Monthly Shareholder Report - October 2014

RNS Number : 6277X

BH Macro Limited

20 November 2014

 



		BH MACRO LIMITED MONTHLY SHAREHOLDER REPORT: OCTOBER 2014 YOUR ATTENTION IS DRAWN TO THE DISCLAIMER AT THE END OF THIS DOCUMENT

BH Macro Limited	Overview
Manager: Brevan Howard Capital Management LP ("BHCM") Administrator: Northern Trust International Fund Administration Services (Guernsey) Limited ("Northern Trust") Corporate Broker: J.P. Morgan Cazenove Listings: London Stock Exchange (Premium Listing) NASDAQ Dubai - USD Class (Secondary listing) Bermuda Stock Exchange (Secondary listing)	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:	$1,835 mm¹
	1. Estimated as at 31 October 2014 by BHM's administrator, Northern Trust.
Summary Information	BH Macro Limited NAV per Share (estimated as at 31 October 2014)
	Share Class NAV (USD mm) NAV per Share USD Shares 392.7 $20.42 EUR Shares 136.4 €20.53 GBP Shares 1305.8 £21.20
	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 -1.74* -0.85*
	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 -1.81* -1.01*
	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 -1.71* -0.67*
	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. *Estimated as at 31 October 2014 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
ASC 820 Asset Valuation Categorisation*	Brevan Howard Master Fund Limited
	Unaudited estimates as at 31 October 2014
	% of Gross Market Value* Level 1 54.9 Level 2 44.6 Level 3 0.5
	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 Review	The information in this section has been provided to BHM by BHCM
	During the month, the Fund suffered losses mainly in USD interest rate and to a lesser extent in EUR interest rate trading. Equity macro and FX trading were also moderately negative. Small gains were made in rates trading in currencies other than USD and EUR.
	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 Discount Management Total October -1.52 -0.08 0.09 -0.02 -0.35 0.03 -0.02 -0.01 0.14 -1.74 Q1 2014 -3.23 -0.08 -0.03 -0.01 -0.06 0.02 0.55 -0.05 0.07 -2.83 Q2 2014 -1.84 0.13 -0.04 0.02 -0.09 0.02 0.20 -0.00 0.66 -0.95 Q3 2014 3.07 0.63 0.25 0.26 0.21 -0.12 0.13 0.01 0.36 4.85 Q4 2014 -1.52 -0.08 0.09 -0.02 -0.35 0.03 -0.02 -0.01 0.14 -1.74 YTD 2014 -3.58 0.60 0.27 0.25 -0.28 -0.05 0.86 -0.04 1.22 -0.85
	Monthly, quarter-to-date and year-to-date figures are estimated by BHCM as at 31 October 2014, based on total performance data for each period provided by the Fund's administrator, International Fund Services (Ireland) Limited. Figures rounded to two decimal places. 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
Manager's Market Review and Outlook	The information in this section has been provided to BHM by BHCM
	US Markets went on a wild ride in October, but the economic news in the US reinforced the assessment that growth is sturdy, the labour market is solid, and inflation is muted. The first estimate of third-quarter GDP growth was 3.5% (annual rate), cementing the assessment that growth averaged approximately 4% in the middle two quarters of the year. However, the third quarter ended on a soft note for retail sales and capital spending indicators, so the economy's momentum appears to have slowed entering the fourth quarter. Nevertheless, with fundamentals for consumption and investment holding up at high levels, the best assumption is that private demand will advance at a moderate clip in the coming months. The labour market is making impressive strides. The unemployment rate fell to 5.8% in the latest release.  In light of the rapid decline in the headline unemployment rate and broader measures of labour market underutilisation, full employment appears within sight over the next year. Indeed, some observers have characterised the improvement in the labour market as "gradual". However, with the unemployment rate falling 1.4 percentage points over the last year, the drop is anything but gradual-it is a faster decline than seen in either of the prior two expansions dating back to the early 1980s. In the last year, payroll employment has had average monthly gains of 220,000, a similarly impressive track record. Earlier in the year, wages were weak because there was still ample slack in the labour market. With slack getting taken up over the middle two quarters of the year, wages have begun to accelerate somewhat. In the latest comprehensive assessment of wages, the Employment Cost Index posted a second-consecutive sizable increase, so that private wages and salaries increased 3% (annual rate) in the middle two quarters of the year, putting the year-over-year change at 2.2%. Price inflation is, however, quite muted. After moving up in the second quarter, core inflation settled back down in the latest print to 1.5%, well below the Federal Reserve's 2% target. With lower energy and import prices promising to pass-through to core