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Fund Profile

Disclaimer

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.

Overview
BHMG’s differentiated proposition is made yet more attractive given the 11% discount to NAV…
Overview

Brevan Howard was founded in 2002 with the flagship Master Fund launching the following year. The fund is now coming up to its 21st anniversary. As a firm, Brevan Howard retains its place amongst the top hedge fund managers of all time. Whilst many commentators bemoan the choice of interesting companies on the London Stock Exchange, UK investors may consider themselves fortunate to have in BH Macro (BHMG) a highly liquid access point to one of the foremost hedge funds. Since IPO in March 2007, BHMG has delivered equity-like NAV total returns of 8.8% (to end December 2023) with significantly lower volatility than equities of 8%.

The Master Fund aims to provide compelling, asymmetric returns for investors, irrespective of market conditions. As we discuss in the Portfolio section, the investment process does not rely on correctly anticipating the future path of equity or bond markets, but instead rests on the team constructing trades that, if they are successful, will generate good returns in proportion to the risk taken. The bulk of the capital within the Master Fund is allocated to c. 10 to 15 senior traders. All investment activity is overseen by a highly resourced risk management team of 36 people, who work closely with the PMs. The risk team monitor the individual portfolio managers’ mandates as well as the overall risk being expressed within the fund.

Brevan Howard attributes the source of its returns to having strong macro traders, the excellence of their in-house economic analysis, and also their risk-management skills. Brevan Howard sees risk management as key to everything it does. Risk management came to the fore during March 2023, which saw the fund negatively impacted by a huge reversal in interest rate expectations. As we discuss in the Performance section, the SVB bankruptcy saw the biggest daily move in two-year interest rates since 1983. The risk management team did an excellent job to eliminate these loss-making directional positions within two days.

Analyst's View

At its core, BHMG’s underlying strategy has delivered a consistent pattern of returns. The NAV has no appreciable correlation to equities or bonds and, aside from having delivered strong total returns over the years, BHMG has tended to deliver positive returns when equity markets struggle. In the 20 worst months for the S&P 500 index since 2007, BHMG has delivered positive NAV returns in all but two of them. The average performance in these months has been a positive 3.4%. BHMG therefore potentially acts as a good counterweight to equity risk in portfolios, and could materially add to portfolio diversification. A final attraction for investors, in our view, is the stability of the NAV. This is very much by design, and is a product of the inbuilt diversification within the fund, the way that trades are constructed, and not to mention the risk management process.

BHMG’s shares were trading on a premium of 10%+ this time last year, on the back of a strong 2022 when sterling NAV returns were 21.9%. The current discount of 11% can, in our view, be directly attributed to the disappointing performance of 2023, as well as (so far unfounded) fears that the merger of BHMG’s two largest shareholders will result in an overhang of stock . That said, discounts across the investment-trust sector have also moved wider, and so BHMG shareholders are not alone in sharing this pain. The board has been buying shares back around the 10% level, so long-term investors who value the unique, diversifying properties of BHMG may see the current discount to NAV as an opportunity. In our view, BHMG continues to represent a high-quality proposition, with impressive risk-adjusted returns delivered over nearly 17 years, a large and liquid asset base, as well as having an experienced and independent board to represent shareholders.

Bull

  • 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
  • High quality characteristics, with long and consistent track record, a large and liquid asset base, and experienced independent board

Bear

  • Opaque underlying positioning
  • Can go through periods of relatively lacklustre returns
  • Higher fees than traditional funds and trusts
Continue to Portfolio

Fund History

10 Apr 2024 Results analysis: BH Macro
BH Macro rebounds in H2 of 2023…
14 Feb 2024 Fund Analysis
BHMG’s differentiated proposition is made yet more attractive given the 11% discount to NAV…
01 Feb 2024 Bring some yin-yang into your portfolio in 2024
Inherent contradictions within portfolios can give them stability in a polarised world...
01 Nov 2023 Back to basics
Higher rates mean re-visiting portfolio construction...
05 Oct 2023 Fund Analysis
BHMG’s proposition as a high-quality diversifier remains, yet it trades on a 11% discount to NAV…
18 Sep 2023 Results analysis: BH Macro
After a banner year in 2022, 2023 has proved more challenging for BHMG and a wide discount has emerged…
02 May 2023 Fund Analysis
BHMG’s premium has moderated, yet it continues to offer strong diversification…
06 Apr 2023 Results analysis: BH Macro
2022 was a banner year, but a negative month in March 2023 means BHMG’s premium has subsided…
30 Nov 2022 Cry havoc!
Lessons from a year in which an already troubled world was savaged by the dogs of war...
19 Oct 2022 Gimme shelter
Our analysts examine safe havens and defensive strategies as we endure the market's 19th Nervous Breakdown...
21 Sep 2022 Results analysis: BH Macro
BHMG had a strong first half to its current financial year…
16 Sep 2022 Fund Analysis
BHMG continues to prove its worth in portfolios...
22 Jun 2022 Spider's web
We outline our new quantitative system for mapping the crucial performance characteristics of investment trusts…
11 Apr 2022 Results analysis: BH Macro
After an eventful 2021 for BH Macro, 2022 has so far proven to be strong in performance terms…
26 Jan 2022 Fight or flight...
Two of our analysts debate the impact that war in Ukraine could have on investors' portfolios...
18 Jan 2022 Fund Analysis
BHMG’s hefty 8% premium reflects its unique qualities…
01 Sep 2021 Winter is coming
Summer was a welcome opportunity for exhausted investors to turn their backs on the legion threats they face, but they haven't gone away and the days grow short - we examine four in detail...
19 Nov 2020 Fund Analysis
BHGG continues to offer attractive diversification properties, particularly given elevated equity market valuations…
28 Oct 2020 Can the passives bull market continue forever?
We examine what the trend to passive investing means for active investment strategies…
19 Aug 2020 Has the time come for Europe?
With mutual eurozone debt established all eyes are on the continent once more; but what will drive relative returns?
01 Jul 2020 Oh the humanity...
We consider two strategies to cope with markets which, boosted by massive government support, may be witnessing the start of a ‘melt-up’ which may be followed swiftly by a melt-down...
18 Jun 2020 Challenge the status quo
We explain why diversification on its own is not a panacea for portfolio construction...
29 Apr 2020 On solid ground
Our analysis of discounts highlights trusts which are likely to offer significantly less discount downside from the current level…
28 Apr 2020 Fund Analysis
Strong NAV performance in March crash means discount looks anomalous...
08 Apr 2020 Children of the Revolution
The outperformance of technology hints at an exciting possible future for the market when the virus is beaten…
30 Jan 2020 Is it time to run away?
With a sense of complacency in the air, our analysts debate the best ways to shore up your portfolio's defenses...
16 Jan 2019 There may be trouble ahead
We analyse why multi-asset macro funds have struggled and attempt to identify some possible closed-ended alternatives...
16 Jan 2019 Fund Analysis
Seeks to generate strong risk adjusted returns in all market conditions
09 Jan 2019 Fund Analysis
A feeder trust for the Brevan Howard macro hedge fund, which has seen resurgent performance in 2018...
View all

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