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 29 March 2018
2018 |
Rates |
FX |
Commodity |
Credit |
Equity |
Total |
March
2018 |
-0.83 |
-0.38 |
-0.01 |
0.00 |
-0.31 |
-1.54 |
Q1
2018 |
0.93 |
-0.20 |
0.01 |
-0.06 |
-0.07 |
0.58 |
YTD
2018 |
0.93 |
-0.20 |
0.01 |
-0.06 |
-0.07 |
0.58 |
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 29 March 2018
2018 |
Macro |
Systematic |
Rates |
FX |
Equity |
Credit |
EMG |
Commodity |
Total |
March
2018 |
-0.99 |
0.01 |
-0.49 |
-0.12 |
-0.00 |
0.01 |
0.05 |
-0.00 |
-1.54 |
Q1
2018 |
0.87 |
0.02 |
-0.46 |
-0.09 |
-0.00 |
-0.03 |
0.28 |
-0.00 |
0.58 |
YTD
2018 |
0.87 |
0.02 |
-0.46 |
-0.09 |
-0.00 |
-0.03 |
0.28 |
-0.00 |
0.58 |
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
Middle and back-office operations
BHCM’s UK affiliate, Brevan Howard Asset Management LLP
(“BHAM”), is separating its middle and back-office operations into
a newly formed affiliate with effect from 1 May 2018, which will
then provide services back to BHAM and, in turn, the Fund. In due
course, the new affiliate is also expected to provide middle and
back office services to non-Brevan Howard customers. It will be
“business as usual” in terms of service provision being unchanged,
with personnel and processes remaining the same.
Minal Bathwal
The Manager anticipates that with effect from 1st May, Minal
Bathwal’s trading on behalf of the Fund will take place through an
allocation by the Fund to a new fund for which Mr Bathwal will be
the sole portfolio manager. The purpose of this is to allow the
Fund to continue to access Mr Bathwal’s trading expertise whilst
also permitting Mr Bathwal to manage additional external assets
without the need to manage two pools of capital.
The information in this section has been provided to BHM by
BHCM
US
The economy slowed to a trend-like pace in Q1. However,
indicators suggest momentum picked up at the end of the quarter
despite a soft reading on the labour market. Retail sales firmed in
March after three lacklustre months. Orders and shipments of core
capital goods, that are a key input in capex spending, jumped in
February. Early tracking of the current quarter puts growth back
around 3% at an annual rate.
After having surged in February, job gains slowed in March.
Smoothing through the monthly volatility, payroll employment has
risen 200,000 per month on average this year. That brisk pace
should put further downward pressure on the unemployment rate,
which remained at 4.1% for the sixth month in a row in March. Wage
pressures remain moderate, reflecting the lagged impact of subdued
productivity trends and restrained wage bargaining.
Inflation continues to build slowly. Core consumer price index
(“CPI”) prices rose 0.2% in March. With the sharp decline in
wireless prices falling out of the calculation, the y/y change in
core CPI jumped to 2.1%. Combined with the other inputs to the
Federal Reserve’s (“Fed”) preferred underlying inflation gauge,
core personal consumption expenditure (“PCE”) inflation is expected
to rise to 1.9% in the next release, little different from the
Fed’s 2% target.
Nevertheless, the Fed appears patient in normalising interest
rates since a breakout of inflation pressures seems like a tail
risk. Most policy makers are pointing to three or four rate
increases this year. The debate about whether, and by how much,
policy will eventually need to go above neutral is just shaping up.
Some policy makers think rates will need to go above neutral by a
modest amount to bring the economy into a soft landing.
Elsewhere in Washington, the Trump administration’s various
trade announcements dominated the headlines. While there were hints
of good news from the North American Free Trade Agreement (“NAFTA”)
negotiations and the section 232 steel/aluminum tariffs seemed to
be more ‘bark’ than ‘bite’, significant uncertainty surrounds the
section 301 actions against China. There have been no hard actions,
but these trade negotiations appear much more serious and bear
watching carefully in the coming months.
UK
UK activity has moderated according to the latest data, though
some evidence suggests that the slowdown may be temporary. Based on
recent hard data, construction is expected to detract 0.2ppts from
GDP, and manufacturing to make little contribution at all.
Furthermore, the Markit composite Purchasing Managers’ Index
(“PMI”), reflective of business sentiment, fell by 2.0pts in March,
marking the lowest reading since July 2016, suggesting activity
should decelerate in Q1 compared to the 0.5% q/q pace seen in Q4
2017. The abrupt nature of the slowdown suggests the moderation may
be temporary; one possibility is that adverse weather conditions,
due to a colder than usual winter, have impeded growth in Q1.
