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By Tyler Durden

When we

Outperforming the market is hardly new to Horseman: it has been doing so for four years in a row, and not surprisingly, 2015 was its best year since 2008. 2016 is starting off just as good as the prior year.

What was the source of Horseman’s February outperformance? Recall that in January it was all about short Chinese exposure. This is what the fund was shorting in February:

This month both the long and short equity portfolios incurred small losses while gains came from the long positions in government bonds and the currency positions. Losses came primarily from the small remaining long positions in European banks and from the short positions in the automobile sector. Gains were made in discount retailers in the long portfolio and in financials in the short portfolio.

In the airline industry, the decision to operate a new or an old aircraft has nothing to do with safety or reliability as routinely airliners fly 100,000 hours or more before they are retired out of service. According to Aviation Consultants 360, the Federal Aviation Administration does not disqualify an aircraft based on its chronological age when determining a jet aircraft’s condition or safety. What counts is the aircraft’s current maintenance status, its maintenance history, current required upgrades and engines.

Manufacturers have made significant improvements in engine efficiency, but it only matters when fuel prices are high. Improvements have been made in avionics and communication but these are separate safety issues beyond the safety and reliability of the aircraft’s airframe, and the equipment can be updated. Consequently, for all practical purposes, a well maintained 30 year old aircraft with 10,000 hours on its airframe is as safe and dependable as any new aircraft but costs only a fraction. According to Aviation Consultants 360, in many ways, the older aircraft is safer; it has history and is known to be safe, a huge benefit.

Although Boeing and Airbus revealed record production figures for 2015, net new orders fell by almost half at Boeing and a third at Airbus. An analyst at Citigroup recently pointed that in the aviation cycle before 2008, around 70% of demand for new airplanes was from airlines and leasing companies planning to add capacity, and that since then, demand from customers seeking to replace old planes with new more fuel efficient ones has risen to more than half of deliveries. In our opinion, as fuel prices have fallen, the replacement market is likely to shrink as fuel efficiency is no longer a top priority.

A large part of Boeing and Airbus’ order books has been driven by demand from emerging countries’ low cost airlines (sources: Boeing; Airbus), who in our opinion, may cancel orders in the event of further emerging markets currency devaluations versus the US dollar. During the month we built a short position to aircraft manufacturers and aircraft leasing companies …read more

Source: A Top Performing Hedge Fund Just Went Record Short: Here’s Why

    

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Posted March 11th, 2016 in Uncategorized.