Monthly Shareholder Report
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BH Macro Limited Monthly Shareholder Report May 2010
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Important Legal Information and Disclaimer BH Macro Limited (the "Fund"), is a feeder fund investing in the Brevan Howard Master Fund Limited ("BHMF"). Brevan Howard Asset Management LLP ("BHAM") has supplied the following information regarding BHMF's December 2009 performance and outlook. BHAM is authorised and regulated by the Financial Services Authority. This material constitutes a financial promotion for the purposes of the Financial Services and Markets Act 2000 (the "Act") and the handbook of rules and guidance issued from time to time by the FSA (the "FSA Rules"). The material relating to the Fund and BHMF included in this report has been prepared by BHAM and is provided for information purposes only and does not constitute an invitation or offer to subscribe for or purchase shares in the Fund. 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 the Fund and BHMF have been obtained or derived from sources believed by BHAM to be reliable, but BHAM makes no representation as to their accuracy or completeness. Estimated results, performance or achievements may materially differ from any actual results, performance or achievements. Except as required by applicable law, the Fund and BHAM expressly disclaim any obligations to update or revise such estimates to reflect any change in expectations, new information, subsequent events or otherwise. All investments are subject to risk. Prospective investors are advised to seek expert legal, financial, tax and other professional advice before making any investment decisions. Tax treatment depends on the individual circumstances of each investor in the Fund and may be subject to change in future. Returns may increase or decrease as a result of currency fluctuations. You should note that, if you invest in the Fund, 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. Potential investors in the Fund should seek their own independent financial advice. BHAM neither provides investment advice to, nor receives and transmits orders from, investors in the Fund nor does it carry on any other activities with or for such investors that constitute "MiFID or equivalent third country business" for the purposes of the FSA Rules. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE RESULTS |
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Summary information |
BH Macro Limited NAVs per share (as at 28 May 2010)
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USD Shares
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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 |
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2010 |
-0.27 |
-1.50 |
0.04 |
1.45 |
0.32 |
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|
|
|
|
|
0.02 |
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EUR Shares
|
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 |
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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 |
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2010 |
-0.30 |
-1.52 |
0.03 |
1.48 |
0.37 |
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0.03 |
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GBP Shares
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Jan |
Feb |
Mar |
Apr |
May |
Jun |
Jul |
Aug |
Sep |
Oct |
Nov |
Dec |
YTD |
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2007 |
- |
- |
0.11 |
0.83 |
0.17 |
2.28 |
2.55 |
3.26 |
5.92 |
0.04 |
3.08 |
0.89 |
20.67 |
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2008 |
10.18 |
6.85 |
-2.61 |
-2.33 |
0.95 |
2.91 |
1.33 |
1.21 |
-2.99 |
2.84 |
4.23 |
-0.67 |
23.25 |
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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 |
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2010 |
-0.23 |
-1.54 |
0.06 |
1.45 |
0.36 |
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0.09 |
Source: Underlying BHMF NAV data is provided by the Administrator of BHMF, International Fund Services (Ireland) Limited. BH Macro Limited NAV and NAV per Share data is provided by the Fund's Administrator, Northern Trust International Fund Administration Services (Guernsey) Limited. BH Macro Limited NAV per Share % Monthly Change are calculated by BHAM. BH Macro Limited 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 BH Macro Limited. In addition, BHMF is subject to an operational services fee of 50bps per annum.
NAV performance is provided for information purposes only. Shares in BH Macro Limited do not necessarily trade at a price equal to the prevailing NAV per Share.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
FAS 157 Asset Valuation Categorisation*
Brevan Howard Master Fund Limited ("BHMF")
Unaudited Estimates as at 28 May 2010
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% of NAV (Gross Market Value) |
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Level 1 |
58 |
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Level 2 |
42 |
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Level 3 |
0 |
Source: BHAM
* These estimates are unaudited and have been calculated by BHAM using the same methodology as that used for the 2009 audited financial statements of BHMF. 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
During the month, BHMF made profits in Rates, Macro, FX (mostly from short euro exposure) and EMG strategies (see definitions below), including gains in swap spreads, and basis swaps. Small losses were incurred in curve trades, equities and commodities.
