REG-BH Macro Limited: Monthly Shareholder Report - January 2016 <Origin Href="QuoteRef">BHMG.L</Origin>
29/02/2016 15:10
BH MACRO LIMITED
MONTHLY SHAREHOLDER REPORT:
January 2016
YOUR ATTENTION IS DRAWN TO THE DISCLAIMER AT THE END OF THIS
DOCUMENT
BH Macro Overview
Limited
Manager: BH Macro Limited ("BHM") is a closed-ended investment company, registered and
Brevan Howard incorporated in Guernsey on 17 January 2007 (Registration Number: 46235).
Capital BHM invests all of its assets (net of short-term working capital) in the
Management LP ordinary shares of Brevan Howard Master Fund Limited (the "Fund").
("BHCM") BHM was admitted to the Official List of the UK Listing Authority and to
Administrator: trading on the Main Market of the London Stock Exchange on 14 March 2007.
Northern Trust
International
Fund
Administration
Services
(Guernsey)
Limited
("Northern
Trust") Total $1,415 mm¹
Corporate Assets:
Broker:
J.P. Morgan
Cazenove
Listings:
London Stock
Exchange
(Premium
Listing)
NASDAQ Dubai - 1. As at 29 January 2016. Source: BHM's administrator, Northern Trust.
USD Class
(Secondary
listing)
Bermuda Stock
Exchange
(Secondary
listing)
Summary BH Macro Limited NAV per Share (as at 29 January 2016)
Information
Share NAV (USD NAV per
Class mm) Share
USD 337.3 $20.47
Shares
EUR 92.7 €20.64
Shares
GBP 985.1 £21.34
Shares
BH Macro Limited NAV per Share % Monthly Change
USD 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 -0.76 1.68 -0.47 12.04
2012 0.90 0.25 -0.40 -0.43 -1.77 -2.23 2.36 1.02 1.99 -0.36 0.92 1.66 3.86
2013 1.01 2.32 0.34 3.45 -0.10 -3.05 -0.83 -1.55 0.03 -0.55 1.35 0.40 2.70
2014 -1.36 -1.10 -0.40 -0.81 -0.08 -0.06 0.85 0.01 3.96 -1.73 1.00 -0.05 0.11
2015 3.14 -0.60 0.36 -1.28 0.93 -1.01 0.32 -0.78 -0.64 -0.59 2.36 -3.48 -1.42
2016 0.71 0.71
EUR 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 -0.69 1.80 -0.54 12.84
2012 0.91 0.25 -0.39 -0.46 -1.89 -2.20 2.40 0.97 1.94 -0.38 0.90 1.63 3.63
2013 0.97 2.38 0.31 3.34 -0.10 -2.98 -0.82 -1.55 0.01 -0.53 1.34 0.37 2.62
2014 -1.40 -1.06 -0.44 -0.75 -0.16 -0.09 0.74 0.18 3.88 -1.80 0.94 -0.04 -0.11
2015 3.34 -0.61 0.40 -1.25 0.94 -0.94 0.28 -0.84 -0.67 -0.60 2.56 -3.22 -0.77
2016 0.38 0.38
GBP 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 6.86 -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 -0.73 1.71 -0.46 12.34
2012 0.90 0.27 -0.37 -0.41 -1.80 -2.19 2.38 1.01 1.95 -0.35 0.94 1.66 3.94
2013 1.03 2.43 0.40 3.42 -0.08 -2.95 -0.80 -1.51 0.06 -0.55 1.36 0.41 3.09
2014 -1.35 -1.10 -0.34 -0.91 -0.18 -0.09 0.82 0.04 4.29 -1.70 0.96 -0.04 0.26
2015 3.26 -0.58 0.38 -1.20 0.97 -0.93 0.37 -0.74 -0.63 -0.49 2.27 -3.39 -0.86
2016 0.60 0.60
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.
