Monthly Shareholder Report-January 2015

RNS Number : 1454G

BH Macro Limited

27 February 2015

 



		BH MACRO LIMITED MONTHLY SHAREHOLDER REPORT: JANUARY 2015 YOUR ATTENTION IS DRAWN TO THE DISCLAIMER AT THE END OF THIS DOCUMENT

BH Macro Limited	Overview
Manager: Brevan Howard Capital Management LP ("BHCM") Administrator: Northern Trust International Fund Administration Services (Guernsey) Limited ("Northern Trust") Corporate Broker: J.P. Morgan Cazenove Listings: London Stock Exchange (Premium Listing) NASDAQ Dubai - USD Class (Secondary listing) Bermuda Stock Exchange (Secondary listing)	BH Macro Limited ("BHM") is a closed-ended investment company, registered and incorporated in Guernsey on 17 January 2007 (Registration Number: 46235). BHM invests all of its assets (net of short-term working capital) in the ordinary shares of Brevan Howard Master Fund Limited (the "Fund"). BHM was admitted to the Official List of the UK Listing Authority and to trading on the Main Market of the London Stock Exchange on 14 March 2007.
	Total Assets:	$1,738 mm¹
	1. As at 30 January 2015 by BHM's administrator, Northern Trust.
Summary Information	BH Macro Limited NAV per Share (as at 30 January 2015)
	Share Class NAV (USD mm) NAV per Share USD Shares 387.5 $21.27 EUR Shares 121.8 €21.41 GBP Shares 1,228.5 £22.10
	BH Macro Limited NAV per Share % Monthly Change
	USD Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2007 0.10 0.90 0.15 2.29 2.56 3.11 5.92 0.03 2.96 0.75 20.27 2008 9.89 6.70 -2.79 -2.48 0.77 2.75 1.13 0.75 -3.13 2.76 3.75 -0.68 20.32 2009 5.06 2.78 1.17 0.13 3.14 -0.86 1.36 0.71 1.55 1.07 0.37 0.37 18.04 2010 -0.27 -1.50 0.04 1.45 0.32 1.38 -2.01 1.21 1.50 -0.33 -0.33 -0.49 0.91 2011 0.65 0.53 0.75 0.49 0.55 -0.58 2.19 6.18 0.40 -0.76 1.68 -0.47 12.04 2012 0.90 0.25 -0.40 -0.43 -1.77 -2.23 2.36 1.02 1.99 -0.36 0.92 1.66 3.86 2013 1.01 2.32 0.34 3.45 -0.10 -3.05 -0.83 -1.55 0.03 -0.55 1.35 0.40 2.70 2014 -1.36 -1.10 -0.40 -0.81 -0.08 -0.06 0.85 0.01 3.96 -1.73 1.00 -0.05 0.11 2015 3.14 3.14
	EUR Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2007 0.05 0.70 0.02 2.26 2.43 3.07 5.65 -0.08 2.85 0.69 18.95 2008 9.92 6.68 -2.62 -2.34 0.86 2.84 1.28 0.98 -3.30 2.79 3.91 -0.45 21.65 2009 5.38 2.67 1.32 0.14 3.12 -0.82 1.33 0.71 1.48 1.05 0.35 0.40 18.36 2010 -0.30 -1.52 0.03 1.48 0.37 1.39 -1.93 1.25 1.38 -0.35 -0.34 -0.46 0.93 2011 0.71 0.57 0.78 0.52 0.65 -0.49 2.31 6.29 0.42 -0.69 1.80 -0.54 12.84 2012 0.91 0.25 -0.39 -0.46 -1.89 -2.20 2.40 0.97 1.94 -0.38 0.90 1.63 3.63 2013 0.97 2.38 0.31 3.34 -0.10 -2.98 -0.82 -1.55 0.01 -0.53 1.34 0.37 2.62 2014 -1.40 -1.06 -0.44 -0.75 -0.16 -0.09 0.74 0.18 3.88 -1.80 0.94 -0.04 -0.11 2015 3.34 3.34
	GBP Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2007 0.11 0.83 0.17 2.28 2.55 3.26 5.92 0.04 3.08 0.89 20.67 2008 10.18 6.86 -2.61 -2.33 0.95 2.91 1.33 1.21 -2.99 2.84 4.23 -0.67 23.25 2009 5.19 2.86 1.18 0.05 3.03 -0.90 1.36 0.66 1.55 1.02 0.40 0.40 18.00 2010 -0.23 -1.54 0.06 1.45 0.36 1.39 -1.96 1.23 1.42 -0.35 -0.30 -0.45 1.03 2011 0.66 0.52 0.78 0.51 0.59 -0.56 2.22 6.24 0.39 -0.73 1.71 -0.46 12.34 2012 0.90 0.27 -0.37 -0.41 -1.80 -2.19 2.38 1.01 1.95 -0.35 0.94 1.66 3.94 2013 1.03 2.43 0.40 3.42 -0.08 -2.95 -0.80 -1.51 0.06 -0.55 1.36 0.41 3.09 2014 -1.35 -1.10 -0.34 -0.91 -0.18 -0.09 0.82 0.04 4.29 -1.70 0.96 -0.04 0.26 2015 3.26 3.26
	Source: Fund NAV data is provided by the administrator of the Fund, International Fund Services (Ireland) Limited. BHM NAV and NAV per Share data is provided by BHM's administrator, Northern Trust. BHM NAV per Share % Monthly Change is calculated by BHCM.  BHM NAV data is unaudited and net of all investment management fees (2% annual management fee and 20% performance fee) and all other fees and expenses payable by BHM. In addition, the Fund is subject to an operational services fee of 50bps per annum. NAV performance is provided for information purposes only. Shares in BHM do not necessarily trade at a price equal to the prevailing NAV per Share. As at 30 January 2015 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
ASC 820 Asset Valuation Categorisation*	Brevan Howard Master Fund Limited
	Unaudited estimates as at 30 January 2015
	% of Gross Market Value* Level 1 50.8 Level 2 48.8 Level 3 0.4
	Source: BHCM * These estimates are unaudited and have been calculated by BHCM using the same methodology as that used in the most recent audited financial statements of the Fund. These estimates are subject to change. Level 1: This represents the level of assets in the portfolio which are priced using unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2: This represents the level of assets in the portfolio which are priced using either (i) quoted prices that are identical or similar in markets that are not active or (ii) model-derived valuations for which all significant inputs are observable, either directly or indirectly in active markets. Level 3: This represents the level of assets in the portfolio which are priced or valued using inputs that are both significant to the fair value measurement and are not observable directly or indirectly in an active market.
