REG-BH Macro Limited: Monthly Shareholder Report - November 2017 <Origin Href="QuoteRef">BHMG.L</Origin> - Part 2
29/12/2017 12:16
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an operational services fee. With effect from 1 April 2017, the management fee is 0.5% per annum. BHM’s investment in the Fund is subject to an operational services fee of 0.5% per annum. No management fee or
operational services fee is charged in respect of performance related growth of NAV for each class of share in excess of its level on 1 April 2017 as if the tender offer commenced by BHM on 27 January 2017 had completed on 1 April 2017. 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. Data as at 30 November 2017 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
ASC 820 Asset Valuation Categorisation on a non look-through basis* ASC 820 Asset Valuation Categorisation on a look-through basis* Performance Review Brevan Howard Master Fund Limited
Unaudited as at 30 November 2017
% of Gross Market Value*
Level 1 78.3
Level 2 12.7
Level 3 0.0
At NAV 9.0
% of Gross Market Value*
Level 1 85.8
Level 2 14.1
Level 3 0.1
Performance by Asset Class Monthly, quarterly
and annual contribution (%) to the performance
of BHM USD Shares (net of fees and expenses)
by asset class as at 30 November 2017
2017 Rates FX Commodity Credit Equity Tender Offer Total
November 2017 -0.16 0.15 0.01 -0.06 0.26 0.00 0.20
Q1 2017 0.25 -3.06 -0.01 0.28 0.12 0.00 -2.44
Q2 2017 -1.81 -0.48 -0.14 -0.02 -0.14 4.46 1.79
Q3 2017 -0.52 1.55 0.00 0.09 -0.18 0.00 0.94
QTD -0.53 -0.38 -0.07 -0.03 0.37 0.00 -0.64
YTD 2017 -2.60 -2.41 -0.21 0.32 0.17 4.46 -0.40
2017 Macro Systematic Rates FX Equity Credit EMG Commodity Tender Offer Total
November 2017 0.34 0.01 -0.07 -0.03 -0.00 -0.03 -0.01 -0.00 0.00 0.20
Q1 2017 -2.29 -0.03 -0.18 -0.51 -0.00 0.35 0.23 -0.00 0.00 -2.44
Q2 2017 -2.64 -0.08 0.17 0.01 -0.00 0.01 -0.05 -0.00 4.46 1.79
Q3 2017 0.82 0.05 -0.24 0.03 -0.00 0.06 0.21 -0.00 0.00 0.94
QTD -0.55 0.05 0.07 0.01 -0.00 0.01 -0.23 -0.00 0.00 -0.64
YTD 2017 -4.61 -0.01 -0.18 -0.46 -0.00 0.43 0.16 -0.00 4.46 -0.40
Manager's Market Review and Outlook The information in this section has been
provided to BHM by BHCM
US The labour market strengthened in November,
following hurricane related volatility in the
prior two months. Job gains accelerated above
200,000, hours worked rose, and the
unemployment rate remained at an ultra-low
4.1%. Meanwhile, average hourly earnings
disappointed, keeping wage growth tepid. The
contrast between unsustainably strong job
gains and relatively weak earnings promises to
keep monetary policy hawks and doves at odds.
Real Gross Domestic Product (“GDP”) growth has
maintained solid momentum in Q4. Personal
consumption expenditures appear to be growing
moderately, while business investment is
positive on net, with indicators pointing to a
double-digit increase in equipment capex and a
pause in structures investment. After two
quarters of declines, residential investment
looks ready to edge up. Trade and inventories
will probably be drags on Q4 growth, but the
second-half combined should see approximately
3% real growth at an annual rate. Consumer
price inflation carved out a bottom in
November, with the y/y change in core personal
consumption expenditures (“PCE”) inflation
rising to 1.4%. Total inflation slowed after
having surged on hurricane related refinery
shutdowns in the Gulf Coast. In Washington,
the Senate passed its version of tax reform
and began to work with the House to forge a
compromise between their two versions of the
legislation. Although there are important
differences, the two chambers should be able
to combine their bills and pass legislation
before the end of the year. The $1.5 trillion
10-year cost of the reform understates its
impact on individuals and businesses. There
are roughly $6 trillion in tax cuts and $4.5
trillion in pay-fors, making it the most
significant tax reform since 1986. Most
estimates suggest the legislation will boost
growth by a few tenths in 2018 and 2019,
adding fuel to an economy that is already
reaccelerating. UK Although the UK economy
has continued to evolve at a moderate pace,
there are signs that spare capacity has
continued to erode. GDP grew 0.4% q/q in Q3, a
modest pace compared to historical rates, but
still an improvement from the 0.3% seen in the
previous two quarters. Growth in Q3 was
supported by services, contributing 0.3ppts,
and manufacturing, adding 0.1ppts. Otherwise,
there was a small drag from construction
activity. On the expenditure side, growth was
supported by a pick up in consumption, an
improvement from the weakness seen in the
first half of the year. In general, surveys of
activity have remained resilient. Although the
composite Purchasing Managers’ Index (“PMI”)
fell 0.9pts to 54.9 in November, it still
implies a pace of growth close to potential.
In particular, the manufacturing PMI has
climbed to the highest levels since August
2013, supported by a pick up in global
activity, which in turn has been amplified by
the low levels of the exchange rate.
Otherwise, the economy continues to face a
multitude of headwinds, in part caused by the
uncertainty around the Brexit process.
