Monthly Shareholder Report

RNS Number : 2590F

BH Macro Limited

21 May 2013

 



		BH MACRO LIMITED MONTHLY SHAREHOLDER REPORT: APRIL 2013 ADV04349 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 the 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: $2,237 mm1,2 1.   Estimated as at 30 April 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 April 2013) Share Class NAV (USD mm) NAV per Share USD Shares 610.6 $21.48 EUR Shares 202.1 €21.62 GBP Shares 1,424.2 £22.20   BH Macro Limited NAV per Share % Monthly Change USD Shares 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 3.25* 7.08* EUR Shares 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 3.15* 6.97* GBP Shares 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 6.85 -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 3.23* 7.24* 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 April 2013. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
ASC 820 Asset Valuation Categorisation*	Brevan Howard Master Fund Limited Unaudited Estimates as at 30 April 2013 % of Gross Market Value Level 1 60 Level 2 40 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.
Fund Performance Review	During the month, the Fund generated gains across all main asset classes. The strongest gains were made in macro equity trading and in European interest rates trading. Smaller gains were also registered in credit trading. Small losses were incurred in interest rates volatility trading and in US interest rates trading. Monthly 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 April 2.56 0.50 -0.08 0.12 0.02 -0.12 0.20 0.04 3.25 Q1 2013 2.90 0.22 0.06 0.11 0.07 0.07 0.25 0.02 3.71 QTD 2.56 0.50 -0.08 0.12 0.02 -0.12 0.20 0.04 3.25 2013 YTD 5.54 0.73 -0.02 0.23 0.09 -0.05 0.45 0.06 7.08 Monthly and annual figures are calculated by Brevan Howard as at 30 April 2013, based on performance data for each period provided by the Fund's administrator, International Fund Services (Ireland) Limited. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS Methodology and Definition of Monthly and Annual 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 Growth has slowed in the current quarter and forward-looking indicators point to a prolonged soft patch continuing into the summer.  This pattern was predictable given the sizable tax increases seen at the start of the year as well as the across-the-board federal spending cuts imposed by the sequester.  All combined, fiscal austerity is estimated to cut this year's real GDP growth by more than 1.5 percentage points, with the peak subtractions occurring in the second and third quarters.  The continuing and possibly deepening recession in Europe as well as mixed readings in developing markets are additional headwinds for the US outlook.  In particular, the manufacturing sector-which is highly exposed to world markets-appears to be bearing the brunt of global weakness in addition to the lagged impact of the appreciation of the US dollar exchange value. Solid fundamentals lie beneath the soft patch in GDP growth.  Households have mostly completed deleveraging their balance sheets, having paid down debt and enjoyed robust increases in house prices and stock market wealth.  The housing sector is expected to continue to power ahead, boosted by historically attractive valuations, low interest rates, and tight inventories.  Lower energy prices are anticipated to eventually help offset some of the fiscal drag by adding to real disposable personal income.  By the end of the year when the fiscal drag starts to wane, these fundamentals should start to show through to top-line GDP growth, supporting self-sustaining above-trend GDP growth for the first time in the expansion. The labour market stabilised in April after a worrying initial March reading.  Payrolls rose by a respectable 165,000 and were revised up by 114,000 over the prior two months. The unemployment rate edged down to 7.5% as both employment in the household survey and the participation rate rose. The 7.5% rate is within striking distance of the 7-7.25% rate at which a number of policymakers have indicated that they would slow or stop the asset purchases associated with QE3.  Inflation is very low, especially compared with the Federal Open Market Committee's ("FOMC") 2% target.  In the latest report, headline prices fell and core prices inched up, taking the 12-month changes to 1.0% and 1.1%, respectively.  Similarly, labour costs remain quiescent.  Average hourly earnings rose 1.9% in the last year; compensation per hour (a broader measure) moved up only 1.6% in the last year; and unit labour costs rose only 0.5% in the last year, which is well below the increase in business selling prices, a gap that supports business margins. In the latest FOMC meeting, the Fed highlighted its intention to use QE3 as a means to dial accommodation up or down.  