REG-BH Macro Limited: Monthly Shareholder Report - October 2017 <Origin Href="QuoteRef">BHMG.L</Origin> - Part 2
30/11/2017 17:20
- Part 2: For the preceding part double click ID:nPRrUA99Ea
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 31 October 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 31 October 2017
% of Gross Market Value*
Level 1 75.0
Level 2 16.1
Level 3 0.0
At NAV 8.9
% of Gross Market Value*
Level 1 82.5
Level 2 17.4
Level 3 0.0
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 31 October 2017
2017 Rates FX Commodity Credit Equity Tender Offer Total
October 2017 -0.38 -0.53 -0.08 0.03 0.11 0.00 -0.84
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 -0.38 -0.53 -0.08 0.03 0.11 0.00 -0.84
YTD 2017 -2.44 -2.55 -0.22 0.38 -0.09 4.46 -0.60
2017 Macro Systematic Rates FX Equity Credit EMG Commodity Tender Offer Total
October 2017 -0.88 0.04 0.13 0.04 -0.00 0.04 -0.21 -0.00 0.00 -0.84
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 -0.88 0.04 0.13 0.04 -0.00 0.04 -0.21 -0.00 0.00 -0.84
YTD 2017 -4.93 -0.02 -0.11 -0.43 -0.00 0.46 0.17 -0.00 4.46 -0.60
Manager's Market Review and Outlook The information in this section has been
provided to BHM by BHCM
US The US economy grew at an annual rate of 3%
in Q3 and retained its momentum as it entered
Q4. Combining the quarters, the second half of
the year should see annualised growth around
3%, paced by sturdy consumption spending,
continued strength in business investment, and
inventory restocking. Despite the length of
the business cycle, solid fundamentals and
easy financial conditions are promoting an
underlying dynamism that resembles a mid-cycle
expansion. Smoothing through the hurricane
related disruptions, the labour market
performed well on net. The unemployment rate
declined in October to a new low of 4.1%.
Perhaps more impressive is the drop in the U-6
unemployment rate, which is the broadest
measure of labour market utilisation. It has
declined 1.5ppts since the beginning of the
year to reach 7.9%, which matches the trough
in the prior business cycle. Despite the tight
labour market, wage increases are moderate
across a range of indicators. Headline
Consumer Price Index (“CPI”) inflation over
the last year was near 2% in October and core
CPI inflation ticked up to 1.8%. It appears
core inflation may have bottomed out, which
would be a welcome development after a string
of mostly idiosyncratic disappointments since
last spring. Even so, low inflation in the
face of such good economic performance remains
something of a puzzle that will have to be
resolved, in order to reassure cautious policy
makers at the Federal Reserve (“Fed”).
Nevertheless, in the face of such positive
data, the Fed is firmly on track to raise
rates again in December. Even after its third
rate hike this year, real interest rates will
be negative. In Washington, congressional
action on tax reform shifted into high gear.
The House Committee on Ways and Means passed
its version of tax legislation and the Senate
began to coalesce around its plan. It looks
increasingly likely that something will be
agreed, perhaps as soon as the end of the
year. Estimates vary but the tax plan overall
has the potential to raise the growth rate of
Gross Domestic Product (“GDP”) by a few tenths
over the next couple of years. 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. In general, surveys of activity have
remained resilient; with the composite
Purchasing Managers’ Index (“PMI”) rising
1.6pts to 55.8 in October, implying GDP should
continue to grow broadly in line with the
current pace. The labour market has also
performed moderately well with employment
growing at an annual pace of 1%, slower than
the pace seen in previous years, but still
above long-term average rates. Positive
performance in the labour market should
support the consumer, but headwinds exist. In
particular, consumer credit growth has
moderated in recent months, and the housing
market has slowed over the past year. Housing
activity, particularly in London, has become
subdued with house prices only growing at
around 1-2% annualised. As a reflection of
mixed consumer data, retail sales growth
slowed from the high pace seen last year,
around 6% y/y, to a more moderate pace of
around 3% annualised. Overall economic growth
remains moderate, but there is increasing
evidence that there is very little spare
capacity in the economy. The most recent
unemployment rate was unchanged at 4.3%,
0.2ppts below the Bank of England’s (“BoE”)
estimate of the long-term equilibrium
unemployment rate. There has also been a pick
up in wage growth in most recent data, with
average weekly earnings growing just below 3%
annualised. Although such a pace in wage
growth is still modest compared to historical
figures, it is fairly high considering
productivity has averaged a subdued growth
rate of 0.4% y/y. Though volatile, unit labour
costs show that the nominal component of wages
has been growing around 2%, broadly consistent
with the BoE’s inflation target of 2%.