Business investment remains meagre, and the
outlook for the housing market remains benign,
with price expectations of housing remaining
relatively subdued. The labour market has also
started to moderate lately, with the level of
employment falling 56,000 over the three
months to October. At the same time, the
participation rate has fallen by 0.3ppts,
allowing the unemployment rate to remain
unchanged for the third month at the recent
lows of 4.3%. This is 0.2ppts below the Bank
of England’s (“BoE”) estimate of the long-term
equilibrium unemployment rate. Despite the
moderate economic growth, data suggests there
is little spare capacity in the economy.
Alongside the low level of the unemployment
rate, there has been a pick up in wage growth,
with average weekly earnings growing just
below 3% annualised as of October. Although
such a pace in wage growth is still modest
compared to historical figures, it’s fairly
high considering productivity has averaged a
subdued growth rate of 0.6% y/y in Q3. Though
volatile, unit labour costs show that the
nominal component of wages has been growing
above 2% since 2016. Meanwhile, headline
inflation rose 0.1ppts to 3.1% y/y in
November, the highest rate since April 2012.
In addition, various surveys including the PMI
and the BoE’s Agents' summary of business
conditions have alluded to increasing
difficulty in recruitment of skilled labour,
which would point to higher wage growth in the
future. At the most recent BoE Monetary Policy
Committee (“MPC”) meeting in December, members
voted unanimously to keep the policy rate
unchanged at 0.5%, after having raised the
policy rate 0.25ppts for the first time in a
decade at the November meeting. The MPC noted
that should the economy evolve in line with
its November forecasts, further modest
increases in the Bank Rate would be warranted
over the next few years. In addition, the MPC
stated that it will incorporate the small
stimulus announced in the Government’s Autumn
Budget into the February forecasts, as well as
the positive developments around the Brexit
negotiations. Brexit negotiations moved
forward in December, with the European Union
(“EU”) council declaring that sufficient
progress has been made on the first phase of
the negotiations (divorce bill, rights of
citizens and the Irish border) to move onto
the second phase regarding transition and the
framework for the future relationship.
Although still subject to change, the first
phase of negotiations had agreed on the
methodology for calculating the Brexit
settlement, now cited to be around €45-55bn.
It was also agreed that there would be no hard
border between Northern Ireland and the
Republic of Ireland. President of the European
Council, Donald Tusk, said ‘exploratory
contacts’ will begin on Britain’s future
relationship, but formal talks are not
expected to begin before March. In the
meantime, the UK still has to decide the
nature of the end relationship it is aiming to
achieve with the EU. EMU The theme of strong
economic activity combined with weak price
pressure continued in Europe. Eurozone
Purchasing Managers’ Indexes (“PMI”) continued
to make new highs since 2011 and other
measures such as retail sales and industrial
production continued to track historically
high levels. Q3 GDP was estimated at 2.5% y/y,
another new high since 2011. Meanwhile the
Core Harmonised Index of Consumer Prices
(“HICP”) came in at just 0.9% with the
Headline HICP at 1.4%, well below the European
Central Bank’s (“ECB”) medium term target of
inflation below but close to 2%. Eurozone
unemployment continued to drop, printing 8.8%
making another new low since 2008, following
the double economic shocks of the financial
crisis and the European debt crisis. The price
action in financial markets continued to
respond to the ECB meeting on 26 October when
the policymakers effectively put policy on
auto-pilot by extending the quantitative
easing (“QE”) programme to September 2018, and
maintaining guidance that policy rates are
expected to remain at current levels well past
the end of the QE programme. The extended time
until any change to expected policy action,
even in the face of strong economic
performance, had squeezed term premia lower in
the European money markets. As always, the
imbalance between strong economic activity and
extraordinary easy financial conditions has to
be balanced somehow, and as November
progressed financial conditions in the market
started to tighten again. The euro appreciated
sharply and it was not long before the small
term premium in the rates markets also
returned. China Activity data was mixed in
November. The official Purchasing Managers’
Index (“PMI”) was stronger at 51.8 in November
versus 51.6 for October, but the Caixin PMI
was weaker at 50.8 for November. Fixed Asset
Investment growth was recorded at 7.2% for
November, slightly worse than the 7.3% prior.
Industrial production growth was weaker at
6.1% for November. Retail sales strengthened
and printed 10.2% y/y for November. Inflation
fell to 1.7% from 1.9% prior. Producer prices
fell from the prior month, printing 5.8%. On
the external side, export data strengthened to
12.3% y/y for November and imports were higher
at 17.7% y/y. The seven day repo rate was on
average 3.3% for November compared to 3.23%
for October. Japan The picture in Japan has
not changed. Expectations of a pick up in
inflation remain completely prospective. After
falling in the first part of the year, the
western core prices, prices excluding food and
energy, edged up. However, an uptick every few
months will not approach the Bank of Japan’s
2% goal. Faster increases in non-fresh food
and energy mean the trend in core inflation is
a little higher, but those categories are
unlikely to be a source of a sustained
acceleration in prices. The yen-dollar rate
has bounced between 108 and 113 for several
months; recently it has been at the higher
end. Inflation expectations, as measured in
the consumer survey, moved up a few months ago
from a subdued level in 2016. However, they
remain far below the level seen in 2014 and
2015, when optimism in “Abenomics” and the re
-inflation project led to noticeable increases
in general prices. Initial bargaining
positions for the spring wage negotiation also
indicate subdued expectations. Japan’s trade
union confederation has called for a 4% total
increase with a 2% increase in base pay. While
that sounds solid, those are the same targets
for the previous two years, suggesting no
additional pressures. Activity data, on the
other hand, remains strong. Real GDP rose
2.5%, at an annual rate, in Q3. Gains this
quarter came from inventories, and net
exports. Consumption actually declined. The
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