Monthly contribution (%) to performance of BH Macro Limited USD Shares by asset class
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Total |
Macro |
Rates |
FX |
EMG |
Equity |
Commodity |
Credit |
Systematic |
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May 2010 |
0.32 |
0.18 |
0.26 |
0.06 |
0.12 |
-0.18 |
-0.09 |
-0.03 |
-0.01 |
Source: BHAM
Methodology and definition of Monthly Contribution to Performance:
Attribution is approximate and has been derived by allocating each trader book in BHMF 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 asset classes are categorised as follows:
"Macro": multi-asset global markets, mainly directional (for BHMF, 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
Market Review and Outlook
Market Commentary
US
In the April 2010 Shareholder Report, we quoted former Fed Chairman Alan Greenspan's caution from an earlier financial crisis in 1998: it's not credible for the US to remain "an oasis of prosperity unaffected by a world that is experiencing greatly increased stress." In May, asset price movements bore out the wisdom of Greenspan's words. In response to the sovereign crisis in Europe, stocks in the US lurched down about 8% in their worst performance since the depths of last year's financial crisis. Oil prices dropped more than $10 per barrel, the US dollar rallied, and US Treasuries, mortgages and high-quality corporate credit benefited as safe havens.
Judging the net effect of events in May on the US economy is going to be tricky. So far, there has been no appreciable impact on activity indicators, such as the ISM indexes. However, we believe the transmission mechanism is likely to work through financial markets. On the one hand, financial conditions worsened as stocks fell, issuance dried up and inter-bank funding markets tightened. On the other hand, the drop in oil prices and record-low mortgage rates are at least partial offsets. If the current dislocations persist, our view is that the net impact is going to produce a small drag on US growth in the second-half of the year and into 2011. However, uncertainty around such forecasts is especially great since the US could end up benefiting even more as a safe haven or suffer contagion effects from skittish financial markets.
We believe the impact on price inflation is unambiguous. Slower growth, the appreciation of the US dollar and lower commodity prices all point to even greater disinflation. This is an unwelcome development when nominal rates are constrained by the zero lower bound. The Fed may eventually face the dilemma of rising real interest rates and a slowing economy.
Meanwhile, recent policy developments have meant that the market has come to share our views in two respects. Firstly, it is going to be a long time before the Fed raises interest rates. With continued disinflation and downside risks to growth, there is simply no reason for the Fed to deviate from its patient policy accommodation. Secondly, the jury is still out on how well the economy can perform as monetary and fiscal stimuli wane. Judging by the developments in May, we believe that it certainly looks premature to declare that US growth is on a self-sustaining trajectory.
EMU
In May, the EMU sovereign debt crisis took centre stage once again. At the beginning of the month, the announcement of the aid package to Greece, which comprised a loan by the EMU countries and the IMF totalling €110 billion over three years, was unable to settle the market. After the announcement, bond yield spreads between peripheral European countries and Germany widened significantly again. The value of the euro maintained a steep rate of decline and the deteriorating environment in financial markets forced EMU policy-makers to take bolder actions.
On the weekend of 9 May 2010, a comprehensive package of measures aimed at preserving financial stability was announced. This package included the creation of a European stabilisation mechanism funded with €60 billion, which should provide direct funding to EMU countries, plus the creation of a Special Purpose Vehicle ("SPV") that is guaranteed on a pro-rata basis by the participating member states up to a volume of €440 billion and will borrow in the market in order to provide funding to EMU countries. The European Central Bank ("ECB") complemented such actions with the announcement of purchases of public and private bonds in the secondary market as well as new provisions of repo liquidity operations. Despite an initial positive reaction, financial markets suffered renewed deterioration as the ECB showed reluctance to step up bond purchases and the details of the SPV revealed an expensive backstop facility. In all, the authorities have not been able, thus far, to stop a crisis in confidence in the EMU and a declining appetite for EMU assets by so-called "real money" international investors and reserve managers, at a time when the issuance of government bonds and the funding needs of banks are increasing.
Headline macro data in May has shown overall resilience and still reflects the economic acceleration of the past few months, supported by inventory rebuilding and the positive effect of the weaker euro. Nevertheless, a few leading indicators have shown some softening in manufacturing and consumer expectations. The announced programmes of fiscal tightening, not only in the periphery, but also in the core of the EMU is likely to have started to negatively impact household spending intentions as well as domestic orders.
UK
In May, the main developments in the UK were some tentative signs of peaking growth momentum, still resilient or rising inflationary pressure, a fiscally conservative new coalition government and a dovish Bank of England ("BoE") policy message due to the downside risks from the worsening EMU sovereign crisis. While the activity surveys were generally still firm, there were some tentative signs of slowing momentum below the headline data. Furthermore, consumer confidence showed some scaling back of growth expectations and retail activity was broadly flat as strong nominal spending growth was offset by high inflation. Housing market turnover remained subdued, but the recovery in residential construction is well underway.