Performance Review	The information in this section has been provided to BHM by BHCM During the month, the Fund made gains mainly in FX trading and, to a lesser extent, in equity macro and EUR interest rates trading, the latter mainly in asset swap trading. The Fund suffered small losses in USD interest rates trading. Monthly, quarterly and annual contribution (%) to the performance of BHM USD Shares (net of fees and expenses) by strategy group Macro Rates FX EMG Equity Commodity Credit Systematic Discount Management Total January 2.05 0.48 0.18 0.03 0.03 -0.01 0.32 0.02 0.04 3.14 QTD 2015 2.05 0.48 0.18 0.03 0.03 -0.01 0.32 0.02 0.04 3.14 YTD 2015 2.05 0.48 0.18 0.03 0.03 -0.01 0.32 0.02 0.04 3.14 Monthly, quarter-to-date and year-to-date figures are calculated by BHCM as at 30 January 2015, based on total performance data for each period provided by the Fund's administrator, International Fund Services (Ireland) Limited. Figures rounded to two decimal places. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Methodology and Definition of Monthly Contribution to Performance: Attribution is approximate and has been derived by allocating each trader book in the Fund to a single category. In cases where a trader book has activity in more than one category, the most relevant category has been selected. The above strategies are categorised as follows: "Macro": multi-asset global markets, mainly directional (for the Fund, the majority of risk in this category is in rates) "Rates": developed interest rates markets "FX": global FX forwards and options "EMG": global emerging markets "Equity": global equity markets including indices and other derivatives "Commodity": liquid commodity futures and options "Credit": corporate and asset-backed indices, bonds and CDS "Systematic": rules-based futures trading "Discount Management": buyback activity for discount management purposes
Manager's Market Review and Outlook	The information in this section has been provided to BHM by BHCM
	US The data in January accentuated the cross-currents facing the US economy. The labour market powered ahead. Combined with upward revisions to prior months, more than 1 million jobs were added in the last three months. Given the strength in hiring, it was not surprising that more people returned to the labour force to actively search for jobs as well. That increase in searchers pushed up the unemployment rate to 5.7%, but is an otherwise healthy sign. Finally, the peculiar drop in average hourly earnings reported in December was more than reversed in January. Over the last three months, earnings rose 2.6% annualised, a small but noticeable improvement in wage growth. By contrast, inflation is moving down. Headline consumer prices fell in January, pulling the year-over-year change below 1%. Given the decline in gasoline and other energy prices already seen, the year-over-year change in headline inflation may turn negative in the coming months. Core inflation is also edging down because of the pass-through of lower energy and import prices. For the second consecutive month, core prices were flat. In the midst of such sharp changes in energy prices and the exchange rate, it will take a few quarters before the underlying trend in inflation becomes clearer. In the meanwhile, readings on inflation expectations and wages will take on even more importance. Growth slowed in the fourth quarter and is likely to be revised down further still. GDP growth was held down by a decline in Government spending and net exports. However, the key parts of GDP were positive, paced by strong consumption outlays. GDP growth is expected to be well maintained in the current quarter. Putting the pieces together, the conflicting signals about unemployment and inflation make the Fed's job difficult. Clearly, the economy has improved significantly. But, cautious policy makers want to be confident that such gains are sustainable. With inflation moving down, there is an argument to wait and see. However, with the unemployment rate perhaps a few months away from full employment, the Federal Open Market Committee has to be forward looking. This debate is unlikely to be settled in the next few months, making for an interesting summer when the launch pad for lift-off appears to have narrowed to