Monthly Shareholder Report - November 2013

RNS Number : 0220W

BH Macro Limited

19 December 2013

 



		BH MACRO LIMITED MONTHLY SHAREHOLDER REPORT: NOVEMBER 2013 CONFIDENTIAL  DO NOT COPY OR DISTRIBUTE Your attention is drawn to the disclaimer at the beginning and end of this document BH Macro Limited MONTHLY SHAREHOLDER REPORT: November 2013oward (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 BMANL20131129

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 $2,221 mm1,2 1. Estimated as at 29 November 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 29 November 2013) Share Class NAV (USD mm) NAV per Share USD Shares 515.6 $20.51 EUR Shares 194.2 €20.66 GBP Shares 1,511.4 £21.25 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 1.33* 2.26* 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 1.32* 2.22* 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 1.34* 2.65* 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 29 November 2013 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
ASC 820 Asset Valuation Categorisation*	Brevan Howard Master Fund Limited Unaudited Estimates as at 29 November 2013 % of Gross Market Value* Level 1 58 Level 2 41 Level 3 1 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 made profits mainly in equity macro trading and to lesser extent in FX trading and in EUR interest rate trading. 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 November 1.17 0.09 0.02 -0.13 0.08 -0.06 0.16 0.01 1.33 Q1 2.90 0.22 0.06 0.11 0.07 0.07 0.25 0.02 3.71 Q2 1.68 -0.33 -0.08 -1.00 -0.01 -0.13 0.17 -0.03 0.20 Q3 -1.86 -0.47 -0.17 0.02 -0.05 0.03 0.19 -0.05 -2.34 QTD 0.71 0.06 -0.01 -0.22 0.05 -0.08 0.25 -0.00 0.77 YTD 3.42 -0.52 -0.20 -1.08 0.07 -0.11 0.86 -0.06 2.26 Monthly, quarter-to-date and year-to-date figures are estimated by Brevan Howard as at 29 November 2013, based on total performance data for each period provided by the Fund's administrator, International Fund 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 Investors were able to breathe a sigh of relief in November as the Government shutdown didn't appear to cause too much damage to the economy. Consumption outlays look solid, paced by a bounce in retail and auto sales, which reached a post-recession high. Business indicators were mixed. The survey evidence was generally sturdy, with manufacturing especially strong. However, investment spending is lacklustre. Orders for core capital goods slipped again and, smoothing through the monthly volatility, equipment and structures investment looks like it is only inching up in the second half of the year with no particular sense of urgency for businesses to add to capacity. The labour market has moved past a short-lived slowdown in the middle of the year as the monthly average change in hiring rose to 200,000 last month. The unemployment rate ticked up and the participation rate fell sharply, but survey distortions resulting from the Government shutdown appear to be responsible rather than any marked change in recent trends. Labour income growth remains tepid. Inflation is low. After having moved up a little in the summer, various measures of underlying inflation have stalled at a little more than 1%. Any back sliding will renew concerns about disinflation. Meanwhile, there's no disinflation in the prices of risk assets. Stocks motored to record nominal highs in November, the US dollar appreciated, and Treasury yields unwound their flight-to-quality bid. Monetary policy promises to remain very accommodative even as the mix of tools is recalibrated in the next few months. The Federal Reserve will taper its asset purchases from January 2014 by $10 billion to $75 billion and rely more on forward guidance, with the Fed likely to keep overnight interest rates near zero "well past the time" the 6.5% unemployment threshold is reached. The market might suffer from some volatility as the new framework is put into place, but the ultimate outcome will still be that the Fed is going to be providing a lot of support to the economy for a long time. EMU Pointing to a stabilisation in EMU business confidence after strong gains in the third quarter, the final EMU Composite PMI fell slightly in November to 51.7 from 51.9 in October. The EMU Composite PMI is now 0.5 points below the September peak. On a positive note, orders improved from 51.4 to 51.8 from the flash release. The release saw a widening divergence between Germany, on the strong side, and France and Italy on the weak side. Actual activity continued to lag business confidence as both industrial production and retail sales suffered back-to-back contraction following the dip recorded in September. Inflation only partially recovered the tumble recorded in October, rebounding from 0.7% y/y to 0.9% y/y in November, thus remaining well below the ECB definition of price stability. Dynamics of both monetary and credit aggregates remained extremely subdued: the annual growth rate of broad money supply M3 declined to 1.4% y/y in October from 2.0% y/y in September, while the pace of contraction of loans to the private sector worsened from -1.6% to -1.7% y/y. In its December policy meeting, the ECB did not announce any new policy measures following the set of measures it unveiled in November. However, the ECB did publish its long-awaited forecasts for GDP growth and HICP inflation for 2014 and 2015. The mid-points of the GDP projections see growth accelerating from -0.4% in 2013 to 1.1% y/y (upward revised from 1.0% in September) in 2014 and to 1.5% y/y in 2015. The HICP inflation projections see inflation slowing from 1.4% in 2013 (downward revised from 1.5%) to 1.1% y/y in 2014 (downward revised from 1.3%) and picking up slightly to 1.3% y/y in 2015. With these inflation forecasts, the ECB is actually placing itself below the consensus expectations which are for 1.3% in 2014 and 1.5% in 2015. In the press conference, President Draghi clarified that the Governing Council had "briefly discussed" some additional non-standards policy measures but had concluded that no particular measures had been seen necessary at the current juncture. Following the ECB meeting, the exchange rate of the Euro strengthened against all the major currencies, to elevated levels, higher than encompassed by the ECB in its just published December macroeconomic projections. Germany's two biggest parties, CDU/CSU and SPD, finalised their coalition agreement, largely in line with expectations. Overall, CDU/CSU