Inflation indicators point to continued resilience as core CPI continues to surprise the market and the BoE on the upside. Inflationary pressures in the production pipeline remain elevated and wage growth has also started to recover. Inflation expectations surveys showed a further rise. Altogether, the evidence for sharp easing in inflation that the BoE expects remains quite weak at this point in time. However, the worsening of the EMU sovereign debt situation, which has led to a fall in confidence as well as to sharper fiscal consolidation plans, poses a significant downside risk to the strength of the UK recovery. For the BoE, this is an important counterweight to the concerns about resilient inflation and rising inflation expectations. On the UK political front, the new Conservative-Liberal coalition government is cutting the deficit earlier and more rapidly than the previous Labour government.
Japan
In Japan, the recovery continued and actually accelerated in the first quarter of this year, as GDP expanded in real terms by 5.0% q/q, following a 4.6% q/q increase in Q4 of 2009. In the current quarter, immediate indications remain relatively solid for manufacturing, on the supply side, and for exports, on the demand side. However, some signs of softening are emerging in some leading indicators of production, as well as in economic sectors more closely related to developments in domestic demand. On the one hand, industrial production grew by a satisfactory 1.3% m/m in April, after 1.2% in March, and the Manufacturing PMI rose from 53.8 to 54.7 in May, the highest level since July 2006. However, on the other hand, industrial production expectations surveyed by the MITI showed a meaningful slowdown for both May and June, while the Services PMI recorded a significant drop from 49.1 to 47.4. Consistently, the Economic Watchers Survey, which reflects the perceptions of domestic providers of services, also showed a moderate decline. Furthermore, the pace of the improvement in the labour market recorded a halt as the job-to-applicant ratio declined slightly, while the pace of deflation actually accelerated as y/y changes in core CPI (excluding food and energy) slowed from -1.1% y/y to -1.5% in April. Political instability escalated following another change of government, whose impact on confidence still has to be assessed.
China
In China, both the manufacturing and the services PMI recorded significant falls in May, indicating that economic growth is likely to have peaked and is poised to slow down. The source of the moderation is domestic at this point in time, as shown by New Orders statistics as well as the dichotomy between import and export dynamics. As a result, the trade surplus is widening sharply again. Looking ahead, China's exports to Europe, which account for slightly less than 5% of China's GDP, are likely to be hurt by the indirect effects of the EMU crisis starting from the third quarter. CPI inflation recorded a further uplift in May, from 2.8% y/y to 3.1%, the highest level since October 2008. Furthermore, upward pressures on wages are on the rise as demand for labour outstrips supply, and rising living costs erode purchasing power. Some large manufacturers have raised workers' wages by 20-30% and we expect more firms to follow suit.
Policy-wise, the People's Bank of China ("PBOC") raised the reserve requirement ratio ("RRR") for the third time this year, by 50bps to an average of 16.5%. The three RRR hikes to date have substantially tightened money market liquidity. The 7-day repo rate has risen sharply, pushing up both the 3-month and 1-year PBOC bill yields. In the meantime, property tightening policies continue, through tighter collection of land appreciation tax and the imposition of strict standards for second home mortgages. Thus far, we have not detected any signs of policy easing. On the currency side, Chinese authorities have announced their intention to increase the flexibility of the exchange rate of the yuan.
Enquiries
Northern Trust International Fund Administration Services (Guernsey) Limited
Harry Rouillard +44 (0) 1481 74 5315
Important Legal Information and Disclaimer
This material has been prepared by Brevan Howard Asset Management LLP ("BHAM"). BHAM is authorised and regulated by the Financial Services Authority of the United Kingdom (the "FSA"). BHAM may provide you with further data or material but makes no representation that such further data or material will be calculated or produced on the same basis, or in the same format, as this material. BHAM has used reasonable skill and care in the preparation of this material from sources BHAM believes to be reliable but BHAM and its affiliates give no warranties, representations or undertakings, express or implied, as to the accuracy or completeness of this information, and BHAM and its affiliates accept no liability for the accuracy or completeness of any such information. This material has been provided specifically for the use of the intended recipient only and must be treated as proprietary and confidential. It may not be passed on, nor reproduced in any form, in whole or in part, under any circumstances without express written consent from BHAM.
