SINGAPORE (Jan 29): My Global Portfolio continues to outperform the benchmark MSCI World index over the past one-week, gaining 2.8%. This brings cumulative portfolio returns to 9.8% in the five weeks since inception.
For the benefit of readers who are new to this column, this is a “real” portfolio with an initial capital of US$500,000 and takes into account all transaction costs. My trading account is with UOB Kay Hian in Singapore.
Notably, though, our US stocks have been underperforming Japanese and China-based stocks in the portfolio. To a certain extent, this reflects prevailing narratives favouring emerging markets over higher valuations in the US. Frankly, we could also have done better.
We remain committed to our investments in Facebook and The Walt Disney Co. I will explain why in a little bit. However, we are reassessing General Motors Co. GM is a comparatively defensive stock. But at this point in time, growth as a strategy will likely be more rewarding.
I believe analysts are underestimating US prospects and the strength of the greenback. Thus, even if we decide to sell GM, we would maintain (or even up) our exposure to the US market.
I made no change to either the Global Portfolio or Malaysian Portfolio the past week. In addition to the US, I am also looking at investing into a European stock soon, assuming all the analytical work now underway bears fruit.
As I write this, Facebook’s share price has already rebounded smartly from recent lows. It is now up 3.4% from my initial cost of investment.
To very quickly recap, the stock fell after founder Mark Zuckerberg announced significant changes to its news feed algorithm, whereby it will now prioritise trusted news sources based on feedback from friends and family over posts from publishers and brands. According to Facebook, this will most likely result in less time spent on the platform and therefore less ad inventory in the near term.
The concern is that revenue will be affected. However, I will not be at all surprised that ad pricing will adjust to reflect the now lesser but more valuable ad space. After all, the draw for advertisers — that is, the effectiveness of Facebook’s targeted marketing to its two billion active users — is in no way diminished by this latest change.
Additionally, the move presents Facebook with an opportunity to divert some ad demand to (and promote) its other platforms, including Instagram, Messenger and WhatsApp.
In the long run, I see the emphasis on “meaningful social interactions”, as Zuckerberg puts it, as a move in the right direction to enhance user stickiness.
Facebook is now turning its focus to a new avenue for ads — video, on its recently launched Watch platform — as the key driver for future growth.
Interactive video — between content creators, fans, family and friends — is expected to be more engaging than pure news consumption. Content would encompass live sports/events coverage, reality shows and scripted original programmes.
In the initial stage, Facebook has funded some of the original content, but the long-term plan is for a revenue-sharing model with content providers. With this latest project, Facebook intends to take a slice of the traditional TV ad spend.
A recent Morgan Stanley survey indicates encouraging reception by US Facebook users. Having said that, this is still very early days and it remains to be seen if Watch will be a success.
On the other hand, Disney’s current share price is now slightly below my cost. Disney’s parks and resorts, movie studio and merchandising are doing well, but more so, this stock is a bet on a traditional media company going up against disruptors such as Netflix and Amazon.com.
Its cable networks (such as ESPN and Disney Channel) and broadcast (ABC) operations are under pressure from the trend shift from costly pay-TV to online (on demand) entertainment. Disney’s strategy is to face competitors head on, with its own direct-to-customer services.
Its new sports streaming service (ESPN+) is slated to launch in Spring 2018, while a Disney-branded service is targeted for 2019. This will end its exclusive movie distribution deal with Netflix.
Incidentally, Netflix’s share price surged to an all-time high after the company handily beat market expectations on subscriber growth (fuelled by international subscribers) in its latest results.
In hindsight, I should have bought this stock rather than Disney, at least for the short term. Nevertheless, I believe Disney will fare better in the long run.
I believe distribution will be “commoditised”, and it is quality content that creates enduring value. Evidently, I’m not the only one.
Netflix is pouring money into content, to the tune of US$8 billion this year. This is despite the company ending 2017 with a negative free cash flow of US$2 billion, which is expected to widen to negative US$3 billion to US$4 billion in 2018.
In this respect, the Mouse House already has a veritable treasure trove of intellectual property. But to compete effectively against an aggregator such as Netflix, it also needs depth of content. This is where the acquisition of 21st Century Fox comes in.
Fox has an impressive back catalogue of movies and TV series, from cult show The X-Files to newer hits such as Modern Family and This Is Us. The deal will also give Disney a majority stake in Hulu, possibly giving it the option of an alternate streaming platform.
Valuable franchises such as Avatar and Marvel characters like the Fantastic Four and X-Men would complement Disney’s existing cinematic universe and cement the movie studio’s dominant market position (and bargaining power).
If history is any guide, Disney had proven adept at monetising assets across its various platforms. Past acquisitions of Pixar, Marvel and Lucasfilm were all value-accretive, lifting returns to shareholders over the last decade.
Tong Kooi Ong is chairman of The Edge Media Group, which owns The Edge Singapore
Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.
