Over the past several years, one of the biggest believes in the Valeant “story” was formerly iconic hedge fund Sequoia, which until recently had posted returns so impressive, some had compared its founders Bill Ruane and Rick Cunniff to Warren Buffett. Then, of course, Valeant imploded, a series of internal transitions occurred leading to the departure of CEO Robert Goldfarb, and Sequoia posted one of its worst returns in history. As a result, Sequoia is no longer a believes, and as it explains in its latest letter, it has decided to liquidate its entire stake in VRX.
As we have previously reported, our longtime chief executive officer and co-manager of Sequoia, Robert D. Goldfarb, retired from our firm at the end of March 2016. Our new leadership elected to sell our position in Valeant Pharmaceuticals, exiting completely by mid-June. Valeant was our largest position to start the year and its 80% decline through June 30 badly penalized our results. For the first half, Sequoia generated a negative 13.2% return vs. a positive 3.8% return for the S&P 500 Index. Absent Valeant, the rest of the Fund’s portfolio generated a positive return of 2.3% for the first half. At the end of this letter you will find holdings data for the Fund’s 10 largest holdings in Sequoia as of June 30th.
While we are all disappointed by these results, we have responded by changing our leadership and committing ourselves to restoring the legacy handed down to us from Bill Ruane and Rick Cunniff.
And while Sequoia reveals it also sold out of its Allergan and Cabela’s share, and trimmed its positions in O’Reilly, Fastenal and TJX, it says that it “bought four new stocks for Sequoia in the second quarter.” Among these were Carmax, Chipotle, Schwab and Wells Fargo.
Valeant stock is higher on the session, if only for the time being, in a relief rally that the selling overhang from Sequoia is now gone.
Full letter below:
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