew the offer would be heavily oversubscribed, and sold out of the stock just over 24 hours later.

Even though they avoided the steep share price falls that were to follow, buying and selling Facebook still cost the fund, which is a pick of Citywire Selection, about half a basis point in performance terms.

Giving the sector a bad name

'IPOs like Zynga, GroupOn, Ocado (OCDO.L), Prometheus and Facebook have all been disasters for retail investors... All the hype is created by the hedge funds and banks that float them to push the deal through, and it is bad for the tech sector as a whole,' O'Gorman said.

'It gives the whole sector a bad name and means many perfectly good tech companies may not be able to get the funding they need in the future.'

At the time of the float, O'Gorman calculated that Facebook's shares were worth at best in the low 20s,  and with Facebook's share price standing at $21 on 1 August, O'Gorman said he would only consider adding again if it fell below $20 per share.

'It might become interesting below $20, but only if we see definite signs that they are able to monetise their user base. If they can do that, they would become much more valuable. At the moment there are cheaper ways to access it, such as through buying mail.ru. It was not long ago we had the tech crash and now we are seeing all this craziness again.'

Growing concerns about Apple and Intel

O'Gorman has reduced his stake in Apple over recent months, and it now makes up 9.75% of the fund, just under the 10% limit. Nevertheless, the fact that Apple's share price has jumped 51% in 2012 and represents 16.5% of the index means it has caused the fund to lag its benchmark this year.

'We did our first-ever sale of Apple recently over concerns on delays with the iPad 3. The company is no longer a no-brainer, it is now more of a "yes, this will probably work".'

Elsewhere, O'Gorman is keeping a watchful eye on the growth of competition to Apple and Samsung further down the supply chain, and he says an 'arms race' is developing between the major semiconductor makers: TSMC, Samsung and Intel.

Reducing TSMC and Intel

Big overweight positions to TSMC and Intel have now been reduced, although the overweight to Samsung has been retained for now.

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6 comments so far. Why not have your say?

Chris Clark

Aug 03, 2012 at 16:53

What Sturt O'Gorman actually said in April was:

“Facebook has not set the price of the IPO yet, so we cannot say whether it will be expensive or not because we do not know what its market cap is. However, I expect a lot of retail investors will pile in and pay whatever price they can and it will probably go to a crazy valuation quickly.”

He paid double what he himself thought they were worth. His estimate of $20 has proved correct. Why did he do it, in the hope of a quick in/out, or a long term investment?

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Jeremy Bosk

Aug 03, 2012 at 17:00

The people who organise the IPOs have a system whereby institutional investors are implicitly allowed access to the good stuff only if they buy some of the rubbish. Arithmetically this benefits the institutions - provided the numbers of good and bad are equal or better. You buy ABC for a thousand pounds and it halves, you lose £500. You are rewarded with XYZ for a thousand pounds and it doubles, you win £1,000 and are well ahead on both transactions.

Private investors usually have no access to IPOs, cannot afford to back every horse in the race and have no idea which are the winners and which are destined for the knacker's yard. A case as clear cut as Facebook is unusual.

Privatisations were rigged to favour the people who could afford a punt, mainly Tory voters. If the idea had been to support popular capitalism or be at all fair, the shares would have been given away.

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Chartered Accountant

Aug 03, 2012 at 17:02

Buying a stock that is then sold 24 hours later is simply a trading manoeuvre tapping into perceived market sentiment, rather than a proper investment decision and O'Gorman should be ashamed of himself. However, what seems so shocking is how many so-called professional investment organisations bought into Facebook without apparently conducting any in depth research which is what they are paid to do. Their clients and shareholders should be very disappointed.

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william saunders

Aug 03, 2012 at 20:56

Thanks for the tip re. which technology fund not to buy.

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Not all ETF's are the same

Aug 04, 2012 at 21:32

Am I the only one to see that he has returned 50% over the past 5 years compared to the average that has delivered 40% - thus out performing the average by 25%? That's pretty good if you ask me. The fact he admits to making a mistake is also good and he limited his downside. Usually these articles are all puff pieces about how good fund managers are and that they never make mistakes.... Stuart is a very good fund manager and has proven himself over the long run. I'm happy to be an investor and thank him for the returns he's achieved - especially when you consider what other equity markets, cash etc have done over the past 5 years.

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Jeremy Bosk

Aug 05, 2012 at 01:12

Good point Not All.

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