Monthly Shareholder Report - August 2013

RNS Number : 4679O

BH Macro Limited

19 September 2013

 



		BH MACRO LIMITED MONTHLY SHAREHOLDER REPORT: August 2013 BMANL20130830 CONFIDENTIAL DO NOT COPY OR DISTRIBUTE Your attention is drawn to the disclaimer at the beginning and end of this document © Brevan Howard (2013).  All Rights Reserved.
		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 Conduct Authority (the "FCA") 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 FCA (the "FCA 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 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 to 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 FCA Rules. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE RESULTS

BH Macro Limited Manager: Brevan Howard Capital Management LP ("BHCM") Administrator: Northern Trust International Fund Administration Services (Guernsey) Limited ("Northern Trust") Corporate Broker: J.P. Morgan Securities Ltd. Listings: London Stock Exchange (Premium Listing) 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 $2,114 mm1,2 1. Estimated as at 30 August 2013 by BHM's administrator, Northern Trust. 2. This figure is net of the 2013 capital return.
Summary Information	BH Macro Limited NAV per Share (estimated as at 30 August 2013) Share Class NAV (USD mm) NAV per Share USD Shares 547.4 $20.34 EUR Shares 185.6 €20.49 GBP Shares 1,380.8 £21.06 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 -1.59* 1.41* 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 -1.60* 1.38* 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 -1.56* 1.75* 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 30 August 2013 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
ASC 820 Asset Valuation Categorisation*	Brevan Howard Master Fund Limited Unaudited Estimates as at 30 August 2013 % of Gross Market Value* Level 1 62 Level 2 38 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 mainly in macro trading of interest rates, equity and, to a lesser extent, FX. Monthly, quarterly and annual contribution (%) to the performance of BHM USD Shares (net of fees and expenses) by strategy group Macro Rates FX EMG Equity Commodity Credit Systematic TOTAL August -1.27 -0.05 -0.00 -0.25 -0.01 0.01 -0.01 -0.00 -1.59 Q1 2013 2.90 0.22 0.06 0.11 0.07 0.07 0.25 0.02 3.71 Q2 2013 1.68 -0.33 -0.08 -1.00 -0.01 -0.13 0.17 -0.03 0.20 QTD -1.80 -0.39 -0.12 -0.13 -0.04 0.09 0.01 -0.04 -2.41 2013 YTD 2.74 -0.50 -0.14 -1.02 0.02 0.02 0.43 -0.05 1.41 Monthly, quarter-to-date and year-to-date figures are estimated by Brevan Howard as at 30 August 2013, based on total performance data for each period provided by the Fund's administrator, International Financial Services (Ireland) Limited. 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 Slow growth in the first quarter was followed by a pick-up in the second quarter, paced by better-than-expected exports.  As a result, the contour of first-half growth - now reported to have risen 1.8% at an annual rate - lines up with improved news from the external sector and the idea that the economy has weathered the worst of the fiscal drag.  Investors' fears about recession in Europe, a hard landing in China and the US fiscal drag have diminished. Looking forward, the primary challenge confronting the economy will be whether the interest-rate sensitive sectors of the economy including housing and autos can withstand the sharp rise in interest rates.  Investors' worries in August shifted to the consequences of the beginning of the end of the Federal Reserve's asset purchases and geopolitical uncertainty about the civil war in Syria.  Stocks slid 3% even as the incoming indicators suggested the economy's momentum was unchanged. Notably, auto sales hit 16 million units (seasonally adjusted annual sales rate), a new high for the expansion, and initial claims for unemployment insurance fell to a low point for the expansion.  Survey data were solid with both the ISM manufacturing and non-manufacturing surveys hitting multi-year highs.  However, payroll employment growth slowed but another decline in the participation rate led the unemployment rate down to 7.3%.  Inflation appears to have bottomed during the summer.  After looking alarmingly close to falling below 1%, core PCE inflation was revised up in the comprehensive revision to the National Accounts in July and subsequent releases showed the index rising 1.7% (annual rate) in the latest three month period. Investors widely expected the Federal Reserve to trim its monthly pace of asset purchases at its September policy meeting.  However, given the size and the speed of the sell-off in the bond market, the Fed decided to delay the tapering and reinforced its message that interest rates will remain unchanged until 2015 and then rise only slowly. EMU Over the summer, survey-based indicators recorded strong gains across all countries belonging to the Economic and Monetary Union ("EMU"): in August the EMU Composite PMI climbed to 51.5, about 5 points above the March low and the highest level since June 2011. The improvement, which started in the domestic components, has subsequently spread to export orders. However, after a strong second quarter, actual activity data have had a subdued beginning in the third quarter: In July, retail sales were soft, while industrial production contracted. Unemployment has showed tentative signs of improvement, while remaining extremely elevated. Moreover, EMU credit dynamics continue to worsen, with the annual growth rate of loans to the private sector falling to very weak levels. The country level breakdown of the aggregate credit numbers show that total lending to firms continues to be depressed by slow corporate credit growth in Germany, where demand for financing for investment purposes remains weak. However, credit data for some of the periphery countries, notably Greece and Portugal, have shown some tentative improvement after a protracted slump. Inflation remains subdued. Euro area HICP inflation declined to 1.3% y/y in August from 1.6% y/y in July, mainly due to an energy-related base effect and, to a lesser extent, a slight decline in food prices. Measures of core inflation have held steady at around 1.1% y/y. At its September policy meeting, the ECB refrained from any action. President Draghi repeated the forward guidance and the ECB staff revised upward the 2013 GDP and inflation projections, but revised down the 2014 growth projections. In describing the current conditions, the ECB Statement was moderately more upbeat, but stressed that unemployment remains high. The ECB showed