BH Macro 02 May 2023
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by BH Macro. 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.
The Company invests all of its assets (net of short-term working capital) in the ordinary shares of the Brevan Howard Master Fund. The Brevan Howard Master Fund’s investment objective is to seek to produce compelling, asymmetric returns for its investors, independent of the market environment, and has exhibited a low correlation to risk assets over its lifetime.
BH Macro Limited
Brevan Howard Capital Management LP
Brevan Howard Capital Management LP
Association of Investment Companies (AIC) Sector
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BH Macro Limited (LON:BHMG) is a listed investment company with net assets of c. £1.5bn and is a feeder into one of Brevan Howard’s flagship funds, Brevan Howard Master Fund Limited (Master Fund). The Master Fund is one of the most successful hedge funds of all time, in terms of the absolute amount of money returned to investors since the firm’s launch in 2002 (see Management section).
The Master Fund aims to provide compelling, asymmetric returns for investors, irrespective of market conditions. In order to achieve this, the Master Fund has exposure to a complementary combination of macro directional and macro relative value strategies, all overseen by a highly-resourced risk management team. Capital is allocated across a wide range of traders, aiming to diversify exposure across the best risk-adjusted opportunities, primarily within developed markets’ fixed income and FX markets.
Brevan Howard see their edge as resting on three pillars of expertise: macro thinking, trade structuring and risk management. Brevan Howard continue to expand their team, developing the quality and depth of their traders. According to the recently published annual results, this has included hires which expand the firm’s capabilities into new, related areas. This is designed to add complementary performance and diversified return streams, while allowing the manager to manage a greater pool of assets.
Over the long term, BHMG has delivered attractive returns, both on absolute and risk-adjusted bases (see Performance section). Since the trust’s IPO in 2007 to the end of December 2022, the sterling NAV total return has been 9.45% per annum, with a volatility of 8.14%. This gives the trust a Sharpe ratio of 1.03, according to Brevan Howard.
As we discuss in the Portfolio section, Brevan Howard’s ability to deliver attractive, uncorrelated returns does not rest on their ability to forecast the future better than anyone else. Instead, it is their ability to evaluate and create asymmetric trades, alongside the strong diversification offered by the huge resources of their global trading team, not to mention Brevan Howard’s strong risk controls, that has led BHMG to achieve attractive absolute and relative returns since its IPO.
Time and time again, we observe that BHMG has delivered its best returns during periods of stress for equity or bond markets. 2022 was a banner year for the firm, coming at a time when equity and bond markets struggled. BHMG generated returns of 21.93% over the year, proving its worth as a portfolio diversifier. On the other hand, March 2023 was a tough month, with a fall in the sterling share class NAV of an estimated 4.33%. Whilst clearly disappointing, other macro hedge funds have seen even greater falls, and so we see March 2023 as an example where Brevan Howard’s risk controls have controlled downside risk in an extreme environment for macro traders. In our view, this is all part of the risks and rewards of hedge fund strategies and is to be expected. Encouragingly, demand for the shares appears to be supporting the share price premium, despite this short-term challenge. Brevan Howard observe that global imbalances, both within individual economies as well as between them, are at generational extremes. Consequently, the macro landscape looks set to remain extremely interesting.
- Highly-differentiated investment proposition, with few easily accessible comparable peers
- Diversifier to equities and bonds – strongest performance has, historically, come at periods of market stress
- Larger size of company, following fundraising and share split, means better liquidity
- Opaque underlying positioning
- Can go through periods of relatively lacklustre returns
- Higher fees than traditional funds and trusts