Otherwise, data has in general been consistent with trends seen
last year. Employment has continued to grow around 1% y/y; the
unemployment rate ticked down 0.1ppts to a low level of 4.3% in
January, unwinding the tick up from the previous month. Consumer
confidence ticked up in March to levels marginally above long-term
average levels. Growth in nominal retailing has moderated, albeit
still running at a healthy pace of 3.2% y/y as of March; the
slowdown in part reflects a deceleration in consumer credit growth,
after banks had allowed consumer credit to accelerate meaningfully
last year. The housing market has remained relatively soft, as has
been the case since the referendum. House prices continue to grow
around 2% y/y, down from the 6-7% pace seen in 2015 and the first
half of 2016.
Despite only moderate growth, data suggests there is little
spare capacity in the economy. Alongside the low levels of
unemployment, there has been a pick up in wage growth in most
recent data, with average weekly earnings growing around 3%
annualised as of January. Consistent with this, unit labour costs
grew 2.1% y/y as of Q4 2017. In addition, various surveys have
alluded to increasing difficulties in the recruitment of labour,
suggesting wages may grow more markedly in the future. Headline
inflation, which fell 0.3ppts to 2.7% y/y in February, is still
projected to moderate in the medium term, as the effects from the
earlier exchange rate shock is expected to fade; but inflation
remains well above the Bank of England’s (“BoE”) target of 2%. In
general, the lack of spare capacity, and expected pick up in wages,
should support domestic inflationary pressures in the medium term.
At the BoE’s most recent Monetary Policy Committee (“MPC”) meeting
in March, two members voted to raise Bank Rate a further 25bps,
whilst the seven person majority voted to keep rates unchanged at
0.5%. The MPC statement concluded that ‘given the prospect of
excess demand over the forecast period, an ongoing tightening of
monetary policy over the forecast period will be appropriate to
return inflation sustainably to its target at a more conventional
horizon.’ As such, an increase in Bank Rate is widely expected in
May.
Though political sentiment has generally improved, the Brexit
process continues to cloud the outlook for the United Kingdom. In
December, the European Union council declared that sufficient
progress has been made on the three pillars of ‘divorce’ to allow
negotiations to move onto discussing a transition deal and the
future relationship. In March, the UK was able to secure a
transition deal (conditional on a final withdrawal treaty),
allowing the UK to stay in the single market and customs union
until December 2020. The agreement also ensured that Northern
Ireland will effectively stay in parts of the single market and
customs union in the absence of other solutions. The next milestone
will be the European Council meeting on 28 June, wherein issues
such as the Irish border and terms for the future trade are still
to be discussed.
EMU
Business confidence releases in March confirmed earlier
indications that the EMU economy peaked at around the turn of the
year, and has been slowing since. In particular, the EMU Composite
PMI fell by almost 2pts from 57.1 to 55.2, almost twice the
standard deviation of the series. This is the lowest level since
January 2017, and 3.6pts below the January 2018 peak. At the same
time, hard data available up to February, from industrial
production to retail sales and construction, paints a much less
encouraging picture for Q1 EMU GDP than encompassed in the European
Central Bank (“ECB”) 0.7% q/q March forecasts. Moreover, the March
Harmonised Index of Consumer Prices (“HICP”) release indicates that
ECB forecasts will not be hit, and the ECB’s hopes of convergence
towards its definition of medium-term price stability, along a
self-sustaining path, appears unlikely. Indeed, both headline and
core inflation missed the consensus forecasts by 0.1pts, rising
from 1.1% to 1.3% y/y and remaining stable at 1.0% y/y,
respectively. In particular, the stability of core inflation at a
mere 1%, despite the support provided in March by the seasonal
Easter effect, is a reason for concern.
Japan
The most interesting development in Japan of late is political.
A second cronyism scandal involving Prime Minister Abe is brewing.
It is presently hard to assess its significance for the current
government. However, there has been an unmistakable decline in
approval ratings, with the worst readings coming in below the
30-point cut-off, which in the past, has been read as especially
problematic. As seen elsewhere, unresolved scandals can cost
valuable political capital. Firm leadership will be needed to push
through fiscal legislation to offset the immediate, pernicious
effects of the scheduled consumption tax hike in October 2019.
The inflation environment has not really changed of late. Recent
trends suggest a 1% or so rate, with no hint of a further
acceleration, other than some base effects likely to help out the
12 month change in core prices over the next couple months.
Non-fresh food and especially energy prices are supportive of the
core aggregate, but western core price inflation needs to pick up
further for a more sustainable re-inflation. Of late, the monthly
prints have vacillated between flat and up only 0.1%. Tokyo prices,
which are released with a one month lead, dropped 0.2% in March,
unwinding February’s 0.2% increase. The pickup in consumer
inflation expectations appears to have stalled, and the yen has
appreciated 4.75% against the dollar since the start of the
year.
Information on the real economy has been mixed. The quarterly
Tankan Survey data point to well-maintained production and optimism
among businesses. The Economy Watchers index is down from the
elevated level seen at the end of last year, but around the average
level seen in the last six years or so. Industrial production in
February reversed much of January’s pothole, but has in the last
half year moved sideways on balance.
The Company Secretary
Northern Trust International Fund
Administration Services (Guernsey) Limited
bhfa@ntrs.com
+44 (0) 1481 745736
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