between June and September. EMU Business confidence and private consumption seems to have improved at the start of 2015, thanks to the combined impact of low oil prices and the loose monetary conditions, fuelled first by the expectation, and then the announcement, of the ECB bond buying plan. Both the EMU Composite PMI (to 52.6, still moderate, but the highest in 6 months) and the German IFO increased. The French INSEE stood stable, while Belgian business confidence deteriorated. Importantly, the improvement in business surveys was solely attributable to domestic components, as global demand dynamics remain moderate. At a country level, the PMI indicates that the improvement is more pronounced in Spain, where the Composite PMI was by far the highest of the area and the most elevated since 2007. In February, early indications on business confidence stemming from the Sentix index indicate a renewed surge, with the pan-EMU index getting close to the recent highs recorded in April 2014 (the all-time high was in June 2007). As to actual data, retail sales accelerated at the end of 2014, sealing the strongest quarterly increase, in Q4 2014, since 2006, boosted by lower energy prices. Industrial production was more moderate, undershooting consensus expectations and was flat in December, following a modest 0.2% m/m increase in November. The strength in December German industrial orders, however, bodes well for production at the beginning of 2015. Prices continue to fall: the euro area HICP annual inflation dropped to -0.6% y/y in January, due primarily, but not only, to a further fall in energy prices, as core inflation hit a new all-time low. The annual growth rate of EMU broad money supply M3 picked up further, rising to 3.6% y/y in December from 3.1% y/y in November. The sharp increase was mainly due to a base effect, but the underlying trend also clearly points upward. The ECB's preferred measure for growth rate of lending to the private sector recovered further, turning positive for the first time since July 2012 (to 0.1% y/y in December from -0.2% y/y in November). However, the improving outlook is clouded by uncertainty about Greece. Having achieved a landslide election victory the left-wing Syriza party moved quickly to form a new Government and announced a series of measures which seemed in conflict with the international bailout programmes. The current European support programme which was due to expire at the end of February has been conditionally extended for four months and the Greek Government entered difficult talks with its creditors about the future. The main differences in views are concentrated on parts of the labour market reforms implemented by the previous Government, as well as the future primary surpluses required to keep the Greek public debt sustainable. If the negotiations do not result in an agreement, the Greek Government and the Greek banks will face a difficult funding situation. The prospect of a forced exit of Greece from the EMU, though still remote, could have a serious adverse impact on the otherwise improving business and consumer sentiment in the euro area. UK Recent growth indicators have started to stabilise after a decline from their peak last summer. This is consistent with the view that UK growth is transitioning from a strong pace in excess of 3% to a more moderate pace of 2-2.5%. The housing market has been slowing, for nearly a year now, but is likely to stabilise at some point during the course of 2015 as long as there is no additional drag from macro-prudential tightening, and lower interest rates and the improvement in real incomes (from lower oil prices) provide some tailwinds. But house prices are not expected to restart on a strong upward path, so any consumption growth will be limited to the pace of real income growth, with no further reduction in savings. Wage inflation has improved slightly in recent months, along with productivity growth. Unit labour cost growth therefore remains weak, but the fact that consumption can be supported by some real income growth rather than a reduction in savings is a positive development, in the sense that it puts the consumption recovery on a sounder footing. Business investment growth is unlikely to accelerate from the solid pace in 2014 and is more likely to ease off a little. Export growth is likely to remain subdued as Eurozone growth remains subdued, even if somewhat improved over the last year thanks to ECB quantitative easing. Uncertainty ahead of and shortly after the general election is likely to weigh on business investment as well. Heightened turmoil in Greece remains an important downside tail-risk even for the UK, via both confidence and financial