Fund Research

BH Macro

Last update 09 January 2019

BH Macro is a feeder into the Brevan Howard Master Fund, a macro hedge fund. The Master Fund aims to generate capital growth through a combination of global macro and relative value trading strategies. The Master Fund generally trades in G7 markets only, which is a differentiator to sister fund BH Global which has a potentially wider mandate, and has historically a more balanced portfolio with lower volatility and less concentrated exposure

Brevan Howard’s traders try to exploit pricing anomalies, and to provide investors with asymmetric pay-off profiles over defined periods in the future. These trades are typically leveraged (using margin), and might typically generate proportionately high returns if the trade works out, but should it not, then the maximum loss might be the cost of putting the trade on.

The most recent example of this was a trade in the fund leading into May 2018, with the fund expected to benefit from a large increase in volatility in a “European stress” theme including the widening of Italian bond spreads over German Bunds, long options in developed market rates (USD, EUR, GBP) and also long options or asymmetric trades in other markets. We understand that the theme had c. 30bps of downside, but demonstrated huge upside when Italian budget discussions spooked bond markets. During May 2018, the BH Macro GBP share class NAV was up 8.19%.

The company has had only two negative years since launch in 2007 – in 2015 and 2017. However, 2018 was the first year in which BH Macro has generated strong returns for several years, (with a return of 12.4% in the GBP share class).

With the strong performance in 2018, BH Macro has seen the discount narrow decisively, and at the time of writing, the shares trade on a very small discount to NAV of c 1%. Within a package of robust discount control measures undertaken in 2017, the Board agreed that it would not buy back any shares before 1 April 2019, but would hold a discontinuation vote for either class of share if it traded at an average discount of 8% or more to the monthly NAV over CY 2018. As such, the discontinuation vote has been avoided, but the same discount control mechanism applies to 2019 and subsequent years too.

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