BH Global

BHGG continues to offer attractive diversification properties, particularly given elevated equity market valuations…

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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 (BHGG) aims to deliver strong risk-adjusted NAV returns in all market conditions. It aims to achieve this by investing in the range of trading strategies offered by Brevan Howard through its Multi-Strategy Master Fund.

As we discuss in the Performance section, strong performance during 2020 has prompted renewed interest in Brevan Howard as a firm, with AUM rising from $7.5bn to c. $11.4bn so far this year. With a new CEO, Brevan Howard has been hiring trading talent and its number of traders has risen from c. 40 to around 55. In time, this will likely filter through to BHGG, which can be more exposed to a wider range of asset classes than the BH Master Fund (or BH Macro).

This wider exposure to asset classes allowed BHGG to outperform BH Macro during Q2, and has contributed to the strong returns made year to date (+17.1% as at 06/11/2020). BHGG has only experienced one down year over the 12-plus years since launch (-1.32% GBP NAV in 2015). This is illustrative of Brevan Howard’s strong risk controls which, as discussed in the Portfolio section, are built into the organisation’s DNA. The managers aim to control downside through strict risk limits on an underlying trader basis, but also at a portfolio level.

During 2020 the investment committee made some significant changes to the allocation of the underlying funds. The percentage invested in the BH Master Fund was reduced from 43.5% (as at 31/12/2019) to 20%. An increase was made to the ‘single-manager portfolio’ (from 40% to 59.5%, back towards its previous peak of over 60% in 2018).

Kepler View

The chairman of BHGG describes the fund as “structurally uncorrelated” (2020 interims), and in our view the key attraction of BHGG is its ability to generate returns irrespective of the direction of markets. Historically, the best NAV returns have been generated in periods of poor equity returns and heightened volatility. During the first half of 2020, the fund delivered its highest six-monthly performance (+14.5% for the GBP share class in NAV terms). With equity markets once again elevated, and political risks heightened, BHGG’s portfolio diversification attributes are increasingly relevant.

These attractions have not eluded investors, and BHGG’s discount has narrowed. As a result, both BHGG’s NAV and share price have outperformed equity markets significantly so far this year. The current premium to NAV for the GBP shares of 1.3% compares to an average discount over the last three years of 4.3%. However, BHGG continues to trade at a significant discount to sister BH Macro, which trades on a premium of 13.5%. This differential has rarely been wider, and in our view means that BHGG currently offers a better-value access point to Brevan Howard’s traders and strategies.

In our view BHGG remains a useful tool from a portfolio-construction perspective. BHGG is a strong candidate for more sophisticated investors to own when balancing their portfolios. With Brevan Howard having further deepened its pool of trading talent, we believe the future for BHGG – by offering a broad exposure to these traders – looks bright.

Bull Bear
Strong performance in 2020 when equity markets have struggled, reinforcing the historical low correlation to equities and bonds Hard for investors to get a timely understanding of current exposure
Shares trade at a small premium to NAV, but are significantly cheaper (in terms of premium) than BH Macro’s
Discount volatility: NAV moves are not always reflected by the share price
Multi-strategy nature of underlying fund means BHGG can be used as a diversifier for equity portfolios
Shares can be relatively illiquid at times (reflected in spreads between buying and selling price)
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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