Previously, the FOMC had been focused on the conditions for 'tapering' asset purchases.  The run of disappointing data immediately prompted a hint that the Fed might increase asset purchases if the outlook deteriorated sufficiently.  We take the Fed statement at face value.  They are going to actively promote easy financial conditions and are expected to only, very slowly, reduce their policy accommodation as the economy moves to above-trend growth. EMU The key change in the data front has been the sharp and broad-based decline in euro area HICP inflation rate to 1.2% y/y in April. This was the lowest level of euro area headline inflation since February 2010. The main driver behind the sharp decline in headline inflation was a continued deceleration in energy prices. Inflation also dropped in Germany, reaching 1.1%, which is the lowest level since August 2010. Austerity policies continue to take their toll in the labour markets. The euro area aggregate unemployment rate rose to a record high of 12.1% in March, up 1.1% on the year. Greece continues to have the highest unemployment rate in the euro area at 27.2%, followed by Spain at 26.7%, Portugal at 17.5% and Cyprus at 14.2%. In France, the unemployment rate keeps climbing, ticking up to 11.0% in March. The April manufacturing PMIs in the euro area indicate that the weakness in production is expected to continue in the coming months: the Eurozone final reading was a low 46.7. The European Commission economic sentiment indicator declined, as did also the German IFO Business Climate index. On a positive note, German industrial orders re-bounded sharply in March bringing the overall first quarter figure into positive territory. The credit crunch in the periphery countries continues unabated. The ECB money and credit data showed some decline in the broad money aggregate M3 as well as no major change in lending figures. Overall, actual lending to firms remains very sluggish and contraction in annual lending growth has actually accelerated in Italy and in Spain. The ECB Bank Lending Survey showed an overall small reduction in net tightening of credit standards in the EMU, but a tightening bias remains. Net tightening of standards was mainly driven by reduced risk perceptions, and also by improved funding conditions. The ECB decided to cut the main refi rate by 25 bps, as widely expected after the release of the latest inflation figures. The Governing Council decided to keep the interest rate symmetrical, which meant that the marginal lending rate was cut by 50 bps. There had also been calls for a greater than 50 basis points cut and in the press conference following the meeting President Draghi left the door open for further measures if data continues to disappoint. Given that the move was well-anticipated, the markets seemed to focus on the guidance on future policy moves. President Draghi announced a further extension to the fixed-rate full allotment procedure, an initiation of work to promote asset backed securities using SME loans as collateral and, most importantly, an "open mind" towards the possibility to cut the deposit facility rate to negative territory. The latter announcement in particular had an immediate weakening impact on the euro exchange rate. The EU Commission released its latest economic forecasts and used the opportunity to announce a further relaxation in timetables for troubled countries to achieve fiscal consolidation targets. The new Italian government, led by Prime Minister Enrico Letta, announced that the government intended to stick with the previous targets, which seemed within reach, but planned widespread changes in the implementation of the planned measures. Overall, while the commission is shifting its tone from cyclically adjusted fiscal targets to implementation of growth-friendly structural reforms, there are several questions about the implementation and monitoring of such measures. A key unresolved issue remains the future of the banking union, where progress is expected at the 28-29 June EU Leaders' Summit. UK Overall, activity data over the past month has been better than expected. The business surveys have continued to improve, and first quarter GDP growth was 0.3%, buoyed by stronger services growth. Homebuilders' anecdotes suggest that there is some improvement in housing, although the data does not yet bear this out. The near-term growth outlook is running in line with the Bank of England ("BoE") forecasts, in contrast to the long string of disappointments we have seen in previous quarters. The three key headwinds in 2013 will remain the same as those that prevailed in 2012: real wage growth remains negative, fiscal austerity continues, and the desired export-led recovery continues