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Performance by Asset Class
Monthly, quarterly and annual
contribution (%) to the performance of BHM USD Shares (net of fees
and expenses) by asset class as at 31 August 2018
|
2018 |
Rates |
FX |
Commodity |
Credit |
Equity |
Total |
| August
2018 |
0.92 |
0.21 |
-0.01 |
0.01 |
-0.23 |
0.90 |
| Q1
2018 |
0.93 |
-0.20 |
0.01 |
-0.06 |
-0.07 |
0.58 |
| Q2
2018 |
8.54 |
0.46 |
-0.02 |
0.02 |
-0.02 |
8.94 |
| QTD
2018 |
1.54 |
0.65 |
-0.06 |
-0.10 |
-0.22 |
1.82 |
| YTD
2018 |
11.24 |
0.90 |
-0.07 |
-0.13 |
-0.31 |
11.57 |
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
Methodology and Definition of
Contribution to Performance:
Attribution by asset class is produced at the instrument level,
with adjustments made based on risk estimates.
The above asset classes are categorised as follows:
“Rates”: interest rates markets
“FX”: FX forwards and options
“Commodity”: commodity futures and options
“Credit”: corporate and asset-backed indices, bonds and
CDS
“Equity”: equity markets including indices and other
derivatives
Performance by Strategy Group
Monthly, quarterly and annual
contribution (%) to the performance of BHM USD Shares (net of fees
and expenses) by strategy group as at 31 August 2018
| 2018 |
Macro |
Systematic |
Rates |
FX |
Equity |
Credit |
EMG |
Commodity |
Total |
| August
2018 |
-1.04 |
0.14 |
1.10 |
0.44 |
-0.00 |
0.01 |
0.25 |
-0.00 |
0.90 |
| Q1
2018 |
0.87 |
0.02 |
-0.46 |
-0.09 |
-0.00 |
-0.03 |
0.28 |
-0.00 |
0.58 |
| Q2
2018 |
4.29 |
0.05 |
2.91 |
0.34 |
-0.00 |
-0.06 |
1.33 |
-0.00 |
8.94 |
| QTD
2018 |
-1.02 |
0.06 |
1.81 |
0.48 |
-0.00 |
0.01 |
0.48 |
-0.00 |
1.82 |
| YTD
2018 |
4.13 |
0.13 |
4.29 |
0.72 |
-0.00 |
-0.07 |
2.09 |
-0.00 |
11.57 |
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
Methodology and Definition of
Contribution to Performance:
Strategy Group attribution is approximate and has been derived
by allocating each trader book in the Fund to a single category. In
cases where a trader book has activity in more than one category,
the most relevant category has been selected.
The above strategies are categorised as follows:
“Macro”: multi-asset global markets, mainly directional
(for the Fund, the majority of risk in this category is in
rates)
“Systematic”: rules-based futures trading
“Rates”: developed interest rates markets
“FX”: global FX forwards and options
“Equity”: global equity markets including indices and
other derivatives
“Credit”: corporate and asset-backed indices, bonds and
CDS
“EMG”: global emerging markets
“Commodity”: liquid commodity futures and options
The Manager anticipates that with effect from 1 October the Fund
will continue to access the trading expertise of Fash Golchin
(“FG”) via an initial allocation of approximately $300 million to a
new fund, Brevan Howard FG Macro Master Fund Limited (the “FG Macro
Fund”). The FG Macro Fund will also provide external investors with
the opportunity to invest in a fund that is directly managed by FG,
whilst giving FG the potential to manage additional external assets
without the need to manage two pools of capital. Immediately
following the Fund’s investment in the FG Macro Fund, it is
anticipated that the Fund’s holdings in other Brevan Howard-managed
funds will be approximately 75% of the Fund’s assets.
The information in this section has been provided to BHM by
BHCM
US
Economic momentum was well maintained in August. Employment rose
briskly, the unemployment rate remained at 3.9%, and wages jumped
by more than expected. Real GDP growth in Q3 was tracking somewhere
above 3% at an annual rate, after having surged 4.2% in Q2.
Consumption and investment are pacing solid growth, with wide
swings in trade and inventories partly reflecting timing shifts
related to the imposition of tariffs. The latest data on
manufacturing point to vibrant activity. Although there are many
anecdotes about how tariffs are disrupting supply chains and
raising prices, there is almost no evidence of such disruptions at
the macro level. Meanwhile, housing and automotive, two
traditionally interest-rate sensitive sectors, are in the
doldrums.