Meanwhile, headline inflation rose 0.1ppts to
3.0% y/y in September, the highest rate since
April 2012, and will likely continue to
accelerate on account of the depreciation in
the currency which began over a year ago. In
light of this apparent erosion in spare
capacity, seven members of the BoE’s Monetary
Policy Committee (“MPC”) voted to raise the
policy rate by 0.25ppts to 0.5%, whilst the
remaining two members voted to keep the policy
rate unchanged. Being the first rate increase
in a decade, the MPC noted that future
increases in the Bank Rate would be expected
to be at a gradual pace and to a limited
extent. Caution over further rate rises is
particularly apt given the many uncertainties
surrounding the outlook. In particular, Brexit
negotiations are still ongoing with
uncertainty concerning the future relationship
of the UK and the European Union. EMU The
first release of Q3 EMU GDP showed a higher
than consensus 0.6% q/q growth rate, thus
highlighting how the pace of the meaningful
recovery remains unabated. While retail sales
remained on a solid path at the end of the
quarter, increasing by 0.7% m/m, industrial
production fell by more than expected, partly
unwinding the strong rise recorded in August,
especially apparent in Germany and Italy.
Moreover, at the beginning of Q4, business
surveys showed some softening from the
cyclical highs recorded in September, although
remaining at high levels, from 56.7 to 56.0
for the Composite PMI. Inflation indications
were even less encouraging, as the growth rate
of the core Harmonised Index of Consumer
Prices (“HICP”) index, excluding food and
energy, fell in October from 1.1% y/y to 0.9%
y/y. This fell short of market forecasts,
offsetting the mild acceleration of the
previous months, still far from the self
-sustained recovery path towards target aimed
by the European Central Bank (“ECB”). In
particular, although producer prices and wages
show some signs of reviving, the impact of the
recent appreciation of the euro is visible in
the ongoing drop of import prices. At the
October ECB policy meeting the pace of monthly
net QE purchases was reduced from €60bn to
€30bn per month, starting from January 2018.
The program was extended until September 2018,
signalling that reinvestment will continue for
a longer period and maintaining the forward
guidance, thus indicating that rate hikes will
not occur well into 2019. China Activity
data was mixed in October. The official PMI
was weaker at 51.6 in October versus 52.4 for
September, but the Caixin PMI was unchanged at
51.0 for October. Fixed Asset Investment
growth was recorded at 7.3% for October,
slightly worse than the 7.5% expected.
Industrial production growth was weaker at
6.2% for October. Retail sales also weakened
and printed 10.0% y/y for October. Inflation
rose to 1.9% from 1.6% in September. Producer
prices were unchanged from the prior month
printing 6.9%. On the external side, export
data weakened to 6.9% y/y for October and
imports fell to be 17.2% y/y, down from 18.7%.
The seven day repo rate on average was 3.23%
for October compared to 3.38% for September.
Japan The Bank of Japan (“BoJ”) left policy on
hold at its October meeting. The statement and
Governor of the BoJ Haruhiko Kuroda’s comments
were unremarkable. Board members marked to
market their core CPI forecast, reducing FY
2017 inflation by 0.3ppts and 2018 inflation
by a tick. Reaching the 2017 forecast still
appears to be difficult given the simple
arithmetic associated with fiscal year
averages. It would certainly require a
substantial acceleration in energy prices.
Reaching the 2018 expectation would require an
immediate acceleration of the inflation rate,
to a little over 0.1% per month, through early
2019. Non fresh food and energy prices will
not be enough; to get close would require a
substantial pick up in prices excluding food
and energy, the so-called Western core rate.
However, over the 12 months through September
they were actually down a tick. As the economy
tightens there should be additional wage and
real estate pressures, so some acceleration is
imminent. However, it remains to be seen
whether a slow build in such pressures can
lead to a large rise in monthly inflation. It
would require a notable increase in inflation
expectations. Expectations moved up in the
latest consumer survey but so far have not
shown the requisite increase to support a big
increase in consumer price inflation. Economic
activity continues to power ahead. The Shoko
-Chukin Survey of small and medium-sized
businesses moved above 50 in October. The
Economy Watchers Survey increased by a point
and is at its best level since early 2014.
Industrial production fell in the latest
release, but even that simply follows its zig
-zag pattern along an upward sloping trend.
Enquiries The Company Secretary Northern Trust
International Fund Administration Services
(Guernsey) Limited bhfa@ntrs.com +44 (0) 1481
745736
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
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