Monthly Shareholder Report - March 2011
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BH Macro limited MONTHLY SHAREHOLDER REPORT ADV02605 CONFIDENTIAL DO NOT COPY OR DISTRIBUTE Your attention is drawn to the disclaimer at the beginning and end of this document |
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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 March 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 |
|
2008 |
9.89 |
6.70 |
-2.79 |
-2.48 |
0.77 |
2.75 |
1.13 |
0.75 |
-3.13 |
2.76 |
3.75 |
-0.68 |
20.32 |
|
2009 |
5.06 |
2.78 |
1.17 |
0.13 |
3.14 |
-0.86 |
1.36 |
0.71 |
1.55 |
1.07 |
0.37 |
0.37 |
18.04 |
|
2010 |
-0.27 |
-1.50 |
0.04 |
1.45 |
0.32 |
1.38 |
-2.01 |
1.21 |
1.50 |
-0.33 |
-0.33 |
-0.49 |
0.91 |
|
2011 |
0.65 |
0.53 |
0.74* |
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|
|
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|
|
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1.93* |
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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 |
|
2009 |
5.38 |
2.67 |
1.32 |
0.14 |
3.12 |
-0.82 |
1.33 |
0.71 |
1.48 |
1.05 |
0.35 |
0.40 |
18.36 |
|
2010 |
-0.30 |
-1.52 |
0.03 |
1.48 |
0.37 |
1.39 |
-1.93 |
1.25 |
1.38 |
-0.35 |
-0.34 |
-0.46 |
0.93 |
|
2011 |
0.71 |
0.57 |
0.76* |
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|
|
|
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|
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2.06* |
|
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 |
0.66 |
0.52 |
0.76* |
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|
|
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1.95* |
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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 March 2011.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
FAS 157 Asset Valuation Categorisation*
Brevan Howard Master Fund Limited
Unaudited Estimates as at 31 March 2011
|
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% of Gross Market Value |
|
Level 1 |
62 |
|
Level 2 |
38 |
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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 in the most recent audited financial statements of the Fund. These estimates are subject to change.
Level 1: This represents the level of assets in the portfolio which are priced using unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: This represents the level of assets in the portfolio which are priced using either (i) quoted prices that are identical or similar in markets that are not active or (ii) model-derived valuations for which all significant inputs are observable, either directly or indirectly in active markets;
Level 3: This represents the level of assets in the portfolio which are priced or valued using inputs that are both significant to the fair value measurement and are not observable directly or indirectly in an active market.
Performance Review
During the month, the Fund made profits in interest rates macro trading, primarily in EUR short end rates. Gains were also made in credit trading, commodity macro trading, equities, and in USD interest rate basis swaps. No strategies registered significant losses.
Monthly contribution (%) to basic performance of BHM USD Shares by strategy group
|
|
Total |
Macro |
Rates |
FX |
EMG |
Equity |
Commodity |
Credit |
Systematic |
|
March 2011 * |
0.74 |
0.54 |
-0.04 |
0.01 |
0.14 |
0.02 |
-0.07 |
0.18 |
-0.04 |
Source: BHAM
* Estimated as at 31 March 2011.
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
Market Review and Outlook
Market Commentary
US
In the US, growth estimates for the first quarter have been revised down to around 2% and the outlook has worsened as new headwinds have emerged. Fiscal spending cuts will directly subtract from growth and higher energy prices will weigh on the outlook for the next year or so.
Overall inflation is rising, led by food and energy price shocks, and even core inflation appears to be edging up. Inflation expectations have also increased in both surveys and market-implied breakeven rates. Counter to these developments, wage inflation has trended down. In the absence of inflation becoming embedded in wage bargaining, the current bulge in inflation should be temporary, similar to the pattern witnessed in 2008.
In summary, the revisions to both growth and inflation suggest that the economy is in less healthy shape than anticipated and faces greater downside risks. However, monetary policy implications are mixed and have become a balancing act; this leaves the Federal Reserve uncomfortably on accommodative auto-pilot due to amplified concerns over the growth-inflation trade-off.
Finally, the debate over fiscal policy is heating up. Congress is determined to cut spending further and the stage is being set for intense debate over upcoming budgets and the debt ceiling. These developments are certain to produce a volatile environment.