Calculated by BHCM as at 29 January 2016
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
ASC 820 Asset Brevan Howard Master Fund Limited
Valuation
Categorisation* Unaudited estimates as at 29 January 2016
% of Gross Market
Value*
Level 1 72.4
Level 2 27.3
Level 3 0.3
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.
Performance by Asset Class
The performance attributions below are derived from data calculated by BHCM,
based on total performance data for each period provided by the Fund's
administrator (International Fund Services (Ireland) Limited) and risk data
provided by BHCM, as at 29 January 2016.
Monthly, quarterly and annual contribution (%) to the performance of BHM USD
Shares (net of fees and expenses) by asset class
2016 Rates FX Commodity Credit Equity Discount Total
Management
January 1.14 -0.15 -0.15 -0.13 -0.22 0.22 0.71
2016
Q1 2016 1.14 -0.15 -0.15 -0.13 -0.22 0.22 0.71
YTD 2016 1.14 -0.15 -0.15 -0.13 -0.22 0.22 0.71
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
Performance by Strategy Group
Monthly, quarterly and annual contribution (%) to the performance of BHM USD
Shares (net of fees and expenses) by strategy group
2016 Macro Systematic Rates FX Equity Credit EMG Commodity Discount Total
Management
January -0.11 0.02 0.86 0.01 -0.00 -0.12 -0.17 -0.00 0.22 0.71
2016
Q1 2016 -0.11 0.02 0.86 0.01 -0.00 -0.12 -0.17 -0.00 0.22 0.71
YTD 2016 -0.11 0.02 0.86 0.01 -0.00 -0.12 -0.17 -0.00 0.22 0.71
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
Manager's The information in this section has been provided to BHM by BHCM
Market Review
and Outlook Market Commentary
US
The economy delivered mixed messages at the start of the year. The labour
market continues to impress. The unemployment rate fell to 4.9%, job gains were
respectable, and wages increased at a brisk pace. Real GDP growth appears to
have steadied after having posted a lacklustre performance in the second half
of last year. Meanwhile, all aspects of inflation are underperforming.
Headline inflation promises to fall in the coming months as consumer energy
prices decline and core inflation will be lower for longer, primarily because
the appreciation in the exchange value of the US dollar will put additional
downward pressure on import prices. The presumably transitory shocks to
inflation cannot be taken for granted in light of the deterioration in
market-based measures of inflation compensation and in surveys of consumers. In
particular, consumers' longer-term inflation expectations moved down to
historic lows in the two most widely followed surveys conducted by the
University of Michigan and the Federal Reserve Bank of New York.
To complicate matters further, developments in financial markets are buffeting
the forecast for growth going forward. The sizable drop in energy prices and
interest rates (US 10-Year Treasury) looks to be a net positive for growth in
the next year. However, in 2017, the building negative impact from the
appreciation of the US dollar and wider credit spreads should lead to a larger
net subtraction from growth. However, in light of such extreme movements in
financial conditions, any forecast has to be more uncertain than usual.
A confusing macroeconomic backdrop and volatility in financial markets have
inspired a cottage industry of econometric models designed to predict the
chances of a recession. The odds vary widely depending on what the user inputs
into the models. On the one hand, a solid labour market and extraordinarily
accommodative monetary policy suggest the odds of recession over the next year
are below average. On the other hand, falling profit margins, wider credit
spreads, and significant headwinds from the external sector suggest the odds of
recession are elevated. The US economy has successfully navigated a number of
similarly negative shocks during the expansion and probably will do so this
time. However, there's little margin for error given the economy's slow growth
and the inability of monetary or fiscal policy to offset further downside
surprises.
