BH
Macro (BHMG)
10/04/2024
Results analysis from Kepler Trust
Intelligence
BH Macro has reported a NAV
total return of -1.81% for the sterling share class (BHMG) and
-1.44% for the dollar share class (BHMU), for the financial year
ending 31/12/2023. By the Chairman's admission, it was something of
a "rollercoaster year", as the first half saw the NAV per sterling
share down 6%, before a recovery in the second
half.
Turmoil in rates markets in
the first quarter contributed to the failures of Silicon Valley
Bank and Credit Suisse. The Master Fund (in which BH Macro invests)
was positioned for rising interest rates, but short rates fell
sharply as the crisis unfolded (which the chairman of the board
described as "the greatest reversal in interest rate expectations
for 40 years"), negatively impacting returns. The risk management
team eliminated these loss-making directional positions within two
days.
The second half of the year
was much better, and saw BH Macro recover most of the lost ground,
delivering five positive NAV months out of six. The shares moved
from a large premium to a discount over the year, contributing to a
sterling share price return of -18.3% for 2023, and the discount to
NAV finishing the year at 11.7%. Discounts across the sector have
widened, but the NAV falls in Q1 2023 and fears of an overhang of
stock following the merger of two of the trust's largest
shareholders have also likely contributed.
In December, the board began
a controlled buyback programme, and the discount marginally
narrowed over the month. Buybacks have continued in
2024.
Chairman of the board,
Richard Horlick, said: "The geopolitical and economic environment
remains highly uncertain. … In these circumstances, your
board believes that the company represents an attractive
diversifying investment uncorrelated to both bond and equity
markets."
Kepler View
2023's result followed a
stellar 2022 for BH Macro (BHMG). The buyback programme provides
some support to the share price rating, although we note that the
discount has widened this year to 17.7% at the time of writing.
Perhaps more importantly for long-term holders, the NAV performance
improved markedly over the second half of the year, and with
central bank policy now the topic of constant debate, the market
environment is arguably much more conducive for Brevan Howard's
traders. We think it's important to note that BH Macro's excellent
returns in 2022 came during a period of negative returns for
equities and bonds, while 2023's more disappointing NAV returns
came in the context of rallying equity markets, when one might
argue that the diversifying features of the BH Macro proposition
were less urgently needed.
BH Macro's share price has
clearly been under pressure, partially due to fears of an overhang
of stock. We think the strong track record of NAV returns, the
uncorrelated source of returns and record as a portfolio
diversifier make BH Macro an attractive proposition. While the
discount may be uncomfortable to existing investors, we think it
makes the shares look exceptionally attractive given the long-term
strengths of the investment strategy.
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