Politicians are slowly waking up to the seriousness of public opinion being manipulated, with governments around the world preparing to mount an attack on fake news.
But what is the relevance for investors and how can we tackle this insidious force?
Defined as ‘the promotion and propagation of news articles via social media’, fake news stories are made to look as though they are spread by other readers, as opposed to being paid-for advertising.
The topic may be receiving a lot of attention now, but you could say fake news is propaganda in a 21st century costume, and only the platform of distribution has changed.
A few centuries ago, the printing press was similarly revolutionary, but it is the speed and reach of the internet that has allowed fake news to become so voracious.
The practice received intensified interest in the aftermath of the 2016 US election amid allegations that hackers attempted to affect the result through the dissemination of anti-Hilary Clinton content.
Concerns have also been voiced that voters in the European Union (EU)/UK referendum may have been influenced by malevolent forces pushing pro-Brexit articles on social media platforms.
Who’s next?
Attention then inevitably turned to the full calendar of European elections in 2017 and how they might similarly be manipulated.
The dampening of the right-wing, anti-establishment upswing – seen in the results of the Dutch and French elections earlier this year – has gone some way to allay these fears, although there are still concerns that the French election was targeted.
With Chancellor Merkel next on the block in Germany, there is speculation that foreign interference might intensify once more.
Against this backdrop, we tend to avoid traditional news publishing firms, and we struggle to see a future in which their business models are not severely compromised.
So what are governments doing about it?
In the UK, a ‘fake news’ inquiry was launched by the Culture, Media and Sport Committee on 30 January this year.
Meanwhile, in June, Singapore’s home affairs and law minister announced that the country was looking to legislate to tackle fake news in 2018.
The EU and certain individual European governments have also placed the topic firmly on the agenda.
Public opinion
Part of the motivation for governments is the growing level of distrust of news outlets. For example, a study of 1,000 Britons found only 20 per cent of UK news audiences felt confident the news they were reading was real.
At the same time, 70 per cent wanted social media companies to take more responsibility for tackling fake news.
In Singapore, a survey showed 91 per of Singaporeans supported stronger laws to weed out the practice.
This is worrisome, but it would arguably be worse if consumers were not sceptical of the content they read as it becomes increasingly difficult to access completely non-biased reporting.
Comfort zone
Algorithms designed to make social media users feel good, create what has become known as an ‘echo chamber’ in which only articles that reinforce people’s beliefs are promoted.
This is because sites want to generate more traffic and engagement, so they promote news more likely to make you reach for the ‘like’ button or that you will share with followers.
In investing, the same kinds of echo chambers can be formed.
This is especially concerning for those investment professionals who trade aggressively and pay a lot of attention to news flow, or for funds that have algorithms and robots crawling the internet for key trigger words.
Here the issue of perception (and what US counsellor to President Trump, Kellyanne Conway, would term ‘alternative facts’) is important.
On the other hand, if you have taken the view that trying to trade on short-term, specific noise is a bit of a ‘mug’s game’ in any case (as we have at Newton), then the fake news phenomenon is far less important.
Verification of ‘facts’ in investing
We are as focused as ever on verifying information and cross-checking ‘facts’, which is when our bench of sector analysts come into their own.
Today there is a proliferation of information, a good portion of which is unreliable.
We believe this increases the premium on trustworthy and quality providers of information, and on those who can interpret it.
The changing nature of news generation and consumption – which has been accelerated by the online journalism model – and the proliferation of fake news and alternative facts could have a real social consequence, particularly if it stifles debate.
While ‘post-truth’ may have been the word of the year in 2016, according to the Oxford Dictionary, it could be a force for many more years to come.
At Newton we like companies that produce content that is fit-for-purpose in an online world, and that have high barriers to entry in their market place.
Examples of this are companies that publish journals in the legal and medical space. These are targeted and peer-reviewed since the trust factor in those professions is huge.
Lawyers do not want to go to court and cite cases that do not exist, which means they will continue to subscribe to journals that have built a reputation for reliability.
Fake news and alternative facts may be a very modern development in the battle for eyes and ears but, when it comes to investing, we believe the tried-and-tested methods of analysis still stand the test of time.
Raj Shant is a global equities portfolio manager at Newton Investment Management, which is part of BNY Mellon.
