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Morning Brief: Hedge Funds Post First Loss in More Than a Year

A widely followed hedge fund index posted a 1.8 percent drop last month.

The HFRI Fund Weighted Composite Index fell 1.8 percent last month, according to Hedge Fund Research.

The hedge fund industry snapped in February a streak of gains that had lasted 15 straight months. The HFRI Fund Weighted Composite Index fell 1.8 percent last month, according to Hedge Fund Research. The Chicago-based firm said quantitative, trend-following CTA strategies led losses seen across all of the industry’s main strategies. The industry’s decline last month was the largest since January 2016. Still, the HFRI Fund Weighted Composite Index is up 0.5 percent for the year.

The HFRI Macro (Total) Index was the worst performer among HFR’s broadly defined indices, dropping 3.9 percent in February. This was the largest decline since February 1994. The HFRI Macro Index (Asset Weighted) lost 2.8 percent in February. Of the sub-strategies, the Systematic Diversified Index fell 6.5 percent last month after gaining 2.8 percent in January. Equity hedge funds were also in the red last month. The HFRI Equity Hedge (Total) Index fell 1.5 percent, cutting its gain for the year to 1.4 percent. “Long latent global equity market volatility soared and U.S. interest rates increased, with certain hedge fund sub-strategies posting impressive, negatively-correlated gains through the volatility spike,” Kenneth Heinz, president of HFR, said in a statement Wednesday.

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Tiger Global Management boosted its stake in TransDigm, a maker of aftermarket parts for airplanes, by about 45 percent to 2.782 million shares for a 5.3 percent stake, according to a regulatory filing. However, the Tiger Seed still owns about 15 percent fewer shares than it did at the end of the third quarter. “The company occupies an attractive niche in the aerospace and defense industry,” Tiger Global stated in its second quarter 2017 letter to investors. “TransDigm consistently achieves high margins while also providing attractive value for airplane manufacturers, airlines and defensive contractors who rely on the company for complex engineering solutions, on-time delivery and quality-made parts.”

This is a controversial stock. In January 2017 Citron Research published a report titled: “Could TransDigm be the Valeant of the Aerospace Industry?” The negative spiel is basically that TransDigm has made dozens of acquisitions and has subsequently dramatically raised prices. Citron pointed out at the time that TransDigm has acquired more than 50 airplane parts companies, then fired employees “and egregiously” raised prices. “While Boeing and Lockheed Martin have been the ‘poster children’ of this policy initiative, everyone in the aerospace industry knows that one company stands out when it comes to egregious price increases foisted on the government: TransDigm,” Citron said in the report. “TransDigm’s business model is to aerospace as Valeant was to the pharmaceutical industry.” Shares of TransDigm are down more than 9 percent from their peak in late January, but up nearly 37 percent from their late March low.

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Carl Icahn has denied dumping shares of crane manufacturer Manitowoc before President Donald Trump announced plans to levy tariffs on steel and aluminum. In a post on his website, he said: “We don’t generally comment on rumors, but the recent media speculation regarding our sale of Manitowoc stock calls for a response. We state for the record: Any suggestion that we had prior knowledge of the Trump administration’s announcement of new tariffs on steel imports is categorically untrue. We reduced our position in Manitowoc for legitimate investment reasons having nothing to do with that announcement.” Icahn funds sold roughly 940,000 shares of Manitowoc, a big user of steel, from February 12 through February 22, for between roughly $32 and $34 per share, according to a regulatory filing. On February 16 Commerce Secretary Wilbur Ross issued a report calling for heavy tariffs and quotas on steel and aluminum imports. Trump announced his plans for tariffs last Thursday.

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Shares of Netflix fell 1.25 percent Wednesday to close at $321.16 after brokerage firm Stifel reportedly downgraded the company’s shares to “hold” from “buy” due to valuation concerns. “We are attracted to Netflix’s business and competitive position but believe share price may have sprinted ahead of fundamentals in the short-term,” Stifel said in a research note reported by MarketWatch on March 6. Shares of Netflix are up 67 percent this year. The streaming video giant is among the so-called “bubble stocks” that David Einhorn’s Greenlight Capital has been shorting.

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