For the world's top tech fund, Facebook Inc. is finally cheap enough to buy.
DNB Nordic Technology, the best performing tech fund over the past 10 years, according to data compiled by Bloomberg, started buying Facebook shares in July.
"For the first time, we think the stock doesn't look that expensive in relation to the figures they deliver," Sverre Bergland, a portfolio manager at DNB, said in an interview at the bank's offices on the Oslo fjord. "We've changed our view mainly because valuation has become much more attractive."
Mr. Bergland, 49, and two other partners at the 8 billion-krone ($1-billion U.S.) fund have delivered average annual returns of 16 per cent over the past decade by seeking out contrarian investments. That's why they avoided Facebook until now.
The social media giant said in July its revenue growth will be slower in the coming quarters. Investors are starting to question how fast the company can make money on its mobile applications such as Messenger and WhatsApp. Its estimated adjusted price-to-earnings ratio is 32.6 this year and is seen falling to 20.1 in 2018, according to data on Bloomberg.
"They have warned about deceleration before," Mr. Bergland said. "But if you look at the estimate for next year, they take a quite strong deceleration into account. We think it's already to some extent priced in."
For Bergland, the business areas outside the core Facebook application are the most interesting.
"If they succeed to monetize those two areas, each with over 1 billions users, as for example as a sales support tool, it will help to keep the growth up at a higher level than what's in the market now," he said. "Then it's a very good investment."
The fund now holds 2.9 per cent in Facebook and its biggest holdings are Playtech Plc, Ericsson AB and Google parent Alphabet Inc.
"If you look at Google and Facebook they're very attractively priced compared to other stocks, taking the high growth into account," said Anders Tandberg-Johansen, a portfolio manager at DNB's tech strategy team, which in total oversees 18 billion kroner. "And in Google's box there's a heap of lottery tickets that now only are costs -- cars, compute, health and thousands of projects."
As for network equipment maker Ericsson, it's one of the best investments for next year with a more than 50 percent upside relative to the market, the 44-year-old said.
"Now they've realized that they must manage the company as a mature company and not as a growth company," he said. "We may have to wait for a while but this is one of the best risk/rewards in the market."
While the fund is now betting on Facebook, the managers are undecided on Apple, which the fund doesn't hold.
"Apple has very little that the other producers don't have so there's an underlying price pressure," Mr. Tandberg-Johansen said. "Apple is cheap but we worry about the potential for future margins contraction."