- Drug company's shares accounted for 29% of assets at midyear
- Rank drops from first to worst, showing risk of concentration
Investors who run concentrated portfolios play a high-stakes game: When their holdings are doing well, the returns can be spectacular, and when the market turns against them, things can get ugly fast.
The managers of the $7.2 billion Sequoia Fund, which had 29 percent of its assets in Valeant Pharmaceuticals International Inc. as of June 30, have experienced both extremes recently.
Sequoia was the best-performing major U.S. stock fund this year through Aug. 5, according to data compiled by Bloomberg. Valeant surged 83 percent over that stretch to a record high and Sequoia returned 18 percent, top among 563 domestic equity funds with at least $1 billion in assets. Valeant has since plunged about 71 percent, as politicians questioned drug price increases and a short-seller accused the firm of inflating sales. Sequoia has followed its biggest holding down, losing more than $2 billion in assets.
The fund declined 27 percent from Aug. 5 through last week, by far the worst performance among the same group of peers.
“There is nothing wrong with making an outsized bet, but this bet was more than a little extreme,” said Lawrence Glazer, managing partner at Mayflower Advisors in Boston, where he helps oversee more than $2 billion. “With that kind of concentration you can go from hero to goat in one quarter.”
This year, Sequoia dropped 14 percent through Nov. 13, trailing 96 percent of rivals, data compiled by Bloomberg show.
A message to Ruane Cunniff & Goldfarb, which manages the Sequoia Fund, wasn’t returned.