David Einhorn's Greenlight Capital returned just 1 percent last quarter, trailing the S&P 500's 6 percent gain, according to the hedge fund's letter sent to shareholders Tuesday.
Part of the underperformance was due to losing short positions — including one in Tesla, according to a copy of the letter obtained by CNBC. Greenlight gained 8.4 percent in 2016, versus the S&P 500's 12 percent rise.
The firm also said it bought three stocks: Xerox-spinoff Conduent, Perrigo and an unnamed European financial institution that Greenlight could not discuss due to its policy on new European regulations.
Conduent can renegotiate or exit underearning contracts and turn loss-making business units into "profit centers," Greenlight said. Conduent shares traded a touch lower midday Tuesday, about 8 percent above Greenlight's average purchase price of $14.76 a share.
Perrigo, a white label maker of over-the-counter drugs, should continue to grow profits in its core U.S. market, Greenlight said, noting confidence in new management's ability to achieve earnings forecasts. The pharmaceutical company's shares spiked Tuesday before holding slightly higher, about 2.5 percent below Greenlight's average purchase price of $68.81 per share.
Short positions that Greenlight closed included Signet Jewelers, whose shares plunged 26.5 percent in the first quarter in a win for the hedge fund.
Tesla shares leaped 30 percent in the first quarter and have climbed 11.9 percent so far this month.
In explanation for why the electric car stock and other high flyers have inexplicably continued to rise, the letter said: "Perhaps as the prospects for tax reform have dimmed, the market has regained enthusiasm for profitless companies that aren't at risk of paying taxes."