Monthly Shareholder Report - October 2013

RNS Number : 6318T

BH Macro Limited

21 November 2013

 



		BH Macro Limited MONTHLY SHAREHOLDER REPORT: October 2013 BMANL20131031 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 $2,162 mm1,2 1. Estimated as at 31 October 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 31 October 2013) Share Class NAV (USD mm) NAV per Share USD Shares 536.5 $20.23 EUR Shares 193.3 €20.38 GBP Shares 1,432.2 £20.96 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 -0.59* 0.87* 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 -0.58* 0.84* 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 -0.59* 1.25* 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 31 October 2013 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
ASC 820 Asset Valuation Categorisation*	Brevan Howard Master Fund Limited Unaudited Estimates as at 31 October 2013 % of Gross Market Value* Level 1 66 Level 2 34 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 small losses in equity macro trading, in FX trading and in USD interest rate trading. These were partially offset by small gains in credit 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 October -0.47 -0.03 -0.02 -0.08 -0.03 -0.01 0.04 0.00 -0.59 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 Q3 2013 -1.86 -0.47 -0.17 0.02 -0.05 0.03 0.19 -0.05 -2.34 QTD -0.47 -0.03 -0.02 -0.08 -0.03 -0.01 0.04 0.00 -0.59 2013 YTD 2.21 -0.61 -0.21 -0.95 -0.02 -0.05 0.65 -0.06 0.87 Monthly, quarter-to-date and year-to-date figures are estimated by Brevan Howard as at 31 October 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 Developments in Washington dominated global capital markets in October as political battles shut down the Federal Government and risked a default on US Treasuries. A last minute deal kicked the can into next year when Congress will try again to come to a budget agreement in January and extend the debt limit in February. The direct economic damage probably subtracted a few tenths of one per cent from annualised GDP growth in the fourth quarter. The indirect impact on consumer and business confidence may amplify those effects. By contrast with previous rounds of legislative brinksmanship, the markets were relatively calm because they assumed that a solution would be reached. As a result, the economic impact may be contained because the financial markets did not propagate the shock. Indeed, shortly after the agreement, the stock market charted a new record high. Coming into October, the indicators of growth were mixed. Third-quarter GDP growth was better than expected, but was soft underneath the surface. Surveys of business activity were solid but actual outlays for capital goods lost momentum.  Real consumer spending advanced modestly and housing appeared dented by the increase in mortgage rates since last spring. The labour market looked sturdy in October, although it was probably too soon for the effects of the Government shutdown to materialise in the data. Payroll employment rose more than expected in October and the average gain over the last three months moved back up to 200,000 after revisions. After having picked up in the summer, core PCE inflation was subdued in October. The year-over-year change was just 1.2% with little indication of upward momentum. In this environment, it makes sense for the Fed to wait and see how the economy develops. There is reason to hope that the consequences of the Government shutdown are temporary and contained, but that will be uncertain until early next year when the fourth quarter data are released. The labour market looks promising but it's also uncertain whether the momentum can be sustained without stronger growth. Finally, the lack of progress in returning inflation back to 2% is expected to be a nagging source of concern. In addition, the leadership transition at the Fed also imparts a degree of policy inertia. When Janet Yellen assumes the chairmanship, we expect her to lead a re-evaluation of the asset purchase programme and forward guidance on policy rates, likely by trimming the former and enhancing the latter. EMU The big news of the last month in the eurozone was the significant drop in inflation and the consequent cut of the ECB refinancing rate by 25bps, to 0.25%. Euro area HICP inflation fell to 0.7% y/y in October from 1.1% y/y in September, in the context of high and still rising unemployment: in September, the EMU unemployment rate was 12.2%, unchanged from the previous month, but only after August was revised up heavily from 12.0%. As to economic activity, the third quarter ended on a softer note, as actual data from both retail sales and industrial production disappointed. The improving sentiment during the summer has thus far failed to translate into a solid recovery. Moreover, in October, the EMU Composite PMI suffered its first setback in recent months, although limited. In its policy meeting, the ECB also extended its full allotment policy framework until July 2015, which allows banks to roll the expiring 3-year long-term refinancing operation funds on favourable terms for several months longer and thus mitigate the presumed funding cliff. The ECB also confirmed that its forward guidance - including the explicit easing bias - remains in place despite the reduction in the main refinancing rate. Although the decision to move rates in November was not unanimous, there were indications that even the dissenters were merely willing to postpone the decision to December when the ECB will unveil its updated macroeconomic forecasts. In addition, the ECB disclosed some details about its forthcoming asset quality review.  