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Valeant Debacle Spurs Improvements at Sequoia
Analyst Kevin McDevitt reports that the
Sequoia
SEQUX
shareholders’ meeting on May
20
reinforced how
much has changed following the fund’s disaster with
Valeant Pharmaceuticals
VRX
. The past nine
months have been extremely painful for shareholders,
but it also spurred Sequoia’s management to
ensure that something similar never happens again.
The changes address investment policy, risk manage-
ment, and decision-making.
Portfolio manager--and now
CEO
of advisor Ruane,
Cuniff, and Goldfarb--David Poppe further clarified the
changes to the team’s structure and risk-manage-
ment policies that he first articulated in March. Going
forward, the fund will cap position size at
20%
of
assets. Furthermore, the team will formally review pos-
itions as they grow to
10%
and
15%
of assets.
Next, the firm announced the makeup of the newly
formed investment committee, including analysts Arman
Gokgol-Kline, David (Chase) Sheridan, Trevor Magyar,
John Harris, and Greg Alexander; Alexander will be a
nonvoting member of the committee. Harris and
Alexander will not be actively involved in managing
Sequoia as they run their own respective separate
private portfolios, Wishbone and Acacia. But they both
bring extensive experience and expertise to the
committee, adding a further layer of oversight. Although
Poppe remains Sequoia’s sole portfolio manager, the
investment committee will have veto power.
Despite these changes, the team took pains to empha-
size that the firm’s process is not changing. What
happened with Valeant, based on past interviews and in
the shareholders’ meeting, is that former comanager
Bob Goldfarb had final say. Ultimately, despite concerns
voiced regarding Valeant by members of the invest-
ment team and the board, Goldfarb decided to maintain
and even add to the position. Every recent change has
been designed to prevent any one person from over-
Fund Manager Changes
Fund News
AMG Yacktman Focused YAFFX and AMG Yacktman YACKX
Impact: Neutral
Date: 05/01/2016
Founder Don Yacktman stepped down officially as manager on the fund. Stephen Yacktman and Jason Subotky
remain as managers.
Our Take:
Don Yacktman has been dialing back his work on the fund for a number of years,
so this was not a surprise and our ratings already reflected the fact that Stephen Yacktman and Subotky were
the driving forces at the funds. The funds retain their respective
•
and
Œ
ratings.
Fidelity Low-Priced Stock FLPSX
Impact: Neutral
Date: 05/15/2016
Comanager Rayna Lesser was replaced by Morgan Peck. Peck will take over the tech sleeve dedicated to the
comanagers on this fund.
Our Take:
The comanagers only run 6% total of assets and Joel Tillinghast oversees
94%. Thus, this fund remains a bet on Tillinghast and the fund retains its
•
rating.
Fidelity Municipal Income FHIGX
Impact: Neutral
Date: 05/02/2016
Lead manager Jamie Pagliocco stepped down from the firm’s muni funds to take a position heading the firm’s
fixed-income trading group. Comanagers Mark Sommer and Kevin Ramundo, who have managed muni funds
at the firm since 2002 and 2010, respectively, were named managers on the firm’s entire suite of muni funds.
Joining the duo as a new portfolio manager is Cormac Cullen, a senior member of the firm’s muni research
team.
Our Take:
We have faith in the seasoned team that Pagliocco leaves behind and are encouraged that past
transitions in Fidelity’s muni group have been quite smooth. We are maintaining our
Œ
rating on the fund.
Sequoia SEQUX
Impact: Negative Date: 03/23/2016
Bob Goldfarb stepped down as comanager in the wake of the implosion of top holding Valeant Pharmaceuticals
VRX. Sequoia explained that decision-making was too centralized and didn’t give enough room for analyst input.
Our Take:
Goldfarb achieved a lot for investors even though he may be best remembered for the Valeant mess.
Moreover, the latest bad news on Valeant makes it clear that Sequoia’s thesis was wrong—up until this point
we didn’t know if Valeant’s problems were small or large. We have lowered our rating to
´
from Gold.
T. Rowe Price Health Sciences PRHSX
Impact: Negative Date: 07/01/2016
Manager Taymour Tamaddon is moving to run T. Rowe Price Institutional Large Cap Growth TRLGX. Ziad Bakri
will take his place on July 1, 2016. Bakri has been a healthcare analyst with the firm since 2011. He is
an M.D. and had previously worked as a biotech analyst for Cowen and Co.
Our Take:
This is a challenge for
T. Rowe because it follows the loss of a manager and two healthcare analysts in 2014. The firm says it
plans to hire additional analysts. This is Bakri’s first time serving as a portfolio manager.
T. Rowe Price Small-Cap Stock OTCFX
Impact: Negative Date: 10/01/2016
Greg McCrickard is set to retire in October. He will be replaced by Frank Alonso, who has been an associate
portfolio manager on the fund since 2013. Alonso has been with T. Rowe Price since 2000.
Our Take:
We don’t have much of a track record to go by for Alonso, so it’s a big drop from the proven McCrickard. We
lowered our rating to
ˇ
from Silver.
Virtus Emerging Markets Opportunities HEMZX
Impact: Negative Date: 05/31/2016
Virtus Foreign Opportunities JVIAX
Former Morningstar Fund Manager of the Year winner Rajiv Jain is leaving subadvisor Vontobel to set up his
own firm. Matthew Benkendorf, who has been at Vontobel for 17 years, is taking over. Benkendorf signed
a 10-year contract when Jain resigned, so we can at least be sure that he won’t be following Jain. We don’t
yet know if any of the team’s analysts will leave.
Our Take:
Losing Jain is a big blow, though Benkendorf
is experienced and a fair amount of the team will most likely remain in place. We lowered ratings for both
funds to
´
from Silver.