Last week, the Opportunity Equity Strategy lost 1.65%, underperforming the S&P 500’s 0.13% decline (Exhibit 1). The strategy ended the week up 0.28% YTD, or 126 basis points behind the S&P 500.
Exhibit 1: Preliminary Performance of LMM Opportunity Equity Strategy Versus Equity Indices, Through 1/20/171
| Time Period | Opportunity Equity | S&P 500 |
| Last Week (1/13 - 1/20) | -1.65% | -0.13% |
| MTD | 0.28% | 1.54% |
| QTD | 0.28% | 1.54% |
| YTD | 0.28% | 1.54% |
| Inception (annualized since 12/30/99) | 6.04% | 4.61% |
Source: Bloomberg, LMM
MGIC Investment Corp. (MTG) was a top contributor for the week after releasing strong fourth quarter results. MGIC reported EPS of $0.28, beating estimates by $0.06 due to positive reserve development. MGIC also benefited from the Trump Administration indefinitely suspending the reduction in FHA mortgage premiums announced earlier in the month. Pandora (P) preannounced Q4 results stating that it expects to exceed its previous guidance for revenue and adj. EBITDA. The company also announced the reduction of its workforce by 7% and stated that they had added 375k Plus subscribers, up 9% QoQ. Bank of America raised its price target for Apple Inc. (AAPL) to $140 from $125 citing expectations for a super-long cycle for the iPhone 8. Gamestop Corp. (GME) announced that it had reserved all of its initial Nintendo Switch allocation. United Continental Holdings (UAL) released its Q4 results with diluted EPS beating estimates by $0.05 at $1.78 and guided Q1 PRASM to -1% to +1%.
Exhibit 2: Significant Contributors to Performance, 1/13/17 - 1/20/17
| Name | Type | Return |
| MGIC Investment Corp | Equity | 3.9% |
| Pandora Media | Equity | 3.8% |
| Apple Inc. C100 1/18 | Derivatives | 2.4% |
| GameStop Corp. | Equity | 3.7% |
| United Continental Holdings | Equity | 1.2% |
Source: LMM LLC.
JPMorgan Chase & Co. (JPM/WS) declined last week despite announcing Q4 EPS that beat consensus estimates ($1.71 versus $1.44) benefitting from strong FICC, investment banking revenues and improved credit quality. Intrexon Corp. (XON) completed the spin-off of AquaBounty Technologies Inc. (ABQ) shares last week. OneMain Holdings (OMF) was downgraded by JPMorgan to neutral from overweight with a price target of $25, 11% above where it closed the week. OMF received an unsolicited exchange offer from IEG Holdings Inc. for $11.48, 49% below where it closed the week, which was unanimously rejected by the Board of Directors which stated that the offer was “grossly inadequate and reckless”. Citigroup Inc. (C) released Q4 performance with EPS beating consensus ($1.14 vs $1.12) but had a slight miss on revenues ($17B vs. $17.3B). There was no significant news on Quotient Technology Inc. (QUOT).
Exhibit 3: Significant Detractors from Performance, 1/13/17 - 1/20/17
| Name | Type | Return |
| JPMorgan Chase & Co. - Warrants | Warrants | -6.3% |
| Intrexon Corp. | Equity | -4.8% |
| OneMain Holdings Inc. | Equity | -4.3% |
| Citigroup Inc. | Equity | -5.9% |
| Quotient Technology Inc. | Equity | -4.6% |
Source: LMM LLC.
1The performance figures reflect the deduction of a model investment management fee of 1% (the highest fee for separate accounts under our fee schedule) and certain other expenses. For important additional information about Opportunity Equity performance, please click on the Opportunity Equity Composite Performance Disclosure. The performance returns shown in this report are preliminary and are subject to revision. Past performance is no guarantee of future results.
Significant Contributors and Significant Detractors are the Strategy holdings that had the greatest effect on Strategy performance for the week. Holdings that have been in the Strategy since the end of the most recent calendar quarter are identified by name. For information on how Contributor/Detractor data were calculated and a list showing the contribution to the Strategy's weekly performance of each investment held at such quarter end, contact LMM.
Any views expressed are subject to change at any time, and LMM disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results, and there is no guarantee dividends will be paid or continued.
©2017 LMM LLC. LMM LLC is owned by Bill Miller and Legg Mason, Inc.
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