contagion channels. Fiscal policy is likely to turn more contractionary again, after austerity has been more or less paused in the past two years. The medium-term fiscal path will depend greatly on the outcome of the election, but it is anticipated the first year spending plans would be maintained by the main opposition party as well. Inflation is expected to be much weaker than in 2014. Lower oil prices play a big role of course, but core inflation is subdued too. The UK is anticipated to be skating closer to zero on headline inflation, and expected to spend the entire year well below the target. Against a background of only modest growth and weak inflationary pressure, there is no urgency at all for the Bank of England to hike rates. Rate hikes are likely to become a serious issue for discussion only towards the end of 2015 at the earliest. Japan Japan is recovering from its mid-2014 technical recession, though there is a dichotomy between so-called hard measures and survey data.  Direct measures of activity, such as industrial production, trade and retail sales moved up in the latter half of 2014. In the case of trade, the yen depreciation over the first half of 2014 is now showing through to external demand. Exports rose notably in the second half of 2014, while imports have moved sideways. On the other hand, survey data does not show the same improvement. In the last six months the Shoko-Chukin survey of small and medium-sized businesses is little changed. The Economy Watchers' survey is down a couple points, as is consumer confidence. The latest inflation data have shown some improvement of late.  The core measure, which includes energy costs, has been held back of late by declines in oil prices and is expected to decrease in the near term. Excluding food and energy, national prices have ticked up the last two months on a seasonally adjusted basis. That is better than the flat run seen in the middle of 2014, though prices need to accelerate further if the Bank of Japan is going to reach its goals. It is notable that Tokyo measures have been at best flat over the last half of 2014. The Abe Government made a stir recently when it was reported that Yasushi Harada, a strong supporter of the reflationist agenda, will be appointed to the BoJ.  That has led to speculation of another round of monetary easing.  Easing is not expected to be imminent but the BoJ continues to monitor activity data.  The latest median expectation for core inflation for fiscal year 2016 is a little above its 2% target. That might be regarded as optimistic as inflation would need to be close to a 2% annual rate by the middle of 2015 to meet that expectation. The plunge in oil prices and its pass through to even western core prices is anticipated to cloud trends in the near term. China Activity in China remained relatively subdued at the beginning of 2015. The PMIs, referring to both manufacturing and other sectors, produced by both Markit (HSBC) and the NBS remained soft. Indeed, the synthetic HSBC Composite PMI fell from 51.4 to a low 51.0. Other indicators have carried similar trends, including intensified disinflationary pressure, ongoing destocking process, and rising unemployment pressures. Indeed, CPI yearly inflation fell in January from 1.5% to 0.8%, below the 1% consensus. PPI inflation deepened. Such low inflation provides room for more policy easing. According to trade data in January, the trade balance hit another historical high of USD 60bn. Details of the report, however, were not encouraging, as both exports and imports fell on a sequential basis. The People's Bank of China (PBoC) cut the reserve requirement ratio (RRR) on 4 February. The overall package encompassed: a 50 bps RRR cut for all the financial institutions; an additional cut by 50 bps (i.e., 100 bps in total) for those banks lending to sectors considered as priority (i.e. small and medium enterprises and agricultural firms); and an additional 400 bps RRR cut for the Agricultural Development Bank of China. These measures are expected to inject approximately RMB 600-670bn liquidity into the system. The timing of this RRR cut came earlier than expected as most took the recent re-introduction of reverse repo as a signal of the PBoC's reluctance to cut the broad RRR. The nature of this RRR cut can be viewed as neutral, as it is aimed at offsetting the impact of rising capital outflows since mid-2014. Indeed, the PBoC kept the reverse repo rate unchanged at 4.8% the day following the announcement of the RRR cut. However, market expectations of further easing have now risen.
Enquiries	Northern Trust International Fund Administration Services (Guernsey) Limited Harry Rouillard [phone]

