Bloomberg — Meta Platforms Inc. (FB) ranks among the top two holdings of long-only active equity funds, putting them on the front line of what could be one of the worst one-day stock tumbles in history.
The Facebook parent plunged more than 20% in early U.S. trading on the back of poor earnings results, meaning it could be on track to lose about $180 billion in market value when cash trading begins.
That looks like bad news for large-cap fundamental funds which oversee more than $1 trillion of assets. This collection of retail and mutual funds generally underweights megacaps, but Meta is one of the exceptions, according to Wells Fargo. The company was one of their largest overweights coming into the year, strategists at the bank said.
That set-up means not only do they risk getting burnt by Meta, they also missed out on recent gains following upbeat results from the likes of Microsoft Corp. and Apple Inc. An above-benchmark holding in Google’s parent Alphabet Inc., which recently delivered consensus-beating earnings, might help to cushion wrong-way bets.
The funds have grown increasingly bearish on Microsoft and Apple, even as the tech giants outperformed over the past three to five years, according to Wells Fargo.
“Why would the average PM have their largest active underweights in the most efficient part of the market?” Chris Harvey, head of equity strategy at Wells Fargo, wrote in note on Thursday. “It is hard for us to see the logic, and the results do not help.”