Headline and core personal consumption expenditure (“PCE”)
inflation over the last year were near 2% in July. After having
moved up around the start of the year, inflation has settled into a
channel close to the Federal Reserve’s (“Fed”) 2% target.
Given the strength of the economy, the Fed is expected to
deliver further gradual rates hikes in September and December.
Beyond that, the roadmap is less clear. In his Jackson Hole speech,
Chairman Powell emphasised the degree of uncertainty about some of
the key markers for policy makers, like the neutral interest rate.
Instead of following an approach guided by abstract economic
theory, Chairman Powell appears to be more comfortable taking an
empirical approach rooted in ‘risk management’. He will likely feel
his way forward based on how the economy performs, given all the
cross-currents. Elsewhere in Washington, trade policy took two
different tracks, marked by constructive negotiations with Mexico
and Canada that suggest a new agreement on the North American Free
Trade Agreement (“NAFTA”) is likely, and the ratcheting up of
tariffs on China.
UK
After having shrugged off the predominantly weather induced
slow-down at the start of the year, economic activity has returned
to its earlier moderate pace. However, the uncertainty around
Brexit as well as the moderation of activity in Europe may pose
some challenges. According to the Office of National Statistics,
the economy grew 0.6% 3m/3m in July, still supported by robust
growth within the services sector (contributing 0.45ppts). There
was also a rebound in construction activity, which contributed
around 0.2ppts, after having detracted 0.2ppts previously.
Meanwhile, industrial output has continued to act as a modest drag
with manufacturing little changed over the past three months.
Currently, GDP is expected to grow at 0.5% q/q in Q3, up slightly
from the 0.4% seen in Q2. Looking ahead, business sentiment within
manufacturing has moderated further, reflecting both a slow-down in
activity in Europe, as well as increased uncertainty around the
prospects of a no-deal Brexit. Surveys for manufacturing export
orders have experienced the largest single month decline since
2011, and point to a contraction in manufacturing export orders.
Business sentiment for the services industry (which accounts for
80% of the economy) continues to move sideways. Should business
sentiment continue to hold, GDP is expected to continue to grow at
an average pace of around 0.4% q/q, enough to absorb the little
remaining slack in the economy. Meanwhile, the unemployment rate
continues to hit new multi-decade lows, reaching 4.0% in June, the
lowest rate since 1975. Robust employment should support
consumption; for example retail sales have grown 3.7% y/y in July,
up from the lows of 1% last year. However, the softness in the
housing market may still act as a drag; although house price growth
remains positive at the national level, activity indicators remain
modest. Moreover, tighter conditions around consumer lending may
also act as a headwind to consumption. Overall, the tightness in
the labour market should continue to put upward pressure on wage
growth. Excluding bonuses, wage growth is averaging a pace of 2.9%
3m/12m, remaining near post-crisis highs. Wage pressure should in
turn cause inflation to pick up; headline inflation rose 0.1ppts to
2.5% y/y in July, whilst core inflation was unchanged at 1.9%.
The combination of moderate activity, a tight labour market, and
gradually building wage pressure has impacted the Bank of England’s
projection of inflation, which remains above 2% for most of the
projection horizon. It was in this light that the Monetary Policy
Committee (“MPC”) voted unanimously to raise the official bank rate
0.25ppts to 0.75% in August. Following this, the MPC voted to keep
the policy rate unchanged at the September meeting. On the one
hand, the minutes had highlighted the further improvements made in
the labour market. However, it also highlighted the increased
concern among businesses around the prospects of a ‘no-deal’
Brexit, as well as the moderation in external growth. The key
message from the MPC’s statement was left broadly unchanged: “were
the economy to continue to develop broadly in line with [the
Bank’s] Inflation Report projections, an ongoing tightening of
monetary policy over the forecast period would be appropriate to
return inflation sustainably to the 2% target at a conventional
horizon. Any future increases in Bank Rate are likely to be at a
gradual pace and to a limited extent.”