This material is provided for information purposes only and does not constitute an invitation or offer to subscribe for or purchase any of the products or services mentioned nor is it intended to constitute, or be construed as, investment advice. Any such offer may only be made by means of delivery of the relevant approved prospectus or offering memorandum (the "Prospectus"). The Prospectus must be received and reviewed prior to any investment decision. The material provided is not intended to provide a sufficient basis on which to make an investment decision. Potential investors in any products referred to in this material or to which this material relates (each a "Fund" and, collectively, the "Funds") should seek their own independent financial, legal and taxation advice. Interests in the Funds have not been and will not be registered under any securities laws of the United States of America or any of its territories or possessions or areas subject to its jurisdiction, and may not be offered for sale or sold to nationals or residents thereof except pursuant to an exemption from the registration requirements of the U.S. Securities Act of 1933, as amended (the "Securities Act"), and any applicable state laws.
The Funds are only available to persons to whom such products may lawfully be promoted in any jurisdiction. In the United Kingdom, this material is directed only at, and made available only to, professional clients and eligible counterparties (as defined in the FSA's Handbook of Rules and Guidance (the "FSA Rules")). This material is only provided to United States persons that are "accredited investors" as defined in Regulation D under the Securities Act and "qualified purchasers" as defined in the U.S. Investment Company Act of 1940, as amended (the "Company Act"), and the rules promulgated thereunder. Any Funds and services described in this material are only available to such persons and the information herein should not be relied or acted on by any other person. This material is not intended for use by, or directed at, retail customers (as defined in the FSA Rules). BHAM neither provides investment advice to, nor receives and transmits orders from, investors in any Funds nor does it carry on any other activities with or for such investors that constitute "MiFID or equivalent third country business" for the purposes of the FSA Rules.
An investment in the Funds is speculative and involves a high degree of risk, which each investor must carefully consider. BHAM and its affiliates give no representations, warranties or undertakings that any indicative performance or return will be achieved in the future or that the investment objectives and policies from time to time of the Funds will be met. Past results are not indicative of future results. The value of investments and the income therefrom can go down as well as up, and an investor could lose all or a substantial amount of his or her investment. While the Funds are subject to market risks common to other types of investments, including market volatility, the Funds employ certain trading techniques, such as the use of leverage and other speculative investment practices that may increase the risk of investment loss. The Funds' managers will receive performance-based compensation. Such compensation may give such managers an incentive to make riskier investments than they otherwise would. The Funds' managers are subject to other conflicts of interest described in the applicable Prospectus. Investments in the Funds are subject to periodic liquidity, which may be suspended under certain conditions, as well as restrictions on transfer. There is no secondary market for interests in the Funds, and none is expected to develop. Therefore, any person subscribing for an investment must be able to bear the risks involved and must meet the suitability requirements set forth in the relevant Fund's Prospectus. Some or all alternative investment programs may not be suitable for certain investors. Returns generated from an investment in a Fund may not adequately compensate investors for the business and financial risks assumed.
Other risks associated with the Fund's investments include, but are not limited to, the fact that the Funds: can be highly illiquid; are not required to provide periodic pricing or valuation information to investors; may involve complex tax structures and delays in distributing important tax information; are not subject to the same regulatory requirements as investment funds registered under the Company Act; often charge higher fees and the high fees may offset the fund's trading profits; may have a no operating history or a limited operating history; can have performance that is volatile; invest in instruments that have been subject to periods of excessive volatility in the past, and such periods can be expected to recur; may have a fund manager who has total trading authority over the fund and the use of a single adviser applying generally similar trading programs could mean a lack of diversification, and consequentially, higher risk; and may effect a substantial portion of its trades on non-US exchanges.
The text and statistical data or any portion thereof contained in this presentation may not be permanently stored in a computer, published, rewritten for broadcast or publication or redistributed in any medium, except with the express written permission of BHAM. BHAM will not be liable for any inaccuracies, errors or omissions in the material or in the transmission or delivery of all or any part thereof or for any damage arising from any of the foregoing. References to indices are included to show the general trends in the relevant markets, and are not intended to imply that the Funds were comparable to these indices in either composition or risk.
Brevan Howard US LLC, a Delaware limited liability company (the "Placement Agent") acts as non-exclusive placement agent with respect to the sale of the Interests to certain investors in the Funds, and may provide such investors with marketing and other materials on behalf of Brevan Howard and the Funds. The Placement Agent is registered as a broker-dealer under the U.S. Securities Exchange Act of 1934, as amended, and under various States' securities laws, and is a member of the Financial Industry Regulatory Authority, Inc. The Placement Agent is not an affiliate of BHAM.
This information is provided by RNS
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