would appoint eight ministers plus the head of the Chancellery and SPD would appoint six ministers. Merkel was re-elected as Chancellor in Parliament on Tuesday, 17 December 2013. UK Activity indicators over the past month are consistent with the notion that the pace of growth peaked around September, but eased back only very slightly since then. We think there have been two factors behind the improvement in growth this year, one sustainable, one less so. First, the housing market has been responding to the Funding for Lending Scheme ("FLS"), the renewed availability of higher LTV mortgages, and 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 via improved sentiment, due to a reduction in perceived tail-risk. Some of the response to this reduced tail-risk takes the form of a burst of activity to catch up with investment plans that were delayed last year. Growth during the burst is likely to be higher than is sustainable on a medium-term basis. Any sustainable medium-term recovery is going to have to be based on improved productivity growth, which we are starting to see. A productivity-led recovery is likely to feature only moderate employment growth, so this is unlikely to be a strong underpinning of consumption going forward. Wage growth, on the other hand, should at some point rise to match the better productivity performance. But crucially, this has not happened at all, so far, reflecting still substantial slack in the labour market and rising labour supply as unemployment and pension benefits are being cut back. Consumption growth so far has been entirely underpinned by a fall in the savings rate, with real incomes still stagnant. Either wage growth will pick up to validate households' stronger spending, or growth will slow again. Alongside the upside news about growth, there has been meaningful downside news on inflation. Headline inflation has fallen back close to target sooner than expected, as some temporary upward forces have faded sooner than expected. The strong exchange rate is exerting downward pressure on inflation in the year ahead. Also ongoing weak wage inflation shows that underlying inflation pressure also remains very weak. The downside inflation news is key in understanding the recent evolution of the Bank of England's ("BoE") communication. With strong growth now somewhat more persistent, the unemployment rate is now expected to reach the 7% threshold much sooner than initially expected. However, the BoE is not minded at all to bring forward the point at which it intends to increase interest rates. Instead, communication has started to focus on the conditions under which rates could be kept on hold for a further period after the threshold has been reached, as long as medium-term inflation pressure remains weak. The BoE did acknowledge the stronger underpinnings of the housing recovery in recent policy actions, by ending the FLS-eligibility of bank lending to households. Japan Economic activity continues to recover.  Japan's real GDP rose by 1.9% in the third quarter, slower than the previous two quarters but a decent outcome all the same.  A noticeable drag from net exports pulled down the aggregate as domestic demand posted its third straight robust gain.  A pick-up in investment in the third quarter helped offset slower household consumption.  Industrial production rose 0.5% in October following a nice bounce back in September, while the tertiary activity index was flat in September. The latest data suggest that the reflationary project remains on track.  Nationwide seasonally adjusted prices excluding food, beverages and energy rose 0.2% y/y in October, reversing September's decline, while the Tokyo measure moved up by 0.2% in November.  Food prices excluding the volatile fresh foods component have turned from declines in 2012 to moderate gains this year, but the inflationary impetus from energy prices looks like it is now played out.  In particular electricity prices, which rose sharply in the middle of the year, recently moved down.  Consumer inflation expectations continued to improve, though it is not clear whether the most recent gains merely incorporate the effects of the upcoming consumption tax hike. While it is necessary to push Government finances to a more sustainable footing, the upcoming consumption tax hike is the biggest threat to the reflationary project.  Although it will mechanically push up prices in the short run, the deleterious effects on demand from the added fiscal drag could arrest the shift in deflationary psychology.  The cabinet recently approved fiscal measures meant to offset some of this drag, but its timing, size and composition make it only partial compensation.  In that regard Kuroda's affirmation that the Bank of Japan will adjust monetary policy if needed probably can be taken at face value even if it was made in the context of offsetting overseas factors threatening the meeting of the price goal.  Kuroda is firmly in charge, so hawkish dissents and speeches from the minority should be faded. After a pause of a few months, both the processes of depreciation of the yen and of rise of the Nikkei have resumed, taking both the yen and the Nikkei to the levels reached in the past spring. China There are signs that activity in China peaked in November and that the rate of expansion in the fourth quarter, albeit robust, slowed somewhat from the brisk pace recorded in the previous quarter. The official manufacturing PMI was unchanged at the relatively high level of 51.4 but the new orders index fell for the second consecutive month, while the finished goods inventories component increased sharply. The official non-manufacturing PMI fell 0.3 points to 56.0. Hard data revealed the first fall of the annual rate of expansion of industrial production since June, from 10.3% to 10.0%. Overall, inflationary pressures eased. CPI inflation fell from 3.2% to 3.0%, while prices charged in the non-manufacturing PMI fell sharply to below 50. Property prices in 100 cities rose at a slower pace. China has now released the full text of the reform agenda after the 3rd plenum meeting, which is quite comprehensive. These plans have been well received by financial markets. Moreover, the Politburo has set the tone for macro policy in 2014, maintaining its prudent approach to monetary policy and a proactive fiscal policy.
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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