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Hedge funds wager on inflation with consumer, materials shares

(Adds additional fund positions)

By David Randall and Svea Herbst-Bayliss

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 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.

Third Point, run by billionaire investor Daniel Loeb, also added a position in Monsanto in the quarter ended Dec. 31, according to filings. Shares of the agricultural company are up nearly 3 percent for the year to date, about 2 percentage points more than the benchmark S&P 500.

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.

Greenlight Capital's David Einhorn added 13 new positions in consumer discretionary companies, including stakes in amusement park company SeaWorld Entertainment Inc, photo printing service Shutterly Inc and department store Nordstrom 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 Commision, are one of the few public ways of tracking what managers buy and sell.

Relying on the filings to develop an investment strategy carries some risk because the disclosures come 45 days after the end of each quarter and may not reflect current positions.

The filings also showed that managers expected healthcare stocks to trade higher during the last three months of 2017.

A number added fresh positions before the sector came under pressure from increased volatility and Amazon.com Inc's move to team with Berkshire Hathaway Inc (BRKa.N ) and JPMorgan Chase & Co to reduce employee healthcare costs.

Leon Cooperman’s Omega Advisors listed a new position in Humana Inc, which is working with private equity firms to buy Kindred Healthcare Inc. The stock has gained 8 percent this year, likely benefiting Jason Karp’s Tourbillion which bought in with 90,000 shares in the fourth quarter.

Among notable activist investors, Carl Icahn increased his position in Xerox Corp by 56 percent.

Greenlight's Einhorn, meanwhile, reduced his stake in General Motors Co by 25 percent. Einhorn unsuccessfully lobbied the carmaker to split its stock in 2017. Shares of the company are up 2 percent for the year to date. (Reporting by David Randall; Editing by Meredith Mazzilli and Jennifer Ablan)