EMU
Activity data released in March continued to suggest an ongoing recovery driven by the performance of the core countries. In Greece indicators continue to show a steep recession, while in Portugal, Spain and Ireland, the latest indicators show a renewed deterioration, after an improvement at the beginning of the year. At the same time, the inflation outlook in the EMU is deteriorating further and more rapidly than expected by the European Central Bank ("ECB"), partially due to the surge in global commodity prices. The annual growth rate of the Harmonised Index of Consumer Prices climbed to 2.7% in March, and appears likely to move higher during the course of the year. Inflation risks in the EMU are clearly on the upside as production prices have accelerated and inflation expectations of households and firms have now reached levels last seen during the "inflation scare" of 2008.
It is not yet possible to signal the "all clear" for the sovereign debt crisis. In Greece, the probability of default priced in by the market is rising further. Portugal became the third country to ask for financial assistance and the political instability recently escalated, with elections called for 5 June 2011. Moreover, the discussions on the renegotiation of the Irish support package are still far from over as the domestic interests of members impose conditions on the EU debate.
The ECB hiked official rates for the first time at its April meeting, from 1.0% to 1.25%. The ECB faces a complex environment, having to fulfil its price stability mandate amid rising inflation above its defined level of price stability, without boosting the euro to unsustainable levels and jeopardising the financial stability of some peripheral countries.
UK
The broad outlook remains one of subdued, below-trend growth and persistently high inflation. The household sector continues to be the most vulnerable of the economy as negative income growth, stagnating house prices and high unemployment generate fierce headwinds. The most negative data development over the past months has been the worryingly weak readings for consumer confidence, but all other data (including activity surveys, high frequency activity data, labour surveys, housing, and car sales) suggest underlying growth either holding up at a subdued rate or improving slightly. Overall, indicators show that exports and business investment are driving the recovery, but fiscal austerity means that government spending will detract from growth.
Meanwhile, the outlook is signalling persistently high inflation (at or above 4%) for the rest of this year, underpinned by the VAT hike, but also as a result of the continued pass-through from a weaker Sterling and higher commodity prices. In March, CPI readings suggested that retailers passed through more VAT than last year, a worrying sign of pricing power. Wage inflation rates are by no means at alarming levels, but the upward trend is a cause for concern as it suggests that the slack in the labour market is not having enough of a downward effect on inflation to offset other upward forces.
The most recent Bank of England ("BoE") minutes show an unchanged position from February, with three members voting for a hike, and at least a further two members believing that there is a case for a hike, but preferring to wait for further clarity on how well the recovery has progressed around the turn of the year. Despite downside surprises in growth, inflation pressures remain elevated. This is a highly uncomfortable policy dilemma for the BoE.
Japan
Following the tragic earthquake and tsunami in March, and the consequent impact of reduced energy availability and industrial production stoppages, Japanese activity surveys have collapsed. The composite PMI fell by 15 points to 36.1 as a result of disruption to both the manufacturing and the services sector. Other surveys, such as the Economy Watchers Survey, which focuses on domestically-oriented businesses, fell by 21 points, to an unprecedented level of 27.7. Following the halt recorded in March, there is still uncertainty as to when production will recover to normal levels as the presence of aftershocks and insufficient energy supply lengthen the time of recovery.
Looking ahead, we expect that the impact on GDP will be pronounced in the first quarter and especially in the second quarter release, with a reconstruction-led rebound in the second half of the year. However, there is a large degree of uncertainty around these expectations. The policy easing by the Bank of Japan, the weakening of the yen, and a substantial fiscal package will provide support to the recovery effort.
China
In March, the manufacturing PMI maintained its relatively subdued levels of February, indicating that economic activity is likely to continue softening in the second quarter. On the inflation front, the March CPI climbed to 5.4% year-on-year, the highest level since July 2008, up from 4.9% year-on-year in January and February. CPI in year-on-year terms is likely to rise further in the near-term, although there were some signs suggesting that CPI growth may have peaked, as indicated by the moderation in the price component of the March manufacturing PMI and the sharp slowdown in the growth of money supply in the first two months of the year. Some softening in economic activity should also help to contain inflation. However, upward inflationary pressures continue to stem from past credit creation, a positive output gap and surging commodity prices.
We believe that policy tightening in China is set to continue as the CPI is still over 4% year-on-year. In March, the People's Bank of China hiked the Reserve Requirement Ratio ("RRR") for the third time this year, by 50bps, with effect from 25 March 2011, and by another 50bps in April. Following these hikes, the RRR is now 20% for big banks and 18% for small and medium-sized banks. In addition, rules to control capital inflows by cutting the short-term foreign debt quota were tightened and the size of short US dollar positions of Chinese banks was limited.
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
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