BH Macro 05 October 2023

BH Macro Limited (BHMG) is a listed investment company feeder into Brevan Howard’s flagship fund, 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. BHMG was launched on the London Stock Exchange in 2007 and, since then, has achieved strong absolute returns with relatively low volatility (see Performance section). As a result, BHMG represents a high-quality investment proposition, having a manager with a pedigree of over 20 years and a track record as a listed fund of over 16 years, with an independent board.

The Master Fund aims to provide compelling, asymmetric returns for investors, irrespective of market conditions. 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. The strongest periods of NAV performance have come at times of stress for equities, such as in Q1 2020, and in bond markets, over 2022, for example. As well as providing strong diversification to a portfolio, BHMG’s NAV has beaten world equities over the last five years, with considerably less volatility and significantly lower drawdowns.

Performance in 2023 has been more challenging, a result of a significant reversal in fortunes during March 2023 which saw a NAV decline of 4.29% over the month. As we discuss in the Portfolio section, Brevan Howard’s investment committee have since made a number of subtle changes to how the portfolio is made up, with the aim of further reducing the potential for drawdowns and improving risk-adjusted returns.

We believe that it is uncontroversial to say that BH Macro is a high-quality offering within the London-listed fund universe. In common with many other trusts (quality, or otherwise), the discount to NAV has widened during the past 12 months. In our view, this is a clear opportunity for long-term investors – especially given that, as we discuss in the Discount section, it was not long ago that BHMG’s shares traded at a premium to NAV north of 10%.

Taking a step back, BHMG has time and again proved its worth as a portfolio diversifier, as well as having generated strong absolute returns. It is important to remember that this is not an investing strategy that requires Brevan Howard to accurately forecast the future better than anyone else. Instead, their strong risk-adjusted returns depend on the traders’ ability to evaluate and create asymmetric trades, the investment committee to allocate capital and maximise diversification, and the risk team to minimise drawdowns.

March 2023 was a tough month, in what was an unprecedented move in interest rate expectations. Rather than a negative, we see the experience as burnishing the risk team’s credentials, in that the drawdown was minimised. With the global macro landscape looking so uncertain, we believe Brevan Howard remains in a strong position to continue to deliver attractive risk-adjusted returns from the Master Fund. With the discount to NAV at historically wide levels, long-term investors may see these returns enhanced if the discount narrows.