Important Legal Information and Disclaimer

BH Macro Limited ("BHM") is a feeder fund investing in Brevan Howard Master Fund Limited (the "Fund").  Brevan Howard Capital Management LP ("BHCM") has supplied certain information herein regarding BHM's and the Fund's performance and outlook.

The material relating to BHM and the Fund included in this report is provided for information purposes only, does not constitute an invitation or offer to subscribe for or purchase shares in BHM or the Fund and is not intended to constitute "marketing" of either BHM or the Fund as such term is understood for the purposes of the Alternative Investment Fund Managers Directive as it has been implemented in states of the European Economic Area. This material is not intended to provide a sufficient basis on which to make an investment decision. Information and opinions presented in this material relating to BHM and the Fund have been obtained or derived from sources believed to be reliable, but none of BHM, the Fund or BHCM make any representation as to their accuracy or completeness. Any estimates may be subject to error and significant fluctuation, especially during periods of high market volatility or disruption. Any estimates should be taken as indicative values only and no reliance should be placed on them. Estimated results, performance or achievements may materially differ from any actual results, performance or achievements. Except as required by applicable law, BHM, the Fund and BHCM expressly disclaim any obligations to update or revise such estimates to reflect any change in expectations, new information, subsequent events or otherwise.

Tax treatment depends on the individual circumstances of each investor in BHM and may be subject to change in the future. Returns may increase or decrease as a result of currency fluctuations.

You should note that, if you invest in BHM, your capital will be at risk and you may therefore lose some or all of any amount that you choose to invest. This material is not intended to constitute, and should not be construed as, investment advice.  All investments are subject to risk. You are advised to seek expert legal, financial, tax and other professional advice before making any investment decisions.

THE VALUE OF INVESTMENTS CAN GO DOWN AS WELL AS UP.  YOU MAY NOT GET BACK THE AMOUNT ORIGINALLY INVESTED AND YOU MAY LOSE ALL OF YOUR INVESTMENT.  PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE RESULTS.

Risk Factors

Acquiring shares in BHM may expose an investor to a significant risk of losing all of the amount invested. Any person who is in any doubt about investing in BHM (and therefore gaining exposure to the Fund) should consult an authorised person specialising in advising on such investments. Any person acquiring shares in BHM must be able to bear the risks involved. These include the following:

• The Fund is speculative and involves substantial risk.

• The Fund will be leveraged and will engage in speculative investment practices that may increase the risk of investment loss. The Fund may invest in illiquid securities.

• Past results of the Fund's investment managers are not necessarily indicative of future performance of the Fund, and the Fund's performance may be volatile.

• An investor could lose all or a substantial amount of his or her investment.

• The Fund's investment managers have total investment and trading authority over the Fund, and the Fund is dependent upon the services of the investment managers.

• Investments in the Fund are subject to restrictions on withdrawal or redemption and should be considered illiquid. There is no secondary market for investors' interests in the Fund and none is expected to develop.

• The investment managers' incentive compensation, fees and expenses may offset the Fund's trading and investment profits.

• The Fund is not required to provide periodic pricing or valuation information to investors with respect to individual investments.

• The Fund is not subject to the same regulatory requirements as mutual funds.

• A portion of the trades executed for the Fund may take place on foreign markets.

• The Fund and its investment managers are subject to conflicts of interest.

• The Fund is dependent on the services of certain key personnel, and, were certain or all of them to become unavailable, the Fund may prematurely terminate.

• The Fund's managers will receive performance-based compensation. Such compensation may give such managers an incentive to make riskier investments than they otherwise would.

• The Fund may make investments in securities of issuers in emerging markets. Investment in emerging markets involve particular risks, such as less strict market regulation, increased likelihood of severe inflation, unstable currencies, war, expropriation of property, limitations on foreign investments, increased market volatility, less favourable or unstable tax provisions, illiquid markets and social and political upheaval.

The above summary risk factors do not purport to be a complete description of the relevant risks of an investment in shares of BHM or the Fund and therefore reference should be made to publicly available documents and information.

 

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