inflation over the next year, it is anticipated that there will be only a very gradual acceleration in prices. The Federal Reserve ended quantitative easing in October, as widely anticipated. They also laid down markers indicating that they are planning to normalise policy and raise interest rates sometime next year. Although forward guidance still describes lift-off as a "considerable time" from now, that language has been so qualified that it is essentially a pledge to be data-dependent. In addition, the Committee upgraded its assessment of the labour market while hinting at some worries about low inflation. EMU After a string of disappointing data during the summer, economic news in the euro area has been more mixed over the past weeks. In October, the euro area Composite PMI stabilised at 52.1 and the European Commission surveys improved after declining for two months, but the IFO Business Climate fell by another 1.5 points. Actual data referring to the month of September were still weak, as euro area industrial production rebounded only partially (0.6% m/m) after the August dip (-1.4% m/m) and retail sales plunged, more than offsetting the August bounce. Inflation inched up slightly to 0.4% y/y, thus remaining dangerously close to deflation territory and significantly below the ECB definition of price stability. Additionally, the European Central Bank (ECB) successfully brought to an end the comprehensive asset quality review and stress test exercise. Consequently, on 4 November the ECB formally took over the supervisory responsibilities of the largest euro area banks. Against this backdrop, in its penultimate policy meeting of the year, the ECB did not take any additional monetary policy measures, but delivered a more dovish message than had been expected. In particular, ECB President Draghi managed to put in the ECB introductory statement an expectation for ECB balance sheet expansion "towards" the dimensions of early 2012, thanks to the measures (TLTRO, ABS and covered bond purchases) taken thus far. As Draghi made clear in the Q&A, the ECB Governing Council was unanimous in expressing this expectation. Moreover, the ECB statement added that the "Governing Council has tasked the ECB staff and the relevant Eurosystem committees with ensuring the timely preparation of further measures to be implemented, if needed." However, in the Q&A, Draghi did not give the full list of measures that would be studied. On that point, Draghi set out two triggers for further ECB action: disappointment in growth and inflation data and an insufficient balance sheet expansion from the existing measures. The eyes are now on the last policy meeting of the year on 4 December and the second unconditional TLTRO tender to be allotted on 11 December. UK Over the past month there has been further evidence of a slowing in UK growth momentum and a rather sharp slowing in the housing market, which is likely to have knock-on effects on growth in the coming quarters. Manufacturing growth has also slowed sharply, while services and construction continues to hold up, but nevertheless slowing as well. The 10% FX appreciation over the past year and a half, as well as the renewed slowing in Eurozone growth, seem to be taking a toll. Housing market activity has been slowing sharply for several months, and with the usual lag, there is now also a loss in price momentum. Average prices for the whole country are approximately stagnating now, after a period of 10% annualised growth. Prices in London are already falling. The main cause of the housing market slowdown seems to be the macro-prudential tightening by the Bank of England (BoE) earlier in the year. This has had a larger effect than intended, as banks seem to have tightened conditions to remain well inside the BoE guidance. Fear of future property tax changes after the 2015 election is also acting as a drag on the housing market. The labour market continues to show a puzzling mix of rapid declines in the unemployment rate, but also very weak wage growth, suggesting there is ample slack in the labour market. The unemployment rate is likely to fall below 6% in the coming months, once again falling faster than the BoE forecast. But against that, wage growth remains very weak, and shows little sign of picking up significantly, falling short of BoE forecast. Moreover, there are some early signs that employment growth is starting to slow, a development that is expected to continue in response to an overall slowdown in economic growth. Inflation has moved further below target, the combined result of muted core inflation, and falling energy and food prices. A backdrop of slowing growth with weak wage and price inflation does not require urgent rate hikes. While the BoE contemplated the possibility of a November hike at some point in the early summer, the policy debate has evolved towards delaying the first hike in response to disappointing data. The first rate hike is expected in the second half of 2015 at the earliest. Japan Policy makers in Japan made two long-awaited, major announcements at the end of the month that will have significant ramifications for markets and the economy over the next year. The Bank of Japan (BoJ) announced an increase in the pace of bond buying by about 60% and approximately tripled the pace of purchases of ETFs and J-REITs from the previous policy. In the case of JGB purchases, the average remaining maturity of the purchase will be extended to about 7-10 years (an extension of three years).  