BH Global

Strong NAV performance in March crash means discount looks anomalous...

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by BH Global. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

BH Global

BH Global is a macro hedge fund that aims to deliver strong risk-adjusted NAV returns in all market conditions. It invests in the range of trading strategies offered by Brevan Howard across multiple asset classes.

BH Global has a wider remit than its sister trust BH Macro, in being able to invest beyond developed-market interest rates and foreign exchange, and take more risk in a wider range of opportunities within markets including credit, equity and emerging markets.

One of the attractions of BH Global is its ability to generate returns irrespective of the direction of bond or equity markets. As we discuss in the Portfolio section, this is largely down to Brevan Howard’s strategy of harnessing a variety of different traders who use options to create trades with asymmetric return profiles.

Whilst it is not specifically designed to do so, BH Global has typically delivered strong returns when equity markets struggle. As we note in the Performance section, this has been particularly noteworthy since 1 February 2020, with NAV returns of 18% over the seven weeks to 21 April, relative to the MSCI ACWI in sterling of -11%, meaning outperformance of 29%.

Over the longer term (the ten years to 31 March 2020), BH Global has delivered compounded NAV returns for investors of 4.8% p.a. It has achieved this with annualised volatility of 6% and a maximum drawdown of 4.6%. BH Global’s NAV has exhibited low correlation to equities since IPO (an average of 0.13 on a rolling 12-month basis since IPO), and also to bonds (an average of -0.04).

Brevan Howard’s strong risk controls are built into the DNA of the organisation. Risk is controlled through strict risk limits at a trader and portfolio level. Looking at monthly data since inception, it is rare to see a month in which the NAV falls by more than 2%.

Kepler View

In our view, the past few weeks have done nothing if not burnish BH Global’s credentials. Crucially, BH Global has low correlation to equities overall, and a tendency to be negatively correlated in times of stress. It is this pattern of returns that makes BH Global a useful tool from a portfolio-construction perspective. As such, it makes BH Global a strong candidate for more sophisticated investors to own when balancing their overall portfolios.

The very strong performance since the start of February, representing outperformance of equity markets of 29% at the time of writing, will once again focus investors’ minds on the unique investment properties that BH Global brings to its shareholders. However, whilst the NAV performance has been very strong, BH Global’s discount has sagged, and is now c 12% (meaning the share price is +9.4% since the start of February). The share price return clearly represent a useful contribution to portfolio returns, but it is perhaps disappointing that the share price hasn’t fully reflected the strong NAV performance. As we discuss in the Discount section, the discount has rarely been wider in both absolute and relative terms (when compared to BH Macro).

Alongside the recent strong performance, recognition of BH Global as a diversifier in poor equity markets means it justifies a significantly narrower discount than the current level. Indeed, we think the past few weeks illustrate that BH Global could be a good addition to any investment portfolio and the discount is anomalous.

bull bear
Solid performance at a time of uncertain macro environment, with low correlation to equities and bonds Positioning of fund can vary rapidly, and it is not easy for investors to get a timely understanding of current exposure
Discount to NAV is wide, both in absolute terms and relative to history Discount volatility: NAV moves are not always reflected by the share price
Multi-strategy nature of underlying fund means it can be used as a diversifier for equity portfolios Current illiquidity in market means spread (the difference between buying and selling prices) can be wide
William Heathcoat Amory
William Heathcoat Amory is a co-founding partner of Kepler Partners LLP and leads the Kepler investment trust research team. William has 18 years of experience as an investment company analyst. Prior to co-founding Kepler Partners in 2008, he was part of the Extel number 1 rated research team at JPMorgan Cazenove.

Fund History

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This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.

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