Of course, the state of the Brexit negotiations remains a key
risk to the economic outlook. According to the latest White Paper,
the UK aims to achieve a post-Brexit “association agreement” with
the EU, including a “free-trade area” for goods and a looser
arrangement for financial services. With regards to timing, both
the UK and the EU are still hoping to have a deal in October.
However, this is looking increasingly unlikely as there are more
and more headlines suggesting the possibility of an emergency EU
summit meeting in November.
EMU
EMU economic indicators suggest a rate of expansion which
remained sluggish in Q3, and a pace not dissimilar from the one
recorded in the first half of the year. In particular, in July
industrial production, excluding construction, fell by a larger
than expected 0.8% m/m, to a level which is 0.8 points lower than
in Q2, and points to a contraction of manufacturing output in the
current quarter. The contraction is partly due to a meaningful drop
of the production of automobiles, a sector affected by changes in
regulation, more pronounced in Germany, Italy and Spain. In August
evidence from business surveys showed some tentative indications of
bottoming out, with the EMU Composite Purchasing Managers' Index
(“PMI”) rising by 0.1 point, but only to a level lower than the Q2
average, which is consistent with the subdued rhythm of GDP
expansion. The headline Harmonised Index of Consumer Prices
(“HICP”) fell from 2.14% y/y to 2.04% y/y. Core inflation also fell
from 1.07% y/y to 0.96% y/y, a 5 month low, and to a level quite
troubling from the European Central Bank’s (“ECB”) perspective,
currently showing no sign of convergence towards its definition of
price stability.
Despite relatively dismal macroeconomic developments, both on
the growth and the price side, the ECB revised its projections for
GDP and core inflation only slightly downward, and the Governing
Council seemed to remain confident that underlying activity and
inflation trends were moving along a self-sustained process towards
the ECB threshold. This optimistic reading of the economy appears
to have been motivated by the ECB’s intention to proceed with the
pre-announced reduction of the pace of monthly net purchases of
bonds, from €30bn to €15bn from October to December, and the
conditional end from January 2019 onward. The bar to stop this
process appears quite high. Next year the fine tuning of monetary
policy will likely depend solely on the decision concerning
interest rates and their forward guidance.
Japan
The recent Bank of Japan (“BoJ”) meeting was a non-event, with
policy and guidance unchanged. The BoJ is still evaluating the
fallout from widening the bands in which it will allow the 10 year
rate to trade, from ±10bps to ±20bps. The 10 year rate moved up a
bit and is now running a few bps above the previous range at around
0.12%. After depreciating somewhat against the dollar over the
spring, the yen appears to have stabilized in the 111-112
range.
Dialogue also revolved around a couple of topics outside of
underlying trends in demand, and beyond direct control of the bank.
Tariff uncertainty appears to be a concern to the BoJ, Japanese
businesses and consumers. There are some hints that President Trump
may direct some pressure towards Japan in order to bring them to
bilateral talks. A multilateral agreement is unlikely; the best
case scenario for Japan is likely some combination of talks and US
bandwidth taken up elsewhere. Japan is also affected by tensions
between the US and China. On the one hand, there are reports that
Japanese companies are shifting some production home to avoid US
tariffs. On the other hand, supply-chain disruptions likely will
lead to some minor hiccups for producers. The typhoon that struck
Osaka and the earthquake in northern Japan are likely to affect
some high-frequency data and hamper the tourism industry but have
no tangible long-lasting impact.
Recent activity data have been mixed, but overall do not change
the view of a decent pace of demand. Q2 real GDP was revised up, to
show a 3% gain at an annual rate. Solid contributions came from
household consumption and business capital fixed capital formation.
Arithmetically, the second quarter would have been stronger had
imports not climbed as much. That is not necessarily a sign of
weakness though; strong domestic demand typically leads to some
additional imports. The Economy Watchers survey improved 2.1 points
in August. At 48.7, it is at a reasonable level, though down from
the end of last year. Industrial production slipped 0.2% in July.
It has bounced around recently without any real direction.
Inflation data has improved a bit of late, not sufficiently to
allow the BoJ to declare victory, but it is improving. National
western core prices edged up 0.1% in July, which reverses the
previous month’s decline. More importantly, Tokyo core-core prices
rose 0.2% in August after rising 0.1% in both June and July.
The Company Secretary
Northern Trust International Fund Administration Services
(Guernsey) Limited
bhfa@ntrs.com
+44 (0) 1481 745736
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