In addition, the Government Pension Investment Fund announced that it would reduce its holdings of domestic bonds from about 60% to 35%, while doubling the share of its holdings in domestic and international stocks. In the days following the announcement, the Nikkei more than unwound its October decline, long-term interest rates fell, and the yen depreciated steeply, especially against the dollar. The BoJ cited fears that under the weight of crude oil price declines and some slippage in aggregate demand due to the consumption tax hike, there could be some backsliding in inflation expectations.  The recent weakness in the real economy is a threat to the reflationary project. Real GDP fell -7.1% q/q in the second quarter (annualised rate).  Industrial production is down -0.8% over the last twelve months, notwithstanding some improvement in September output.  Recent moves in some surveys have been mixed of late, but various measures including the Shoko-Chukin survey of small and medium-sized enterprises, consumer confidence, and the Economy Watchers' survey remain noticeably below levels seen at the start of the year. Japan's core rate had been supporting core inflation in the first half of the year but has recently turned down. Fossil fuel prices are putting downward pressure on consumer petroleum products, such as gasoline and natural gas, notwithstanding the yen's depreciation against the dollar, and will likely weigh on the aggregate inflation rate in the coming months.  But, electricity prices have also been an important element in inflation dynamics.  The near 10% increase in electricity prices from June 2013 to June 2014 added 0.3 pp to core inflation, but it was never the case that this inflationary impetus could be sustained over the medium term.  Indeed, over the last three months electricity prices have reduced core inflation by -0.1 pp (annual rate). More important for the long-term project, however, the pace of inflation excluding food and energy, the so-called western core price index, has been weak.  The seasonally adjusted index, which had been averaging only 0.5 pp (annual rate) excluding the effects of the consumption tax hike, edged down ‑0.1 pp in August and was flat in September.  So, even in the absence of a drag from energy prices, some additional boost to the reflationary project was already called for. China Economic data have continued to slow since August, although at a moderate pace. In October, the manufacturing HSBC PMI rose by 0.2 points, to 50.4, while the official PMI declined by 0.3 points, to 50.8. Details were a bit less encouraging, as the ratio of new orders to inventory fell, while the price index continued to flag disinflationary pressures. Consistently, actual activity data continued to show moderation in October, falling short of market expectations, with the exclusion of real estate data which are showing stabilisation, albeit possibly temporary. In particular, industrial production showed renewed moderation following the temporary bounce in September: the y/y growth rate fell back from 8.0% to 7.7%, undershooting consensus forecasts of a stable outcome. On the external side, China recorded in October another strong trade surplus of US$45bn, due to both improved export growth and weaker import values. So far, there is no "open" policy reaction to the recent deterioration in data, but the People's Bank of China (PBoC) admitted in its third quarter report that it is trying to regain control over monetary conditions. The report acknowledged that the PBoC rolled out a new lending facility and used this facility to inject a large amount of liquidity at a low interest rate (3.5%). The main purpose of this injection was to likely "neutralise" the impact of slower foreign inflows. In addition, the PBoC have also lowered the interest rate on pledged supplementary lending, a targeted facility to finance urban development, in addition to lowering the required reserve ratio for individual banks that meet certain credit allocation requirements.
Enquiries	Northern Trust International Fund Administration Services (Guernsey) Limited Harry Rouillard [phone]

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.

 

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