Last week, the Opportunity Equity Strategy gained 1.11%, outperforming the S&P 500’s 1.04% advance (Exhibit 1). The strategy ended the week up 1.39% YTD, or 121 basis points behind the S&P 500.
Exhibit 1: Preliminary Performance of LMM Opportunity Equity Strategy Versus Equity Indices, Through 1/27/171
| Time Period | Opportunity Equity | S&P 500 |
| Last Week (1/20 - 1/27) | 1.11% | 1.04% |
| MTD | 1.39% | 2.60% |
| QTD | 1.39% | 2.60% |
| YTD | 1.39% | 2.60% |
| Inception (annualized since 12/30/99) | 6.10% | 4.67% |
Source: Bloomberg, LMM
PulteGroup Inc. (PHM) posted a 4Q EPS beat of $0.67 vs. street estimates of $0.59. Higher gross margins and strong order growth grew revenues 21.4% to $2.49B vs. an estimated $2.33B. Seagate Technology (STX) surged after reporting another strong quarter as both results and forecasts beat analyst estimates. The company reported earnings per share of $1.38 vs. analyst estimate of $1.08, as well as revenues of $2.89B vs. an estimated $2.83B. The company also gave 2017 EPS guidance of $4.50 vs consensus estimates of $3.75. The stock also moved above its 50 & 100 day moving averages. JPMorgan Chase (JPM) announced a deal that will provide custodian services for more than $1 Trillion of BlackRock’s assets. The deal may lift JPMorgan to become the second largest custody agent on the street. Apple Inc (AAPL) joined the FTC and KFTC in filing a lawsuit against Qualcomm, accusing the company of withholdings $1B in licensing rebates. In addition, it was reported that Apple, alongside Foxconn, are considering the possibility of a $7B joint investment in an automated display production facility. There was no meaningful news on Platform Specialty Products (PAH).
Exhibit 2: Significant Contributors to Performance, 1/20/17 - 1/27/17
| Name | Type | Return |
| Platform Specialty Products Corp. | Equity | 9.4% |
| PulteGroup Inc. | Equity | 11.2% |
| Seagate Technology | Equity | 22.1% |
| JPMorgan Chase & Co - Warrants | Warrants | 7.6% |
| Apple Inc. C100 1/18 | Derivatives | 5.4% |
Source: LMM LLC.
Valeant Pharmaceuticals (VRX) fell on the week as analyst reports said prescription volumes fell across key units in 4Q. BTIG reported that Genworth Financial (GNW) may “trade in pennies” if the China Oceanwide deal does not receive regulatory approval. Wells Fargo also added that there is an 80% chance China Oceanwide could lower its offer price by $2.00, to $3.43 per share. The sell-off in the retail sector affected RH (RH) as anxiety of a potential border tax heightened among investors. Intrexon (XON) announced its plans to acquire GenVec in order to expand its gene-delivery platform. The company also announced that it has been awarded a sickle cell disease subcontract. American Airlines Group (AAL) reported 4Q EPS of $0.92, in-line with consensus estimates, while posting a slight beat on revenues at $9.79B. The company also reported PRASM growth of +1.3% and share repurchases up to $2B. Despite these positives, the company noted that they foresee non-fuel unit costs driven by labor to increase 10%-12% in 1Q17 vs estimates of roughly 9%, which accounted for investor pushback.
Exhibit 3: Significant Detractors from Performance, 1/20/17 - 1/27/17
| Name | Type | Return |
| Valeant Pharmaceuticals Intl Inc. | Equity | -8.6% |
| Genworth Financial | Equity | -9.7% |
| RH | Equity | -11.8% |
| Intrexon Corp. | Equity | -7.4% |
| American Airlines Group | Equity | -2.2% |
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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