to be undermined by eurozone weak growth. We anticipate that the UK's growth will remain somewhere between the US (growth around trend) and the eurozone (recession). There is no sustainable basis yet for expecting a substantial improvement in the UK's growth performance. Despite the weakness of the economy, core CPI remains resilient. However, the downward pressure from spare capacity on prices is abundantly clear in the labour market, where already subdued wage inflation has fallen even further. Wages have stagnated in most sectors, in other words, there is zero nominal wage growth. The Funding for Lending Scheme ("FLS"), launched in July last year, was extended this month, along three dimensions. Lending to non-bank financing companies was included, the deadline for taking up new funds was extended to 2015, and banks are able to receive additional funding equal to a multiple of what they lend to SMEs, to make the scheme more "SME-friendly". So far, the impact on lending volumes remains patchy. New mortgage lending and corporate lending remains close to zero. Only household unsecured credit has shown some signs of improvement. The extension of the FLS, and the fact that growth is on track relative to the BoE's February forecast, probably implies no additional QE will be announced at the May policy meeting. New policy initiatives are not expected until Carney takes over as governor in July. Japan Financial markets have reacted favourably to the Bank of Japan's ("BoJ") aggressive new monetary policy. Since the 4 April meeting when the BoJ announced its intention to double the monetary base, the Nikkei has surged over 15%. The 10-year government bond yield did increase slightly after the sharp drop on the announcement, but it held onto much of the decline from the level seen in early winter before Abe's changes to the BoJ's governance came into focus. However from 10-14 May, 10-year government bond yields had their largest rise since 2003 prompting the BoJ to offer to increase their weekly cash injection, which calmed markets. Most important to the stated intention of reversing the country's deflationary psychology, the yen has depreciated significantly. In early May, it crossed the hundred-yen-to-the-dollar barrier.    Optimism was already building in the economy before the BoJ's announcement. Second-quarter expectations in the Tankan survey, conducted in March, increased to its highest level since the end of the recession. Gains were also reported in all major industries.  Likewise, consumer confidence in March built further on its sharp increase at the start of the year. Polls indicate that the LDP maintains strong support under Abe. Ultimately, the economy will have to respond in order to keep optimism rolling forward.  The key in this regard will be a pickup in actual inflation. Kuroda has set a 2% target for inflation, and the BoJ's Board forecasts the 2013 annual average of the core CPI to be up 0.7% from 2012. To reach that goal, essentially an immediate acceleration in seasonally adjusted inflation to 15 bps per month is required. Since November seasonally adjusted prices have been flat, including the latest data for March. That seems like a tall order, however within the March CPI report there were hints of life in some of the data. China The latest data suggests that the slowdown continued in April after the weak GDP growth recorded in the first quarter, lower than 7% in sequential terms. The outcome of the April PMI surveys was weak: the official manufacturing PMI fell by 0.3 points to 50.9, while the HSBC China manufacturing PMI fell by 1.2 points to 50.4; the official non-manufacturing PMI fell by 1.1 points to 54.5, while the HSBC service PMI fell by 3.2 points to 51.1, the lowest level since August 2011. To date, only construction activity is holding up, owing to both housing and infrastructural projects. Due to the soft activity, inflationary pressures remain subdued: CPI inflation remains low, while PPI continues to deflate. Property prices, instead, continue to rise at a brisk pace: they increased by another 1.0% m/m in April in 100 major cities, although the pace of increase seems to have stabilised. Various data suggests that the current pace of growth is consistent with the levels tolerated by the government, as current leaders focus on high quality growth and economic reforms. As such, monetary policy remains neutral. Due to renewed capital inflows, the SAFE is poised to enhance capital inflow controls in June, asking commercial banks to hold more net forex position and cracking down on CNY arbitrage through foreign trade. A strict implementation of these policies should help to ease CNY appreciation pressures.
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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