Australian fund managers are reeling after a significant drop in CSL’s share price. The near 17 per cent plunge on Tuesday, the stock’s biggest single-day fall, dragged down the broader sharemarket, particularly impacting those funds that had built overweight positions in the healthcare giant. CSL comprises just under 5 per cent of the S&P/ASX 200 Index. CSL is a global biotechnology company that researches, develops, manufactures, and markets a range of plasma therapies, recombinant proteins, and cell-based influenza vaccines. It is one of Australia’s largest listed companies.
Fund managers, including First Sentier, Pendal, Investors Mutual and DNR, had favoured CSL as a high-quality growth stock in an otherwise expensive market, an alternative to banks such as Commonwealth Bank (CBA). This strategy initially proved successful after CSL flagged spending cuts in July, sparking a rally. However, the recent disappointing earnings result has undone much of that progress, leaving fund managers facing tough questions from clients.
The argument for being overweight on CSL was compelling. The company appeared cheap with a price-to-earnings multiple of 21, projecting double-digit earnings growth. This contrasted sharply with CBA’s higher multiple and more modest growth prospects. Sell-side analysts had largely backed this view, with a median price target of $311. Despite this, CSL has been the worst performer of the ASX 20 stocks. Seasoned traders described Tuesday’s sell-off as one of the ugliest sessions for a blue-chip stock in recent memory.
The steep decline highlights the challenges of navigating the Australian sharemarket, where a small number of stocks exert significant influence. With limited alternatives to banks and miners, fund managers face a narrow margin for error, and CSL’s recent struggles underscore the risks of straying from the pack. While managers may defend their positions based on long-term experience, CSL’s tough year has exposed the vulnerabilities of even the most carefully considered investment strategies.
