Skip to Content
Fund Spy

Rising Concentration Points to New Risks

These funds have become more concentrated among top holdings during the past three years.

Mentioned: , , , , , ,

 Valeant Pharmaceuticals(VRX) recent plunge--and the pain endured by its largest shareholders--highlights the risks of taking large bets on individual companies. Several fund managers held sizable stakes in the stock, though  Sequoia (SEQUX) stood out for its position, which reached 29% of fund assets in mid-2015. The fund lost 22% from August 2015 to November 2015 as Valeant’s stock price fell 65% on allegations of fraud and aggressive pricing practices.

That’s not to say investors should avoid concentrated funds. Patient investors with long horizons may find much to like with them. In fact, Morningstar’s analysts assign Sequoia a Morningstar Analyst Rating of Gold, reflecting their view that it is a best-of-breed fund for investors willing to ride out short-term bumps. Still, it is worth noting when a fund’s concentration markedly changes. Hopefully investors realized that Sequoia’s stake in Valeant had more than tripled as a percentage of the portfolio during the past three years. Keeping an eye on such changes helps keep investors apprised of the risks they face.

Leo Acheson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.