EMU
In January, both EMU activity and sentiment indicators posted marked declines,
while worries about China, European banks and global risk-off sentiment lead to
a sharp sell-off of risky assets, which accelerated in the first weeks of
February. The EMU Composite Purchasing Managers Index ("PMI") fell from 54.3 to
53.6, back to September 2015 levels. The German IFO survey was no exception,
with business expectations losing around 2 points, to 102.4, the lowest level
in five months. Most importantly, Q4 2015 EMU GDP reported a modest 0.27% q/q,
continuing the gradual, but relentless moderation from the 0.54% local peak
recorded in Q1. The outcome would have been worse had it not been for the
public spending in Germany in connection with the huge wave of refugees. The
only relatively good news stemmed from the labour market, as due to a very low
rate of growth of potential output, the unemployment rate continued its gradual
fall, to 10.4% in December from 10.5% a month earlier. So far the adjustment in
the labour market has been too slow to have any impact on wage growth, which
continues instead to slow down to record low levels. On the consumer price
front, Harmonised Index of Consumer Prices ("HICP") inflation increased
modestly in January from 0.2% y/y to 0.4% y/y. Despite a strong base effect
these values are way below the December European Central Bank ("ECB") staff
projections. Meanwhile, market-based measures of inflation expectations
continued the downward movement initiated in the aftermath of the ECB December
policy decision, hitting all-time lows. Both money and credit slowed down; as a
result, the credit impulse, instrumental as a driver of the EMU recovery,
deteriorated further. In light of the current weak inflation readings, rising
EUR, lower oil prices and worsening growth picture, the ECB adopted a more
dovish tone than expected at its January monetary policy meeting. The
introductory statement noted that in light of increasing downside risks and
weak inflation dynamics, the Governing Council would "review and possibly
reconsider" the monetary policy stance at the next meeting in early March, when
the new staff macroeconomic projections will be available. In addition, Draghi
highlighted that the January ECB statement wording had been unanimous in the
Council, hinting that the ECB President could be more successful than in
December in forming a consensus for further bold policy action at the March
meeting. However, given the loss of credibility due to poor communication at
the December meeting, the market snubbed these indications, as displayed by an
even sharper acceleration of the drop in inflation expectations.
UK
The UK economy continues to grow at a moderate pace, shaped by resilient
private domestic demand within the setting of an "unforgiving global
environment". Services output (typically indicative of domestic activity) grew
solidly, expanding 0.6% q/q in Q4. In contrast, manufacturing output failed to
grow in Q4 giving evidence to the recent bout of modest global growth. On the
whole, GDP grew a moderate 0.5% q/q in Q4 2015, roughly in line with the pace
of growth experienced in both Q2 and Q3 of 2015. Looking forward, the first
business surveys of 2016 suggest that economic activity should continue to grow
at a similar pace in Q1. The trade-weighted exchange rate has depreciated 9%
since the peak in July 2015 (although it's still 8% higher than the lows in
2013). This should provide some support for exports; however it will take time
for the full effects to feed through. The consumer retail sector continues to
perform well. Although growth in retail sales volumes has moderated from a very
high pace, it remains robust, supported by multi-year high levels of consumer
confidence and rising real incomes. Mortgage lending continues to grow at a
smart pace (3.4%), faster than recent history but still far below the growth
rates experienced just prior to the crisis. Surveys on housing activity have
recently picked up. This may reflect a new flurry of activity as individuals
seek to buy properties ahead of the additional 3% stamp-duty tax on buy-to-let
houses that will become effective in April this year. National house prices
continue to grow at a solid pace of around 7%, albeit slightly slower than the
high pace in early 2014. The UK economy is expected to grow moderately in the
face of persistent headwinds including fiscal austerity and modest global
growth. Moreover, the upcoming European Union membership referendum may further
dent growth through reduced confidence and business investment; however there
has been no evidence of this yet. The labour market continues to tighten at an
exceedingly brisk pace. The unemployment rate has continued its down-trend
reaching 5.1% in November 2015, the lowest since December 2005. Surveys
continue to suggest that company headcount will continue to grow swiftly,
though not as quick as in recent months. Despite the tightening in the labour
market, wage pressure is still lacking. Wage growth started to rise in the
summer of 2015, but has since moderated; wages are currently growing at an
annual rate of 2%, well below the 4% pace experienced before the crisis.
