Monthly Shareholder Report - October 2011
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BH MACRO LIMITED BH MACRO LIMITED MONTHLY SHAREHOLDER REPORT: OCTOBER 2011 ADV02992 CONFIDENTIAL DO NOT COPY OR DISTRIBUTE Your attention is drawn to the disclaimer at the beginning and end of this document © Brevan Howard (2011). All Rights Reserved. |
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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 Asset Management LLP ("BHAM") and Brevan Howard Capital Management LP (together with BHAM, "Brevan Howard") have supplied the information herein regarding BHM's and the Fund's performance and outlook. BHAM is authorised and regulated by the Financial Services Authority (the "FSA") in the United Kingdom. This material constitutes a financial promotion for the purposes of the Financial Services and Markets Act 2000 and the handbook of rules and guidance issued from time to time by the FSA (the "FSA Rules"). The material relating to BHM and the Fund included in this report has been prepared by Brevan Howard and is provided for information purposes only and does not constitute an invitation or offer to subscribe for or purchase shares in the BHM or 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 BHM and the Fund have been obtained or derived from sources believed by Brevan Howard to be reliable, but Brevan Howard makes no 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 Brevan Howard 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 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. Potential investors in BHM should seek their own independent financial advice. BHAM neither provides investment advice to, nor receives and transmits orders from, investors in the funds to which this material relates 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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BH Macro LimitedManager:Brevan Howard Capital Management LP ("BHCM")Administrator: Corporate Broker: Listings: NASDAQ Dubai - USD Class (Secondary listing) Bermuda Stock Exchange (Secondary listing) |
Overview: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.
Total Assets: $2,094mm11. Estimated as at 31 October 2011 by BHM's administrator, Northern Trust.
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Summary Information |
BH Macro Limited NAV per share (estimated as at 31 October 2011)
|
|
USD Shares |
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 |
0.75 |
0.49 |
0.55 |
-0.58 |
2.19 |
6.18 |
0.40 |
-0.73* |
|
|
10.75* |
|
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 |
0.78 |
0.52 |
0.65 |
-0.49 |
2.31 |
6.29 |
0.42 |
-0.65* |
|
|
11.48* |
|
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 |
|
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 |
|
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 |
|
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 |
|
2011 |
0.66 |
0.52 |
0.78 |
0.51 |
0.59 |
-0.56 |
2.22 |
6.24 |
0.39 |
-0.70* |
|
|
10.99* |
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 Brevan Howard. 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 October 2011.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
ASC 820 Asset Valuation Categorisation*
Brevan Howard Master Fund Limited
Unaudited Estimates as at 31 October 2011
|
|
% of Gross Market Value |
|
Level 1 |
54 |
|
Level 2 |
46 |
|
Level 3 |
0 |
Source: Brevan Howard
* These estimates are unaudited and have been calculated by Brevan Howard 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 suffered some losses in FX. Small gains were made in macro credit trading and small losses in equity trading. Interest rate trading was roughly flat as gains in volatility and swap trading were offset by losses on macro directional and curve trading.
Monthly, quarterly and annual contribution (%) by the Fund to the performance of BHM USD Shares (net of fees and expenses) by strategy group
|
|
Macro |
Rates |
FX |
EMG |
Equity |
Commodity |
Credit |
Systematic |
Total |
|
October |
-0.88 |
0.41 |
-0.26 |
0.26 |
-0.09 |
-0.01 |
-0.10 |
-0.06 |
-0.73 |
|
Q1 |
0.91 |
-0.13 |
0.06 |
0.33 |
-0.05 |
-0.04 |
0.88 |
-0.00 |
1.95 |
|
Q2 |
-1.23 |
2.10 |
-0.21 |
0.15 |
-0.14 |
0.02 |
-0.25 |
0.01 |
0.45 |
|
Q3 |
4.28 |
3.72 |
0.33 |
0.59 |
0.20 |
0.04 |
-0.27 |
0.06 |
8.93 |
|
QTD |
-0.88 |
0.41 |
-0.26 |
0.26 |
-0.09 |
-0.01 |
-0.10 |
-0.06 |
-0.73 |
|
YTD |
3.07 |
6.22 |
-0.10 |
1.35 |
-0.08 |
0.01 |
0.27 |
0.01 |
10.75 |
Monthly, quarter-to-date and year-to-date figures are estimated by Brevan Howard as at 31 October 2011, based on total performance data for each period provided by BHM's administrator, Northern Trust. Figures rounded to two decimal places.
