The drug company’s cratering stock is an excellent example of why advisors avoid individual equity positions opting instead to put clients into mutual funds and ETFs where diversification cushions the blow.
The Montreal-based drug company’s stock has lost more than $20 billion in market cap over the past week as a result of claims by Citron Research that the company is using questionable business practices to inflate its revenue. The drama is putting the need for diversification directly in the spotlight.
Although Valeant’s share price rebounded Friday, it’s lost more than 50% of its value since August. Advisors have to be worried about the effect the cratering of its stock price will have on client portfolios.
“Health care investments are under pressure right now,” said Manulife Securities advisor Monica Weissmann. “But, because I’m looking at healthcare mutual funds and not individual positions, I’m sure this too will pass and healthcare investments will be okay.”
It's making the case for the use of mutual funds as a way of diversifying away from individual stock picking, according to Weissmann; also, the funds make it easier for smaller clients to gain exposure to this very important sector of the economy.
“It does worry me [Valeant situation] but I don’t think there’s much that can be done,” she said. “I hold significant positions in my client portfolios in two Canadian healthcare mutual funds that I happen to think are the best in Canada.”
The two funds Weissmann uses are the TD Health Sciences Fund, which is managed for TD by T. Rowe Price in the U.S. The other one is Renaissance Global Health Care and it is managed for Renaissance by Wellington Management out of Boston.
The TD fund has slightly less than 4% of its $1 billion in AUM invested in Valeant while the Renaissance fund doesn’t even have Valeant in its top 10 holdings. The former fund has 145 stocks in its portfolio and the latter slightly more concentrated at 71. In both instances diversification has protected clients on the downside.
“I consider them very complementary and usually I buy both for the same portfolio,” said Weissmann.
Although Valeant’s share price rebounded Friday, it’s lost more than 50% of its value since August. Advisors have to be worried about the effect the cratering of its stock price will have on client portfolios.
“Health care investments are under pressure right now,” said Manulife Securities advisor Monica Weissmann. “But, because I’m looking at healthcare mutual funds and not individual positions, I’m sure this too will pass and healthcare investments will be okay.”
It's making the case for the use of mutual funds as a way of diversifying away from individual stock picking, according to Weissmann; also, the funds make it easier for smaller clients to gain exposure to this very important sector of the economy.
“It does worry me [Valeant situation] but I don’t think there’s much that can be done,” she said. “I hold significant positions in my client portfolios in two Canadian healthcare mutual funds that I happen to think are the best in Canada.”
The two funds Weissmann uses are the TD Health Sciences Fund, which is managed for TD by T. Rowe Price in the U.S. The other one is Renaissance Global Health Care and it is managed for Renaissance by Wellington Management out of Boston.
The TD fund has slightly less than 4% of its $1 billion in AUM invested in Valeant while the Renaissance fund doesn’t even have Valeant in its top 10 holdings. The former fund has 145 stocks in its portfolio and the latter slightly more concentrated at 71. In both instances diversification has protected clients on the downside.
“I consider them very complementary and usually I buy both for the same portfolio,” said Weissmann.