Members of the Bank of England's ("BoE") Monetary Policy Committee ("MPC") have
speculated as to why a pick-up in wage growth has not been seen. Possible
reasons include low inflation reducing the bargaining power of employees as
well as compositional effects of the labour force. Nonetheless, the MPC members
do not yet see signs of inflationary pressures, especially with core and
headline inflation only averaging 1.2% y/y and 0.1% y/y in Q4 respectively. At
the most recent MPC meeting, all 9 members unanimously voted to keep rates
unchanged (whereas previously one member had voted to raise the Bank Rate).
However, it remains the case that each member of the committee still expects
the next move in the Bank Rate to be up, somewhat in contrast to market pricing
which currently reflects the possibility of a rate cut in 2016.
Japan
At the end of January, the Bank of Japan ("BOJ") followed the ECB by pushing
overnight interest rates into negative territory. However, the actual
three-tier scheme is more complicated. The BoJ will pay banks 0.1% on the
balance of excess reserves held prior to the cut. It will apply a 0% interest
rate on the so-called macro add-on balance, which is legally required reserves,
balances on various lending facilities and a to-be-determined add-on
exemption. Banks will have to pay interest on additional reserves held at the
BoJ. As the slice of reserves on which banks will have to pay interest is
estimated to be fairly small, likely under 10%, some surprisingly assume the
effect of negative rates will be trivial. Prices are made on the margin, and
the interest rate on marginal reserves is now -0.1%. It is better to think of
the scheme as negative interest rates with a fixed subsidy to the banks.
Moreover, now that Governor Kuroda has crossed the zero line, Europe's
experience suggests that overnight rates can be pushed much lower.
The latest inflation data point to the need for additional accommodation. The
recent national CPI data have stalled. After moving up over the first three
quarters of last year, the seasonally adjusted western core measure (prices
excluding all food and energy) ended 2015 at the same level as in September.
The Tokyo data for January were poor with the seasonally adjusted western core
index dropping 0.2%.
Important inflation fundamentals have also been disappointing. Consumer
inflation expectations have been falling for several months and are now at
their lowest level since expectations started improving after the initial
three-arrow announcement. The rapid appreciation in the yen against the dollar
in the first half of February, despite the BoJ move to negative interest rates,
has been breath-taking. Furthermore, ongoing declines in energy prices will
reinforce these near-term trends. Wage negotiations are not progressing as
well as the BoJ had hoped; speculation is that wage hikes will be no greater
than last year.
Activity data are not as bad as the inflation news but aren't inspiring
either. The latest prints look similar to the last several months with some
measures edging up in the last month, some slipping and most of them flat on
balance over the year. The Shoko-Chukin index of small and medium-sized
enterprises reversed January's decline, but has moved sideways on balance since
the second half of last year. The Economy Watchers survey fell 2 points,
crossing back down below the par line. Industrial production in December fell
for a second month, wiping out most of the improvement seen on balance over the
previous three months.
China
Activity in China in Q4 and in December 2015 was somewhat slower than
expectations. GDP growth slowed from 6.9% y/y in Q3 to 6.8% y/y, with the front
loading of fiscal expenditure preventing a more marked slowdown. Industrial
production slowed in December from 6.2% to 5.9% y/y, disappointing expectations
of 6.2% growth. In January, both the Caixin and the Official Manufacturing PMI
stood at low levels, below the 50 threshold. In the same month, trade data
signalled a steep drop in imports, while credit numbers indicated a pickup.
However, a more thorough assessment can be made once February data are
available, as well as output numbers to be released in March. The country will
hold its National People's Congress in March, at which the growth target and
the fiscal budget will be announced. It is widely expected that the growth
target for 2016 may be further lowered to about 6.5%, and the government will
likely run a larger fiscal deficit to support its growth target.
Enquiries Northern Trust International Fund Administration Services (Guernsey) Limited
Harry Rouillard +44 (0) 1481 74 5315
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.
END
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