The review, which will be followed by a separate stress test, will be carried out during the first three quarters of 2014 and it will be based on the banks' books as of at the end of the fourth quarter 2013.  The details of the procedure itself were scarce, however, and leave many questions about the severity of the exercise unanswered. UK Growth indicators over the past month eased back slightly for a second consecutive month, although not uniformly so. The services PMI stood out, rising again on the month and nearing all-time highs. While some of the improvement in growth since the start of the year is sustainable, some of it is likely due to temporary factors, and we are likely to see some moderation in growth next year, relative to the pace seen in the third and fourth quarters. We think there are two factors behind the improvement in growth. First, the housing market has been responding to the Funding for Lending Scheme - there is a renewed availability of higher LTV mortgages, and an increase in the Government's "Help to Buy" equity loans for new housing. This is expected to lead to a sustained recovery in residential investment from depressed levels, and a pick-up in the retail sectors which 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 improved productivity performance. Only when that happens can we expect a sustainable pick-up in consumption growth. Consumption growth so far has been entirely underpinned by a fall in the savings rate, with real incomes still stagnant. Nominal wage growth remains very weak without any sign of improvement. An investment and export led recovery looks to be a more plausible prospect now, but quantitatively this is unlikely to be large enough to sustain growth near its rapid third quarter pace. Against this background of improved growth momentum, and with the Bank of England's ("BoE") forward guidance framework now in place, there has been no need for further policy action in either direction. BoE communication has therefore simply focused on explaining the forward guidance framework. The medium-term outlook for policy rates (on hold for two years or more) remains unchanged from where it was in August, as modest upward revisions to growth and employment forecasts are likely to be offset by weaker inflation pressure. Inflation, while still a little above the target, has been undershooting the BoE forecast somewhat, and wage inflation has, if anything, weakened further. A stronger currency is also pushing down on the inflation outlook. Japan There were no major changes in the outlook for Japan this month.  High-frequency activity indicators suggest activity continues to improve.  Industrial production bounced back in September, and business surveys generally remained solid. In particular, the Composite PMI jumped from 53.2 to 56.0, the highest level on record. Consumer confidence reversed the modest decreases seen over the summer.  Inflation rates continue to trend upward on a 12-month basis, though excluding food and energy prices fell back 0.2% in September.  The easiest inflation gains are likely over as the effective exchange rate has largely moved sideways over the past half year. There also was not much in the way of policy developments.  The Bank of Japan made no policy changes at their last meeting and largely re-affirmed their outlook for GDP and inflation.  In his speech to open the session of the Diet, Prime Minister Abe detailed various reforms to specific service-sector industries.  The metaphor of a third arrow suggested a major package all at once, however it appears that changes will be incremental and targeted.  The hope is that Abe can guide all of it through the legislature and bureaucracies and that it adds up to significant improvements.  China October economic data showed that output growth strengthened further into the fourth quarter, although most leading indicators and demand dynamics suggest that activity should start moderating in the remainder of the fourth quarter. Both the official and the HSBC manufacturing PMI rose in October, as did the non-manufacturing PMIs: the improvement was driven by the production index, while new orders and the orders/inventories ratio actually fell. Industrial production growth continued to accelerate on a 3m/3m metric, while retail sales growth slowed and fixed asset investments growth remained stable. Moreover, both railway freight volume and power consumption, two reliable indicators, are slowing. Property prices continue to rise: new home prices in 100 cities rose by 1.24% m/m in October, the highest rise since February 2011. CPI inflation rose further to 3.2% y/y in October, but the full year CPI inflation is expected to be well below the 3.5% official target, at about 2.7% y/y. PPI fell further to into deflationary territory, to -1.5% y/y. The People's Bank of China ("PBOC") again suspended reverse repo operations, as liquidity eased to a near normal level in the first week of November after a seasonal spike at end of October. The PBOC reiterated its prudent (neutral) monetary policy stance in its third quarter monetary policy report and was more optimistic on growth compared with the second quarter report. Premier Li said that if China was to use reform and deregulation, it would have to guarantee robust growth as growth is necessary for employment. Based on Li's speech, the long-term (until 2020) GDP growth target is at about 7% y/y at the end of October.
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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