The intersection between ESG and investment performance continues to provide a fertile ground for debate. While critics argue that imposing ESG standards can effectively block investors from getting exposure to winning companies, advocates say that practices like negative screening mitigates the collateral portfolio damage that can come when firms and sectors take reputational and regulatory hits.
That’s exactly what’s happened to a host of mutual-fund companies in the U.S., whose investment returns have been damaged through their exposure to pharmaceutical firms that have been implicated in an opioid addiction crisis that’s gripped the country, according to the Wall Street Journal.
“So far this month, at least five mutual-fund companies have told investors that their holdings in businesses with connections to opioid painkillers have detracted from overall returns,” the Journal reported.
The discussion on risks surrounding opioid firms has accelerated over the past decade. Nick Mazing, research director at investment research platform Sentieo Inc., told the publication that the number of annual shareholder reports citing opioids as business risks has grown more than threefold since 2011, with such mentions expanding beyond the healthcare industry. So far this year, Mazing said, 55 companies have included opioids in the risk-factor section of their reports filed with the U.S. Securities and Exchange Commission (SEC), compared to 41 last year and 37 in 2017.
Major pharmaceutical industry players — including Purdue Pharma LP, Mallinckrodt PLC, and Endo International PLC — are now facing over 2,000 lawsuits from U.S. states, municipalities, Native American tribes, and others who say they were the driving force behind the addiction epidemic.
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In Canada, several provinces including Ontario, New Brunswick, Newfoundland, and Quebec are reportedly supporting a proposed class-action suit launched by the province of British Columbia. The suit aims to recover public-health costs from a host of pharmaceutical-industry players that played a role in an overdose crisis that’s taken the lives of thousands of Canadians.
Such legal motions, which accuse the manufacturers of downplaying the addictive risks of opioid drugs as well as pushing their prescription through aggressive marketing to doctors, have put the companies in the crosshairs of Wall Street short-sellers. For investors unfortunate enough to have put assets behind such disgraced firms, the impact has ranged from manageable to outright painful.
Miller Value Partners LLC, whose Miller Opportunity Trust fund saw “lackluster” performance in a recent six-month period, attributed it mainly to “too much exposure” to Endo, Mallinckrodt and Israeli drugmaker Teva Pharmaceutical Industries Ltd. The fund runners cited factors such as the quality of management and promising new strategies to explain their exposure, adding that they failed to “anticipate just how myopically focused the market would become” with regards to the firms’ opioid liabilities.
Another fund manager, Ohio National Fund, said that a slump in Teva shares — they traded around US$29 as recently as last week, compared to a year-to-date high of US$73 in January — following the settlement of an opioid-related lawsuit had hindered the returns of a foreign-stock portfolio. Penn Series Funds, an affiliate of Penn Mutual Life Insurance Co., likewise saw its Teva stockholdings within a midcap value fund “decimated” by intense attention on opioid litigation.
The Journal also named American Funds Insurance Series, which is affiliated with Capital Research & Management Co., and Franklin Templeton Investments as firms whose funds in the U.S. have taken hits because of holdings in opioid-related companies, based on regulatory filings covering the period ended June 30.
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