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
The US economy regained its footing by the end of the third quarter after having teetered on the edge of recession during August. Financial markets reacted positively to the stabilisation in the data and the EU emergency summit in Brussels, with the S&P 500 Index rising by more than 10% and the Trade-Weighted US Dollar Index depreciating by more than 2%. During the third quarter, annualised real consumption rose by approximately 2.5% and business capex jumped 16%, its largest increase in more than a year. However, these performances appear to be unsustainable. The increase in consumption owed much to a decline in the savings rate. In the absence of real income growth or gains in wealth, consumption is set to slow from its already subdued pace. The jump in investment owed much to bursts in a few specialised categories in which outlays are lumpy; turbines, agricultural equipment and construction equipment are highly unlikely to register increases of more than 100% again in 2011. Despite the improvements in consumption and investment from the first half of the year, the economy is still weak and vulnerable to shocks. Indeed, from a broader perspective, the third quarter was the first time the level of real GDP growth exceeded its peak at the end of 2007.
The labour market picked up from its wobble in the third quarter. Looking past the monthly volatility, payroll employment is expanding by approximately 100,000 per month. However, unfortunately this pace is not sufficient enough to exert significant downward pressure on the unemployment rate, which languishes at approximately 9%. Meanwhile, average hourly earnings are so weak that, after adjusting for inflation, real average hourly earnings are declining. Unless the labour market begins to create more jobs and income, any stabilisation in the economy will prove to be short-lived.
On the policy front, we await a resolution to the European sovereign debt crisis and the Congressional debt-reduction "super committee", neither of which appear likely to bring a positive surprise.
EMU
The European sovereign debt crisis continued to grip financial markets this month. At the EU emergency summit in Brussels on 26 October 2011, European heads of state and government reached an agreement on a series of new measures to address the crisis. These measures included among others: (i) a recapitalisation of European banks aimed at achieving a core tier 1 capital ratio of 9% by 30 June 2012 and may also include guarantees of bank debts to ease access to wholesale funding; (ii) an enlargement of 'voluntary' private sector involvement, amounting to a nominal haircut of 50% on Greek government bonds; (iii) a more efficient use of the European Financial Stability Facility ("EFSF"); and (iv) "monitoring capacity on the ground" to track the compliance of the Greek economic adjustment programme. Similar to previous instances in the unfolding of the EMU crisis, the initial market reaction to the outcome of the summit was highly positive. However, there are question marks over the implementation of the agreement.
During October and in the first week of November, the growth outlook for the euro area continued to deteriorate. The composite PMI for the euro area posted a decline of 2.6 points to 46.5 in October from 49.1 in September, falling further below the 50 point threshold and signalling a substantial contraction in economic activity at the beginning of the fourth quarter. Most worrying was the sharp drop in the manufacturing PMI for Italy (which posted its largest monthly fall on record indicating that the country is rapidly slipping into recession) and the collapse of services PMI for France. In October, euro area HICP inflation remained unchanged from the previous month at 3.0% year-on-year. Inflation is expected to remain at these levels during November, before falling below 3% in December and below 2% during the first half of 2012.
At its meeting in November, the ECB surprised the markets by deciding to cut its main refinancing rate by 25bps to 1.25% from 1.50% in light of the rapid deterioration in the growth outlook and the prospect of inflation falling below 2% in the first half of 2012. The rate cut was further justified by an impending downward revision of the ECB staff macroeconomic projections for December. Mario Draghi, the new ECB president ruled out the ECB acting explicitly as lender of last resort. Despite the fact that the interest rate cut was not anticipated, the reaction of the markets and the press to the outcome was favourable and overall sentiment appeared to indicate that the new ECB president had passed his first test.
