- Wealth PMS (50L+)
Last week, a lot of you replied over the email newsletter to say “Hi” and it made our weekend brighter. We even got the first #AskCapitalmind question, which we have answered in this edition. Just wanted to slip in a “Thank you” before we get into things that you need to catch up on.
Here’s what we are covering today:
It’s a cluster-fall. The share price of Meta Platforms, the artist formerly known as Facebook, is down more than 20% in one day. It’s down ~35% in the past 6 months. The reasons are quite a few – political turmoil, privacy concerns, and uncertain future growth plans (metaverse). The latest reason seems to have spooked the markets the most – a three-letter statistic called DAUs.
Daily Active Users (DAUs) are an important indicator to determine the power of any social network. Hence, this metric drives digital ads which are a large contributor to Facebook’s revenue.
The Daily Active Users (DAUs) of Facebook have always been on the rise Quarter-on-Quarter which signifies an ever-growing platform. But last quarter, this trend hit a wall. And went the opposite way.
Facebook reported its first-ever quarter, in 18 years of history, where the DAUs didn’t rise.
It’s tiny, you think. Just 1 million fewer DAUs, (1,930 million down to 1,929 million) and the stock falls 20%? Bahut na-inasafi!
This has been a long time coming. The early adopters of Facebook (like many of us) have moved to different platforms and have abandoned their Facebook profiles.
A lot of us, and our friends, didn’t post a single update on Facebook in 2021. Some of us didn’t even log in all of last year. If you say “Facebook me” right now, you are instantly labeled a dinosaur. You’re also a dinosaur if you got the Facebook reference to the title of this segment 🤓
Still, all these users abandoning the platform didn’t hurt Facebook as it was able to get “late adopters” of social media to fill in that gap. There are people still signing on to Facebook as smartphone penetration increases across the less developed nations and dropping data rates.
Now, with the latest results, it seems the current daily active users have peaked. New users have dried up. Facebook may have been highlighting the use of overall social media usage and hence spooked other such businesses as well. Stocks of other social media platforms fell sharply too – Twitter (-6%), Pinterest (- 10%) & Snapchat (-15%).
(As of writing this, Snapchat has reported its first-ever profitable quarter, so expecting this news to lift the mood of the stock and maybe, the industry.)
Back to Facebook (Meta).
Three insights from the earnings report that spooked the markets:
So what next?
While other billionaires are racing to go to different parts of the universe, Mark Zuckerberg is creating his own virtual reality-based universe – the Metaverse. The company is betting big on a virtual ecosystem that connects all virtual environments – social connections, commerce, events, and all else that’s real. And of course, this could be a home to all jazz from the world of the cryptos, NFTs & DAOs.
Meta intends to look at its business divided into two parts – the family of apps (Facebook, WhatsApp, Instagram, etc) and the future platforms (Metaverse). So as per this logic, one of the apps from the app family has shown a little dip in their active users.
They still have two brilliant apps – Instagram and WhatsApp – under their belt that are still pretty relevant and exciting to the youth. Also, if Facebook carries on with its trend of straight-up acquiring their best competitor – there’s a play on acquiring TikTok always on the cards.
We’ll have to see how the future unfolds, in reality, not virtually. Because the stock still trades in the existing universe.
Blockchain, genome sequencing, robotics, artificial intelligence, metaverse, and more herald the biggest revolution in economic history, and this fund is your chance to benefit from investing in the Dominators, Disruptors, and Enablers, in short, the “winners of tomorrow”. That’s the pitch of the DSP Global Innovation Fund of Fund.
Should you invest? [Click here for the detailed review of the DSP Global Innovation Fund of Fund]
About the DSP Global Innovation Fund of Fund
The DSP Global Innovation Fund of Funds invests in six foreign funds. Here are the funds and their indicative weights as per the marketing presentation.
The last two; ishares NASDAQ 100 UCITs ETF and ishares Semiconductor ETF accounting for 30% of the portfolio, are passive, the other four are active funds, including the headline-grabbing ARK flagship fund, specifically focusing either directly on technology businesses or businesses likely to be deeply impacted by tech, which, if you think about it, is all industries today.
The DSP Global Innovation FoF combines the six funds in weights between 20% and 15%. Chart below shows the comparison of the Nasdaq100 ETF versus the theoretical composite that would form the DSP fund in question.
Overall the composite fund manages to outperform the Nasdaq100 over the last five years.
The chart below compares the drawdowns of the two. Interestingly, both the Nasdaq and the composite fund had comparable falls in March 2020. However, the fall in the fund in the recent past has been much sharper than the Nasdaq100.
The table below summarises the performance of the two.
So the question really is, Can you can stomach really sharp fall, in the search for some potential alpha? If the future plays out exactly like the past, it’s only logical to invest in the higher-return fund.
But what if your own actions on entries and exits in this fund? Would you have extrapolated the performance in Feb 2021 and Nov 2021 into the future and added additional funds?
If the honest answer is yes, then you’d be setting yourself up for disappointment, to put it mildly. If you can be sanguine about the inevitable volatility of the underlying funds, then consider allocating knowing returns will likely be volatile. If that is a problem, stick with a Nasdaq100 index fund for your international allocation.
ELSS (Equity Linked Savings Scheme) funds are equity mutual funds with up to ₹1,50,000 in 80C tax deduction in a financial year. In exchange, your money is locked in for three years.
This short note on how we picked one from the 37 ELSS Mutual Funds for 2022.
Imagine you’re part of a financial committee meeting to discuss a three-point agenda. The points are as follows:
Where do you think you – as a group – will spend most of your time?
Gaurav asks, and we quote,
I have a portfolio of MFs (regular) which I realized in 2020 that the distributor wasn’t adding any value (in fact I’ve 22MF schemes ‘coz of him) & I can get higher returns by opting for Direct MFs. While I moved all my SIPs in direct plans. The accumulated money, I left untouched as I was worried on two counts:
I’m in this dilemma for some time now that whether I’m doing the right thing by keeping the accumulated money in regular plans or should I sell, pay the tax and reinvest. They all qualify for LTCG.
Which scenario, would be better.
Each week we will pick one interesting question and answer it for you along with your name (we’re ok if you would want to be anonymous, mention that)
Email us at firstname.lastname@example.org and share your questions. You may find the answer to your question right here, next week.
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