Monthly Shareholder Report - January 2018
| BH MACRO LIMITED MONTHLY SHAREHOLDER REPORT: JANUARY 2018 YOUR ATTENTION IS DRAWN TO THE DISCLAIMER AT THE END OF THIS DOCUMENT |
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| BH Macro Limited | Overview | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Manager: Brevan Howard Capital Management LP (“BHCMâ€) Administrator: Northern Trust International Fund Administration Services (Guernsey) Limited (“Northern Trustâ€) Corporate Broker: J.P. Morgan Cazenove Listing: London Stock Exchange (Premium Listing) |
BH Macro Limited (“BHMâ€) 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 “Fundâ€). 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. |
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| Total Assets: | $501 mm¹ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1. As at 31 January 2018. Source: BHM's administrator, Northern Trust. |
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| Summary Information | BH Macro Limited NAV per Share (Calculated as at 31 January 2018) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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BH Macro Limited NAV per Share % Monthly Change |
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| Source: Fund NAV data is provided by the administrator of the Fund, International Fund Services (Ireland) Limited (“IFSâ€). 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 and all other fees and expenses payable by BHM. In addition, the Fund is subject to an operational services fee. With effect from 1 April 2017, the management fee is 0.5% per annum. BHM’s investment in the Fund is subject to an operational services fee of 0.5% per annum. No management fee or operational services fee is charged in respect of performance related growth of NAV for each class of share in excess of its level on 1 April 2017 as if the tender offer commenced by BHM on 27 January 2017 had completed on 1 April 2017. 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. Data as at 31 January 2018 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. |
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| ASC 820 Asset Valuation Categorisation on a non look-through basis* ASC 820 Asset Valuation Categorisation on a look-through basis* Performance Review |
Brevan Howard Master Fund Limited | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unaudited as at 31 January 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Source: BHCM * This data is unaudited and has been calculated by BHCM using the same methodology as that used in the most recent audited financial statements of the Fund. The relative size of each category is subject to change. Sum may not total 100% due to rounding. 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. At NAV: This represents the level of assets in the portfolio that are invested in other Brevan Howard funds and priced or valued at NAV.
Source: BHCM * This data reflects the combined ASC 820 levels of the Fund and the underlying allocations in which the Fund is invested, proportional to each of the underlying allocation’s weighting in the Fund’s portfolio. The data is unaudited and has been calculated by BHCM using the same methodology as that used in the most recent audited financial statements of the Fund and any underlying funds (as the case may be). The relative size of each category is subject to change. Sum may not total 100% due to rounding. 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. The information in this section has been provided to BHM by BHCM. In January 2018, gains came primarily from directional and yield curve positioning in US interest rates as well as from equity option positioning in the S&P. Smaller gains were also generated from tactical trading across a variety of interest rate markets as well as from a short USD bias in FX trading. The performance review and attributions are derived from data calculated by BHCM, based on total performance data for each period provided by the Fund’s administrator (IFS) and risk data provided by BHCM, as at 31 January 2018. |
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Manager's Market Review and Outlook Enquiries |
Performance by Asset Class Monthly, quarterly and annual contribution (%) to the performance of BHM USD Shares (net of fees and expenses) by asset class as at 31 January 2018
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Methodology and Definition of Contribution to Performance: Attribution by asset class is produced at the instrument level, with adjustments made based on risk estimates. The above asset classes are categorised as follows: “Ratesâ€: interest rates markets “Equityâ€: equity markets including indices and other derivatives Performance by Strategy Group Monthly, quarterly and annual contribution (%) to the performance of BHM USD Shares (net of fees and expenses) by strategy group as at 31 January 2018