UK
The outlook for the UK continued to deteriorate during October. Activity indicators for all sectors of the economy point to stagnation or contraction. Fiscal austerity continues to be a drag on the economy. The labour market, which had shown some strong employment growth earlier in the year, has deteriorated again and shows outright employment declines at a recessionary pace. The household sector continues to suffer: fiscal austerity, negative real income growth, stagnating house prices and high unemployment are all generating fierce headwinds. The recent additional weakness has come from the slowdown in the global manufacturing cycle and especially weak eurozone growth, renewed tightening of financial conditions via bank funding, as well as the drop in consumer and business confidence due to further escalation of the EMU crisis.
In October, the rate of inflation rose above 5% as the long-awaited utility price hikes took effect. However, inflation is likely to peak around this level and start to recede in the months ahead. Various measures of underlying inflationary pressure have either fallen further or have remained low, and as a consequence the high headline inflation should not constrain the actions of the Bank of England ("BoE"). After providing a clear message in September confirming how close it had come to further easing, the BoE announced £75bn of further asset purchases at the October meeting. This programme will be completed in February and will consist predominately of government bond purchases across all maturities greater than three years.
Japan
In Japan, the latest data is somewhat mixed, with September indicating some weakening but October survey data firming up. In particular, industrial production marked a significant contraction in September, losing 4% month-on-month, almost double the drop expected by the market. However, at the same time, the October composite PMI bounced from 47.2 to 52.4, the highest level on record. This jump was led by a rebound in output, especially in the services sector (from 46.4 to 52.3), which is highly sensitive to domestic demand and the ongoing fiscal expansion. Orders also increased substantially, but at a more muted pace and to a lower level (composite orders from 47.5 to 50.3), signalling that part of the output expansion is likely to be temporary. In the third quarter, Japan GDP expanded by 6.0% quarter-on-quarter annualised.
Significantly, following the enhancement of monetary policy easing by the Bank of Japan, the Ministry of Finance intervened in the currency market in an attempt to stem the appreciation of the yen at a time when deflationary forces are still very much alive. However, following the intervention the yen spiked relative to the US dollar.
China
In China, the official manufacturing PMI fell by 0.8 points to 50.4, after rising for two consecutive months. However, the HSBC manufacturing PMI rose by 1.1 points to 51.0 in September. At the same time, the official non-manufacturing PMI fell by 1.6 points to 57.7, while the HSBC services PMI edged up by 1.1 points to 54.1. This divergence is mainly due to the different proportion of SMEs between the official PMI sample (higher) and the HSBC poll (lower). SMEs' activity rebounded somewhat in October, as they were the object of targeted policy-easing by the government. Overall, in October, actual industrial production trends continued to moderate, as indicated by the year-on-year growth rate, which slowed from 13.8% to 13.2%.
Overall, economic growth in the fourth quarter is likely to remain steady despite worsening external demand at approximately 8% quarter-on-quarter SAAR. Inflation should ease somewhat rapidly; CPI inflation fell to below 6% year-on-year in October and is likely to fall below 5% in November, partly due to a base effect. Premier Wen Jiabao has made it clear that macro control policies will stay on hold for the time being but there is some capacity for flexible fine-tuning if needed, such as the measures enacted in favour of SMEs. China has also enhanced its fiscal support to large projects and will increase public expenditure during the fourth quarter.
Enquiries
Northern Trust International Fund Administration Services (Guernsey) Limited
Harry Rouillard +44 (0) 1481 74 5315
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 the Fund) should consult an authorised person specialising in advising on such investments. Any person subscribing for shares in BHM must be able to bear the risks involved. These include, among others detailed in BHM'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 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 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.
• There are restrictions on transferring interests in the Fund.
• 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 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 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 in BHM and therefore reference should be had to BHM'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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