Monthly Shareholder Report-February 2015
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BH MACRO LIMITED MONTHLY SHAREHOLDER REPORT: FEBRUARY 2015
YOUR ATTENTION IS DRAWN TO THE DISCLAIMER AT THE END OF THIS DOCUMENT |
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BH Macro Limited |
Overview |
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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)
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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.
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Total Assets: |
$1,762 mm¹ |
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1. Estimated as at 27 February 2015 by BHM's administrator, Northern Trust.
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Summary Information |
BH Macro Limited NAV per Share (estimated as at 27 February 2015) |
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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. 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. *Estimated as at 27 February 2015 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
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ASC 820 Asset Valuation Categorisation* |
Brevan Howard Master Fund Limited |
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Unaudited estimates as at 27 February 2015 |
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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.
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Performance Review |
The information in this section has been provided to BHM by BHCM
During the month, the Fund suffered some losses in FX macro trading which were partially offset by gains in equity macro trading.
Monthly, quarterly and annual contribution (%) to the performance of BHM USD Shares (net of fees and expenses) by strategy group
Monthly, quarter-to-date and year-to-date figures are estimated by BHCM as at 27 February 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 |
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Manager's Market Review and Outlook |
The information in this section has been provided to BHM by BHCM |
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US Recent trends were generally confirmed by the incoming indicators in February. The labour market continues to impress, with another large gain in payroll employment and a decline in the unemployment rate to 5.5%. The unemployment rate now stands at the upper-end of the range of estimates for full employment with no sign that its rate of descent has slowed. As a comparison, the Federal Reserve began the last rate-hiking cycle in June 2004 when the unemployment rate was 5.6%. Nominal outlays by households have been subdued by the sharp fall in consumer energy prices. However, real outlays were robust in the fourth quarter and have been moderate in the current quarter, a slowdown partly owing to another harsh winter. Investment spending has been choppy in recent months. Orders for core capital goods ticked up, high-tech spending appears to be moving forward, and business structures were mixed. The oil sector is pulling back on capital spending but other sectors like hotels, offices, and manufacturing are adding capacity. Housing has suffered through the harsh winter as well. Some of the most interesting developments have been with price and wage inflation. Core CPI inflation surprised on the upside in January. At the same time, changes in legislation held down medical prices at the start of the calendar year. Combining these two forces, the key price index for core personal consumption expenditures rose a muted 1.3% over the last year. Wages have shown some evidence of firming so the announcement by Wal-Mart (the country's largest private employer) that it is planning to increase wages across the board confirmed what is beginning to be seen in the various official data sources. In her Congressional testimony, Chair Yellen laid out the next milestone in the Fed's plan for monetary policy normalisation. She indicated that policy makers would have to be "reasonably confident" that inflation would return to its 2% mandate-consistent rate in the medium run in order to lift-off. Reasonable confidence over the medium run is not an excessively high bar, but it is also a subjective one. A number of her colleagues echoed that sentiment and pointed to lift-off in the June-September period, with the exact choice depending on how the data develops.
EMU In the first quarter of 2015, the EMU is consolidating the cyclical recovery which started at end of the last quarter of 2014 - when GDP expanded at a 1.3% q/q annualised pace - on the back of the drop in prices, the improvement in bank credit conditions and the impulse stemming from the anticipation and then the announcement of the European Central Bank's quantitative easing (QE). In January, the EMU unemployment rate fell to 11.2%, the third consecutive monthly decline; retail sales bounced, by a strong 1.1% m/m. Car sales and construction were strong too. Industrial production was, however, more moderate, increasing only slightly, as demand from investments and external demand was more subdued. In February, consumer confidence surged further. Business confidence was boosted by business services and construction, while manufacturing and retail did not improve. On the inflation side, the HICP yearly growth rate recovered to -0.3% y/y in February from its cycle low of -0.6% y/y in January. The rise in headline inflation in February was mainly due to the non-core components, energy and food, while core inflation held steady at a low 0.6% y/y. The annual growth rate of EMU broad money supply M3 picked up further, rising to 4.1% y/y in January, as did net lending, although still at low levels. In its second policy meeting of the year, the ECB provided further details of its QE programme. Purchases of Government bonds started on 9 March, and will proceed until September 2016 or later, once inflation has reached a path consistent with the definition of price stability. The ECB clarified several implementation aspects. Most importantly, it was stated that the purchases of assets with negative yields is permissible and ECB President Draghi also clarified that no assets with a yield below the current deposit facility rate of -0.20% will be bought. Some large national central banks have expressed their reservations towards large scale purchases of negative-yielding assets. The published legal documentation supporting QE revealed that the ECB is taking the potential implementation risks seriously. These risks arise from the fact that the ECB is conducting purchases under negative interest rates and shrinking net supply from the euro area Governments. The national central banks which will carry out most of the purchases will have leeway in adjusting their purchases according to availability of bonds and the prevailing yields. The ECB also published updated staff macro projections in its meeting. These were revised up sharply, with growth expected to firm to just above 1.5% y/y in 2015, from 1.0% back in December, and to then settle at a 2% annualised pace through to 2017. Inflation is expected to rise rapidly from 0% y/y this year (revised down from 0.7% y/y in the December projections) to 1.4% in 2016 and up to 1.8% y/y in 2017, thus very close to the ECB definition of price stability. The Greek financing problems continued to unsettle the political landscape in the euro zone. After the Eurogroup and the Greek Government reached an agreement of a four-month extension to the ongoing second bailout progamme, the focus shifted to the implementation of the conditions underlying the agreement. The left wing of the ruling Syriza party staged a revolt against the agreement and Prime Minister Tsipras did not put the agreement to a vote in the Parliament. Meanwhile the cash situation of the Greek Government is deteriorating quickly as tax collection is lagging behind and important debt redemptions to the IMF need to be serviced, which are putting strain on available resources, questioning the possibility that all payments can be made until the end of the programme extension in June. Meanwhile the ECB has firmly refused to provide any assistance to Greece beyond what is necessary to prevent insolvency of the banking sector.