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Methodology and Definition of Contribution to Performance: Strategy Group 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: “Macroâ€: multi-asset global markets, mainly directional (for the Fund, the majority of risk in this category is in rates) “Systematicâ€: rules-based futures trading “Ratesâ€: developed interest rates markets “FXâ€: global FX forwards and options “Equityâ€: global equity markets including indices and other derivatives “Creditâ€: corporate and asset-backed indices, bonds and CDS “EMGâ€: global emerging markets “Commodityâ€: liquid commodity futures and options The information in this section has been provided to BHM by BHCM US Employment growth bounced back in January, despite inclement weather that would have normally disrupted hiring. The unemployment rate remained at a very low 4.1%, while wages showed some signs of life by accelerating to a 2.9% increase over the last year. The latter move caught the equity market off guard and helped contribute to the recent retrenchment in risky asset prices. Real Gross Domestic Product (“GDPâ€) rose 2.6% at an annual rate in Q4. Private domestic final purchases (essentially GDP less government, inventories and net exports) jumped 4.6%, its best outturn in more than three years. The external sector subtracted 1.1ppts from growth, as the brisk pace of imports outpaced healthy exports, and the change in inventory investment subtracted another 0.7ppts. Looking forward, growth momentum appears to be well maintained. The fundamentals underlying consumption are solid, despite the most recent divot in equity wealth. Forward-looking indicators of business investment are near record highs and hard data are positive. Given the strong underlying dynamics, inventories will have to be rebuilt in the first half of the year, a development that will add to growth. The only notable drag on growth should remain net exports, as the US tends to import more than it exports during periods of strong activity. Core inflation bottomed at 1.3% y/y in August and inched up to 1.5% in December. In the last three months, core prices have accelerated to an annual rate of 1.9%, little different from the Federal Reserve’s 2% target. As the one-time declines in mobile phone prices last spring drop out of the y/y calculations in the coming months, core inflation should stabilise around 1.75%. Headline inflation has edged up as well on firmer energy prices. Drama in Washington attracted investors’ attention in the last month. Secretary of the Treasury, Steven Mnuchin, seemed to favour a weak US dollar policy with comment in Davos, but quickly backtracked after a sharp market response. After several iterations, Congress passed a budget outline for fiscal years 2018 and 2019 that results in sizable increases in federal spending on everything from defense, domestic entitlements, fighting opioid addiction, and infrastructure. Although there is a difference between budget authority and outlays, estimates suggest that the spending will add at least a few tenths to growth over the next two calendar years. That comes on top of the added growth from the recently passed tax reform/cuts. Meanwhile, in its January Federal Open Market Committee statement, the Federal Reserve hinted at more confidence in the economic outlook and additional rate hikes. UK Although the economy has slowed over the past year, on account of prevailing political uncertainty, real GDP in the UK has continued to grow at a moderate pace, supported by a thriving global economy and a low exchange rate. GDP grew 0.5% q/q in Q4, up from 0.4% in Q3, bringing the annual rate to 1.5% y/y. The relatively resilient pace of growth in Q4 occurred despite the temporary shut-down of the North Sea ‘Forties pipeline’, which detracted roughly 5bps from GDP. Looking ahead, the resumption of the Forties pipeline should boost GDP by 0.1ppts in the next quarter. More generally, although business surveys have moderated somewhat in January, the composite Purchasing Managers’ Index (“PMIâ€) fell 1.5pts to 53.5, surveys suggest that the economy should continue to grow broadly in line with the pace seen over the past year. The labour market has also continued to perform moderately well, with employment growing 1.3% y/y. The rise in employment has just been sufficient enough to keep the unemployment rate unchanged at 4.3% over the latest four months, which is otherwise at the lowest rate since 1975. The mix of ongoing employment growth, a modest pick-up in wages and slowing price inflation should support the outlook for the consumer, especially in the face of a housing market which has slowed materially since the EU membership referendum; house prices have risen by around 2% y/y, a much more modest pace compared to the 6-7% pace seen prior to the referendum. Despite only moderate growth, data suggests there is little spare capacity in the economy. Alongside the low levels of unemployment, there has been a pick up in wage growth in most recent data, with average weekly earnings growing around 3% annualised as of November. Although wage growth remains muted compared to pre-crisis average growth rates, the current pace of wage growth should contribute to higher unit labour costs given the modest rate of productivity growth. In addition, various surveys have alluded to increasing difficulties in the recruitment of labour, suggesting wages may grow more markedly in the future. Headline inflation, which currently sits near its recent peak at 3%, is projected to moderate in the medium term as the effects from the earlier exchange rate shock are expected to fade. However, the rise in prices stemming from the earlier depreciation in the exchange rate is proving to be more persistent than originally anticipated; for example core inflation rose 0.2ppts to 2.7% y/y in January. In general, the lack of spare capacity and expected pick up in wages should support domestic inflationary pressures in the medium term. At the Bank of England’s most recent Monetary Policy Committee (“MPCâ€) meeting, members voted unanimously to keep the Bank Rate unchanged at 0.5%, after having already raised it 25bps