Monthly Shareholder Report - January 2011
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BH MACRO LIMITED MONTHLY SHAREHOLDER REPORT JANUARY 2011 ADVO2453 CONFIDENTIAL DO NOT COPY OR DISTRIBUTE |
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Important Legal Information and Disclaimer BH Macro Limited ("the Fund"), is a feeder fund investing in Brevan Howard Master Fund Limited ("BHMF"). Brevan Howard Asset Management LLP ("BHAM") has supplied the information herein regarding BHMF's 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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OverviewSummary Information |
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. BH Macro Limited NAV per share (estimated as at 31 January 2011)
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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 |
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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 |
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2011 |
0.63* |
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0.63* |
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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 |
|
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 |
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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 |
1.39 |
-1.93 |
1.25 |
1.38 |
-0.35 |
-0.34 |
-0.46 |
0.93 |
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2011 |
0.69* |
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0.69* |
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GBP Shares
|
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 |
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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 |
1.39 |
-1.96 |
1.23 |
1.42 |
-0.35 |
-0.30* |
-0.45 |
1.03 |
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2011 |
0.64* |
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0.64* |
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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 the Fund's Administrator, Northern Trust International Fund Administration Services (Guernsey) Limited. BHM NAV per Share % Monthly Change is calculated by BHAM. 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 31 January 2011.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
FAS 157 Asset Valuation Categorisation*
Brevan Howard Master Fund Limited
Unaudited Estimates as at 31 January 2011
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% of Gross Market Value |
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Level 1 |
63 |
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Level 2 |
37 |
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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 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
During the month, the Fund made profits in interest rates trading, primarily volatility strategies, swap spreads and curve trading. Gains were also made in credit trading. Losses were suffered in interest rate basis swaps and FX macro trading.
Monthly contribution (%) to basic performance of BHM USD Shares by strategy group
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Total |
Macro |
Rates |
FX |
EMG |
Equity |
Commodity |
Credit |
Systematic |
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January 2011 * |
0.63 |
-0.28 |
0.48 |
0.01 |
0.05 |
-0.03 |
-0.07 |
0.48 |
-0.01 |
Source: BHAM
* Estimated as at 31 January 2011.
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 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
Market Review and Outlook
Market Commentary
US
Investor sentiment was buoyed in January by further improvements in the economy, continued low inflation, and a sense of a return to normality. Consumption rose in the last quarter at its fastest pace since 2006, fuelled by the resurgent stock market and pent-up demand from the recession. Nevertheless, such robust outlays seem unsustainable. The labour market remains relatively weak, house prices are falling again in many areas as foreclosures weigh on the market, and part of the increase in consumer spending was funded by a reduction in the savings rate. The ideal savings rate is difficult to judge, but it is self-evident that it should not be falling substantially given the weak state of consumer balance sheets.
Employers are still reluctant to hire. Weekly layoffs are stubbornly elevated and private payroll employment has been disappointing for the last two months. Going forward, employment is expected to pick up but it is worth keeping in mind that business cycle expansions over the last 20 years have been characterised by only slow gains in hiring. For example, private payroll employment never averaged more than 200,000 per month in any year during the last period of economic expansion. Indeed, the last time the three-month change in private payrolls averaged more than 300,000 was in 1997.
Food and energy prices have risen recently, although broader gauges of inflation - core inflation, the weighted median, and the trimmed mean - continue to edge down. Core inflation will probably bottom out in the coming months and then slowly begin to rise to around 1%. Given the inertia in the inflation process, this is still well below the comfort zone of the Federal Reserve.
We believe monetary policy will be on autopilot until the end of the second round of large-scale asset purchases in June 2011. However, fiscal policy is likely to create some headlines as the Republicans appear likely to use their leverage in the House of Representatives to get spending cuts passed. President Obama proposed a spending freeze in his State of the Union address; however, that is little different from the baseline markets have currently priced in. Depending on the ultimate compromise, there may be significant subtractions from growth later on in the year as some discretionary spending is cut.
EMU
Available business surveys indicate that during the final part of 2010 and at the beginning of 2011 the EMU economy expanded at an underlying pace higher than the pre-crisis trend, despite the woes of some peripheral countries. At the same time, positive activity data was complemented by a rise in inflation mainly on the back of rising commodity prices. The yearly growth rate of the Harmonised Index of Consumer Prices moved above 2% in December 2010 for the first time since 2008 and increased further in January 2011. The model scenario for the EMU continues to signal a moderate recovery, mainly driven by the performance of core countries, especially Germany. For some peripheral countries the medium-term sustainability of high levels of both public and private debt, and the high dependence on external funding, remain unresolved issues.