attentive monitoring of money market conditions, stating that it stands ready to act in case money market rates increased to levels unwarranted by the outlook for price stability. Some governors had even thought that rates could be cut in response to such increases, although others had disagreed in light of better economic data. In the question and answer session following the policy meeting, Draghi also stressed the 'qualitative' form of the ECB's forward guidance and argued that it explains rather than changes the reaction function of the Governing Council. UK Activity data over the past month improved sharply, with many business surveys now at or near all-time highs. Second quarter GDP was revised up to 0.7%, a marked acceleration from 0.3% in the first quarter. Survey data suggests that the third quarter will be as good as or better than the second quarter. We think there are two factors behind the improvement. First, the housing market has been responding to the Funding for Lending Scheme - there is now renewed availability of higher LTV mortgages, and an increase in the Government's Help to Buy equity loans for new housing. This should lead to a sustained recovery in residential investment from deeply depressed levels, and a pick-up in the retail sectors that are most closely related to residential investment. Second, the improvement in EMU growth has lessened one of the key UK headwinds, both via better exports and improved sentiment, due to a reduction in perceived tail-risk. Given how weak household income growth still is, and given how much further household deleveraging needs to progress, it seems too early to count on a sustained pick-up in consumption growth. Improved sentiment can provide a short term boost, but ultimately only real wage growth and employment growth can sustain consumption, and these factors remain weak for the moment. However an investment and export-led recovery looks more plausible now. Consistent with this idea, business-related surveys have far outperformed consumer-related surveys. Against this background of improving growth momentum, the case for aggressive further easing via forward guidance has weakened. In August, the Bank of England ("BoE") delivered a forward guidance framework along the lines we expected, but with less aggressive parameters than might have been the case had it been delivered earlier in the year. The BoE intends not to raise interest rates at least until unemployment reaches 7% (currently 7.8%), unless inflation or financial stability "knock-outs" have been triggered. It was explicitly stated that the framework was not designed to inject additional stimulus. While a move higher in front end yields over the past weeks could be interpreted as a failure of forward guidance policy, it could reasonably be argued that, absent any forward guidance, front end yields would have moved a lot further. The BoE seems to take the latter view for now, having shown little inclination to jawbone the market moves so far. We now expect the BoE to refrain from further near-term policy action, until either (i) front end yields move up to such an extent that they endanger the recovery; or (ii) the data weakens sharply in response to a global shock. Japan Japan's GDP rose 2.6% (annual rate) in the first release for the second quarter, but it was then revised to show a large 3.8% increase.  Private consumption was solid again, and exports rose sharply for a second quarter, while business investment expanded for the first time since the end of 2011.  Among high-frequency indicators, both the PMI and the industrial production index bounced back in August, retracing July's dip.  Confidence among small and medium-sized businesses rose again. Inflation continues to improve gradually as seasonally-adjusted indices moved up in July for the country as a whole and in August for Tokyo. Increases in electricity and gasoline prices flattered the total aggregate, but the so-called western core measures (prices excluding food and energy) rose 0.2% on a seasonally-adjusted basis in both cases in the latest data.  The year-on-year national core inflation rate increased 0.3% to 0.7%.  After a sharp run up earlier in the year, consumer inflation expectations have edged up further to their highest level since late 2008.  The policy focus is on the upcoming consumption tax increase.  At an extended hearing, a slew of experts advised the Government to follow through on the consumption tax timeline.  A final decision by the Japanese Prime Minister is expected early next month.  At the same time, it is expected that the Government will introduce some temporary fiscal measures and perhaps some additional monetary easing to give the economy a prior boost, but a specific plan has yet to emerge. China All available indicators, from PMIs to hard data on industrial production, trade, investments and retail sales suggest that the momentum of the cyclical recovery gathered steam in August. The official manufacturing PMI rose from 50.3 to 51.0, the highest level since April 2012, while the HSBC manufacturing PMI climbed from 47.7 to 50.1, the highest level in five months. The official non-manufacturing PMI fell slightly to 53.9, but the HSBC service PMI climbed from 51.3 to 52.8, again the highest in five months. The ongoing upswing is led by the manufacturing and the construction sector. Industrial production accelerated from 9.7% y/y to 10.4% y/y, largely overshooting the consensus forecast for the second month in a row. The official 7.5% annual GDP 2013 target seems within reach. CPI remains contained, falling in August, from 2.7% to 2.6%. PPI deflation eased, from -2.3% to -1.6% y/y but property prices accelerated, which is a concern for Chinese policy makers. The People's Bank of China continues to maintain its prudent attitude on policy, adopting a liquidity strategy aimed at guaranteeing stable interbank money market rates. President Xi said recently that lower growth in the first half of 2013 was policy-induced, as China tries to maintain a sustainable growth path through reforms and structural adjustment rather than a large economic stimulus. China will hold the third plenum of the 18th Party Congress in November, which is the most important meeting on the future reform agenda.
Enquiries	Northern Trust International Fund Administration Services (Guernsey) Limited Harry Rouillard [phone]

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 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 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.

 

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