in November. However, due to a greater prospect of excess demand, the MPC said that it will need to bring inflation back to the 2% target within a ‘more conventional horizon’, i.e. sooner than was previously indicated. This implies that monetary policy would need to be tightened somewhat earlier, and by a somewhat greater extent, over the forecast period than was anticipated at the time of the November Inflation Report. In December, the EU council declared that sufficient progress has been made on the first phase of the Brexit negotiations (divorce bill, rights of citizens and Irish border) to move onto the second phase regarding transition and the framework for the future relationship between the EU and UK. Although much of the detail still needs to be agreed, officials are aiming to achieve a deal on the transition period by the end of March. Meanwhile, the UK government is yet to publicly announce what kind of ‘end-state’ relationship it is seeking to achieve with the EU. EMU In Q4 of 2017, the EMU economy, although still expanding at a relative brisk pace (0.6% q/q and 2.7% y/y), slowed somewhat from Q3 (0.7% q/q and 2.8% y/y). Amongst major countries, Italy remained the underperformer, at 0.3% q/q, while, for the first time in a while, France was the outperformer, at 0.7% q/q. The rhythm of activity was sturdy at the beginning of 2018 according to the PMI survey, whose composite index advanced further from 58.1 to a very strong 58.8. However, some signs that the business cycle might be peaking stemmed from the usually leading Manufacturing PMI component, which fell from 60.5 to 59.5, and from the “Expectations†component of the German ifo Business Survey, which fell for the second month in a row from 109.4 to 108.4, 2.6 points below the November high. Inflation remained subdued, with the headline Harmonised Index of Consumer Prices (“HICPâ€) slowing in January from 1.4% y/y to 1.3% y/y and, most importantly from a monetary policy standpoint, core inflation at 1.01% y/y, was only marginally up from 0.95% y/y in the last month of 2017. Moreover, the very modest pick up of core inflation in January was due to a spike in non-energy industrial goods (2.3% m/m annualised according to the seasonally adjusted estimates of the European Central Bank (“ECBâ€)), likely due to a shift in seasonality of clothing prices which is poised to unwind in February. Consistently, at its first policy meeting of 2018, the ECB’s monetary policy stance and communication remained unchanged, defying expectations of some market participants of a shift especially of forward guidance in a more hawkish direction. Indeed, both the Introductory Statement and the Q&A session led by the ECB President, conveyed the message that, although economic growth is exceeding expectations, inflation remains far from the self-sustained convergence to the ECB definition of price stability. Moreover, the ECB stepped up its tones against the pace of the appreciation of the exchange rate of the EUR which was not consistent with fundamentals, inducing an unwanted tightening of financial conditions which would pose additional downside risks to the inflation outlook. Japan Two developments this month confirm that the authorities are not ready to shift their stance on yield-curve control policy, and that some market participants got ahead of themselves. First, multiple media reports indicate that the government is ready to reappoint Haruhiko Kuroda as head of the Bank of Japan (“BoJâ€). Even though it is not official yet, it is still an affirmation of BoJ policy to date. Second as the 10-year Japanese Government Bond rate moved up to 0.10% the BoJ announced in early February unlimited fixed-rate purchases at 0.11%. Given market chatter associated with the lower purchase level in January and the drift in rates, the BoJ probably needed to draw a line somewhere that it was not ready to abandon its yield-control policy. That signals an intent to maintain its policy going forward. On the other hand, the BoJ has also painted a bright target that markets could view as an explicit test the next time pressures mount. The latest inflation information has been mixed. Japan’s western core rate was flat on a seasonally adjusted basis in December. It seems to be running at about a 0.5% rate, a little faster than the y/y rate of 0.1% but still well behind a path consistent with the BoJ’s expectations. Tokyo prices have been running hotter, increasing 0.2% on a seasonally adjusted basis in December and January. Inflation expectations have edged up of late, rising 0.3ppts over the last four months. On the other hand, the yen has strengthened against the dollar, moving to the firm end of the range seen in the last year. Real GDP rose only 0.5% at an annualised rate in Q4, its slowest level since the end of 2015, which is the last time GDP dipped. Coming off two straight quarters of growth well above a 2% rate, the weakness in itself does not portend a softening in demand. Net exports reduced growth by 0.3ppts, as imports rose even faster than the 10% pace of exports. Industrial production rose sharply in December, but the Economy Watchers index dropped sharply in January to a level just below the waterline and to its relatively weakest level since July. The Company Secretary Northern Trust International Fund Administration Services (Guernsey) Limited bhfa@ntrs.com +44 (0) 1481 745736 |
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 (“BHCMâ€) 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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