The improved attitude of European policymakers to put in place measures aimed at reducing the risks of sovereign debt crisis has been notable. Nevertheless, the implementation of policies could be problematic, as shown by the ongoing discussion related to the enhancement of the European Financial Stability Fund and the conditions requested by the core countries. The European Central Bank ("ECB") faces a complex environment, having to fulfil its price stability mandate without jeopardising the financial stability of the eurozone, especially of some peripheral countries. At the policy meeting in January the ECB switched its main focus from financial stability to price stability, highlighting that the risks to price stability were rising.
UK
Fourth quarter GDP results surprised sharply on the downside and there is substantial uncertainty as to the extent to which the fall was related to adverse weather conditions. Survey evidence suggests that the underlying pace of GDP growth was positive but below trend, i.e. not as bad as the initial GDP report suggested. However, the outlook for 2011 consumption is bleak, with little or no reduction in unemployment, negative real income growth and flat or falling house prices. Furthermore, government spending will not contribute to growth, given the aggressive fiscal austerity measures. Consequently, growth will need to come from exports and business investment. The fundamentals for such investment and export-led growth are in place, but these drivers are unlikely to be strong enough to offset the severe headwinds from the consumer and the government, and growth is therefore likely to remain below trend for sometime.
Meanwhile, CPI Inflation is not only stubbornly above target, but also rising further due to food, energy and VAT effects. Short-term inflation expectations from surveys are increasing as a result. However, other indicators suggest a total absence of inflationary pressures - nominal wage growth is low, money and credit remain stagnant. Overall, the data suggests little near-term progress in taking up slack in the economy. Nevertheless, the near-term inflation dynamics have increased concerns at the Bank of England about communicating their commitment to low inflation, and it appears increasingly likely that a part of the rise in inflation will be reflected by a slight increase in wage demands. A small but growing group of MPC members are starting to argue the case that it is better to communicate a commitment to low inflation with actual rate rises, rather than in words alone.
Japan
In Japan, the pace of the recovery was strengthening at the turn of the year, following a temporary moderation which ended in October, according to the metric provided by the PMI. Indeed, in January, the Composite PMI, encompassing both manufacturing and business services activity, increased from 49.4 to 50.9, the highest pace since May 2006. Both components improved - not only did the Manufacturing PMI jump from 48.3 to 51.4, but the Services PMI also improved further from 50.2 to 50.4, the highest level since its inception in 2001. Actual data was also impressive, although only on the business side. In particular, December exports rebounded by more than 7% month-on-month in real terms, and industrial production surged by more than 3% month-on-month. Less encouraging data stemmed from the household sector, as both income and spending contracted. Despite this, the extent of the improvement on the business side means that the overall picture is still encouraging. Noticeably, the pace of CPI deflation continues to abate, gaining nil for the overall CPI and -0.4% year-on-year for the ex-food measure.
China
In January, the Manufacturing PMI remained robust especially in the metric computed by Markit for HSBC (54.5 versus 54.4 in December 2010). Still, sequential GDP growth is likely to moderate somewhat in the first quarter of 2011 from the ebullient pace in the fourth quarter of 2010. CPI inflation picked up again in January after a temporary easing in December 2010 and it is poised to rise further in the near-term. Inflation is boosted mainly by food prices, although non-food inflation is also picking up.
Policy-wise, the People's Bank of China ("PBOC") raised the reserve requirement ratio ("RRR") by 0.5% effective on 20 January 2011, the sixth hike of this cycle. There is a severe liquidity crunch in the interbank market following the RRR hike, although the PBOC suspended open market operations for two weeks in a row during January and initiated reverse repos to inject liquidity. This may indicate that there is limited room for further RRR hikes. On 8 February 2011, the PBOC increased official rates by a further 0.25%, which nevertheless remain quite low.
Enquiries
Northern Trust International Fund Administration Services (Guernsey) Limited
Harry Rouillard +44 (0) 1481 74 5315
Risk Factors
Acquiring shares in the Company 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 the Company (and therefore the Fund) should consult an authorised person specialising in advising on such investments. Any person subscribing for Shares must be able to bear the risks involved. These include, among others detailed in the Company's Prospectus, 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 will invest in illiquid securities.
• Past results of the Funds' investment manager is not necessarily indicative of future performance of the Fund, and the Funds' performance may be volatile.
• An investor could lose all or a substantial amount of his or her investment.
• The investment manager has total investment and trading authority over the Fund, and the Fund is dependent upon the services of the investment manager. The use of a single advisor could mean lack of diversification and, consequently, higher risk.
• 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.
• There are restrictions on transferring Interests in the Fund.
• The Investment Manager's incentive compensation, fees and expenses may offset the Funds' 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 is 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 Funds' 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 Interests and therefore reference should be had to the Company's Prospectus and related offering documentation for a complete description of these and other relevant risks.
This information is provided by RNS