Martin Currie pulling FAANGS on ‘variety of threats’
18 June 2020
Legg Mason affiliate Martin Currie has shunned all FAANG stocks apart from Amazon after investors drove up prices during the Covid-19 pandemic.
According to Zehrid Osmani, who heads up the Legg Mason IF Martin Currie US Unconstrained Fund, four of the famous five face a “variety of threats” which could hinder their share prices going forwards after the dramatic run they enjoyed during the lockdown period.
Osmani said: “The market has favoured these companies and they have been flavour of the month since the Covid pandemic erupted. The risk is that these obvious beneficiaries of lockdown have been bid up a lot and now it’s a question of what is in the price going forward.”
Amazon is the only stock currently held in the Legg Mason IF Martin Currie US Unconstrained Fund, due to its ability to take advantage of long-term structural growth trends.
Osmani explained: “We are comfortable with the price level of this investment, and believe Amazon is the best placed out of the so-called FAANG stocks to grow at a sustainable level, whilst facing less risks.”
In contrast, Osmani expressed concern about the lack of visibility on the regulatory threats to Facebook and Google, as both companies face increased scrutiny.
Osmani believes Apple and Netflix also face risks which are not reflected in their elevated share prices, with a particular focus on competition.
He said: “In terms of Apple, we’ve had a preference for Microsoft instead, as we think there’s a potential for them to see their renowned pricing power come under threat for phones and tablets.
“Rivals like Samsung are a threat to them in their own market, and there is a risk of constant erosion of pricing power if competitors can make cheaper alternatives, especially if you consider the outlook for employment and wages globally now.”
Osmani added: “Netflix has been a clear favourite amid the Covid pandemic, as have many of the ‘stay at home’ stocks, but there is constant competitive pressure to keep investing in new content, which weighs down on returns potential.
“That dynamic, and the strength of the rivals in this space – be it Disney or indeed Amazon prime – means its returns could be impaired over the long-term.”
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