February 14, 2018 / 5:08 PM / 3 months ago

Hedge funds wager on inflation with consumer, materials shares

NEW YORK, Feb 14 (Reuters) - Several big-name hedge funds made bets on consumer discretionary and materials stocks at the end of 2017 that could benefit from the signs of rising inflation that have roiled U.S. markets over the last two weeks.

Farallon Capital Management LLC, a $25.4 billion San Francisco-based fund founded by Tom Steyer, added new positions in materials companies Monsanto Co and Tronox Ltd , according to regulatory filings released on Tuesday.

Tiger Management, run by billionaire investor Julian Robertson, Jr., made broad bets on consumer discretionary stocks, with new positions in Papa John’s International Inc , Penske Automotive Group Inc, and Domino’s Pizza Inc.

Such companies can take advantage of rising prices and wages, meaning the hedge funds may be well placed even as inflation fears have sent U.S. stocks into retreat for much of the past two weeks.

U.S. wages in January logged their biggest annual increase since the end of the 2007-2009 financial crisis. Labor Department figures on Tuesday showed consumer prices rose more than expected last month.

Concerns that rising inflation will push the Federal Reserve to accelerate its path of interest rate hikes have erased the S&P 500’s gains for the year even after January’s 5.6 percent rise, its strongest performance for that month since 1997.

Overall, hedge funds have their highest exposure to commodities since 2012, according to a report by Credit Suisse.

Hedge funds posted an estimated 4.1 percent gain in January, the report said, with the largest gains coming in long positions in consumer discretionary stocks and short positions in healthcare stocks.

Hedge funds often use leverage to increase the size of their wages, supercharging potential rewards but also boosting risk.

“January’s record performance provided a buffer to February’s vol-inspired risk-off move,” said Mark Connors, an analyst at Credit Suisse, said in the note. “Managers appear to be weathering the storm well.”

Quarterly disclosures of hedge fund managers’ stock holdings, in what are known as 13F filings with the U.S. Securities and Exchange Commission, are one of the few public ways of tracking what the managers are selling and buying.

But relying on the filings to develop an investment strategy comes with some risk because the disclosures come 45 days after the end of each quarter and may not reflect current positions. (Reporting by David Randall; Editing by Jennifer Ablan and Meredith Mazzilli)

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