UK Recent growth indicators have started to stabilise or pick-up slightly after a decline from their peak last summer. This is consistent with the view that UK growth has transitioned from a strong pace in excess of 3% to a more moderate pace of 2-2.5%, but is not slowing any further. Housing market activity looks to be stabilising. Housing market activity had been declining for most of 2014 due to macro-prudential tightening and speculation of interest rate hikes. With no additional macro-prudential tightening since May 2014, and a reduction in market interest rates, there is now room for stabilisation and even some modest improvement ahead. With the usual lags, that should mean that house price inflation should stabilise as well, after a marked slowing last year. Business investment growth is unlikely to accelerate from the solid pace in 2014, and is more likely to ease off a little. An appreciation of around 4% in the trade-weighted exchange rate will also be a headwind. Uncertainty ahead of and in all likelihood immediately after the general election in May 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 contractionary again, after austerity has been more or less paused over the past two years. The medium-term fiscal path will depend greatly on the outcome of the election, but it seems the first year spending plans will be maintained by the main opposition party. Wage inflation has improved slightly in recent months, along with productivity growth. But wage pressure remains subdued relative to the rapid decline in the unemployment rate. Strong actual and potential labour supply increases from immigration, increased participation of younger workers and longer participation of older workers are likely to keep wage growth low relative to the pre-crisis period. Inflation is expected to be much weaker than in 2014. Lower oil prices play a big role of course, but core inflation is subdued as well. Headline inflation is anticipated to be skating closer to zero and expected to remain well below the Bank of England's target in 2015. The modest pick-up in wage growth to date, as well as the fall in inflation, does mean that consumption can be supported by some real income growth rather than a reduction in savings. This is a positive development, in the sense that it puts the consumption recovery on a sounder footing. Against a background of decent but not booming growth, combined with weak inflationary pressure, there is no urgency for the Bank of England to hike rates.
Japan The economic picture in Japan has not changed much in the past month. On the one hand, so called hard-data came in particularly strong for January, continuing the pattern seen in the past few months. Industrial production, real manufacturing shipments and exports all posted notable seasonally adjusted gains. Real GDP for the fourth quarter recorded a 2.25% annualised rate increase, which signals an end to the short, "technical" recession. Private domestic demand lagged behind though, as GDP was boosted by strong exports. On the other hand, survey data, such as consumer confidence and the economy watchers survey, have mostly continued to move sideways at levels well below those that prevailed before the consumption tax hike. The one exception is the Shoko-Chukin Survey of small and medium-sized firms, which improved in January. The news on inflation was also mixed. Core inflation (according to the Bank of Japan's definition) declined for Japan on a seasonally adjusted basis in January, held down by a drop in energy prices. Tokyo inflation data for February point to a higher outcome in the upcoming report. Based on some recent Government moves to reform the agricultural sector, including some concessions in recent talks, optimism over prospects for a final deal on the Trans-Pacific trade pact has improved. Concluding a deal, however, requires the U.S. Congress to grant the President trade promotion authority. Legislative prospects, however, have dimmed somewhat as a coalition of conservative politicians have come out against granting such authority. Hence, the US President needs more support from his own party. Such support may require language on currency manipulation, which would add a new complication to the talks.
China Despite some marginal improvement, activity in China has not shown any clear signs of a turnaround in February or March. The PMIs, referring to both manufacturing and other sectors, produced by both Markit (HSBC) and the National Bureau of Statistics somewhat improved in February, and the synthetic HSBC Composite PMI increased from 51 to 51.8. Some details of the surveys were more subdued than the headlines, especially the inventory cycle. Moreover, and most importantly, disinflationary pressures intensified, as did the deterioration of the unemployment picture. Real activity indicators including industrial production, fixed-asset investment, and retail sales in January and February disappointed against the market's expectation. In particular, industrial production growth slowed to 6.8%, the worst since the 2008 financial crisis. CPI yearly inflation increased from 0.8% y/y in January to 1.4% y/y in February, above the 1% consensus. PPI inflation fell again. Such low inflation provides room for more policy easing. According to trade data in February, the trade balance hit another historical high of USD 60bn, although partly explained by the effect of a late Chinese New Year. However details of the report were not encouraging, as imports have continued to fall in both value and quantity terms. The People's Bank of China (PBoC) cut its benchmark interest rate again on 28 February. It is another asymmetric cut with the benchmark deposit rate lowered by only 5 bps but the benchmark lending rate lowered by 25bps. The PBoC stated that this cut aimed to lower financing cost in real terms in a low-inflation environment. In addition, it mentioned that the cut in November 2014 was effective in bringing down the average lending rate. Following this benchmark interest rate cut, the PBoC also lowered its open market operation rates by about 10 bps, while the 7-day fixing repo rate stayed at an elevated level. The market expects further policy easing, including cuts in both the required reserve ratio and in official interest rates.
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Enquiries |
Northern Trust International Fund Administration Services (Guernsey) Limited Harry Rouillard +44 (0) 1481 74 5315
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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.
This information is provided by RNS
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