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 December 2017
2017 |
Rates |
FX |
Commodity |
Credit |
Equity |
Tender Offer |
Total |
January
2017 |
1.12 |
-2.06 |
0.02 |
0.13 |
-0.67 |
0.00 |
-1.47 |
February 2017 |
1.21 |
-0.18 |
-0.03 |
0.09 |
0.82 |
0.00 |
1.91 |
March
2017 |
-2.05 |
-0.85 |
0.00 |
0.07 |
-0.02 |
0.00 |
-2.84 |
April
2017 |
-0.27 |
-0.34 |
0.00 |
-0.02 |
-0.00 |
4.46 |
3.84 |
May
2017 |
-0.58 |
0.06 |
-0.05 |
-0.01 |
-0.02 |
0.00 |
-0.60 |
June
2017 |
-0.97 |
-0.20 |
-0.10 |
0.00 |
-0.12 |
0.00 |
-1.39 |
July
2017 |
-0.05 |
1.67 |
0.06 |
0.01 |
-0.15 |
0.00 |
1.54 |
August
2017 |
-0.39 |
0.40 |
0.11 |
0.06 |
0.02 |
0.00 |
0.19 |
September 2017 |
-0.08 |
-0.52 |
-0.16 |
0.02 |
-0.04 |
0.00 |
-0.78 |
October
2017 |
-0.38 |
-0.53 |
-0.08 |
0.03 |
0.11 |
0.00 |
-0.84 |
November 2017 |
-0.16 |
0.15 |
0.01 |
-0.06 |
0.26 |
0.00 |
0.20 |
December 2017 |
0.36 |
-0.32 |
0.02 |
-0.00 |
0.04 |
0.00 |
0.11 |
Q1
2017 |
0.25 |
-3.06 |
-0.01 |
0.28 |
0.12 |
0.00 |
-2.44 |
Q2
2017 |
-1.81 |
-0.48 |
-0.14 |
-0.02 |
-0.14 |
4.46 |
1.79 |
Q3
2017 |
-0.52 |
1.55 |
0.00 |
0.09 |
-0.18 |
0.00 |
0.94 |
Q4
2017 |
-0.17 |
-0.70 |
-0.04 |
-0.03 |
0.42 |
0.00 |
-0.53 |
2017 |
-2.24 |
-2.72 |
-0.19 |
0.32 |
0.21 |
4.46 |
-0.30 |
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
“Tender Offer”: repurchases under the tender offer
launched on 27 January 2017.
Monthly VaR of the Fund by asset class
as a % of total VaR*
|
Rates |
Vega |
FX |
Equity |
Commodity |
Credit |
January
2017 |
32 |
18 |
30 |
14 |
2 |
3 |
February 2017 |
32 |
19 |
29 |
14 |
3 |
3 |
March
2017 |
41 |
32 |
13 |
3 |
9 |
3 |
April
2017 |
32 |
17 |
33 |
11 |
6 |
1 |
May
2017 |
37 |
21 |
23 |
8 |
8 |
2 |
June
2017 |
20 |
17 |
41 |
11 |
9 |
3 |
July
2017 |
23 |
16 |
53 |
3 |
3 |
2 |
August
2017 |
30 |
15 |
46 |
6 |
1 |
2 |
September 2017 |
36 |
14 |
40 |
5 |
3 |
2 |
October
2017 |
47 |
15 |
8 |
21 |
5 |
3 |
November 2017 |
40 |
13 |
10 |
33 |
2 |
2 |
December 2017 |
55 |
11 |
7 |
23 |
2 |
2 |
Source: BHCM. Data as at 29 December 2017.
* Calculated using historical simulation based on 1 day, 95%
confidence interval. Sum may not add up to 100% due to
rounding.
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 December 2017
2017 |
Macro |
Systematic |
Rates |
FX |
Equity |
Credit |
EMG |
Commodity |
Tender Offer |
Total |
January
2017 |
-1.20 |
-0.02 |
-0.02 |
-0.36 |
-0.00 |
0.13 |
0.00 |
-0.00 |
0.00 |
-1.47 |
February 2017 |
1.73 |
0.01 |
0.10 |
-0.08 |
-0.00 |
0.08 |
0.08 |
-0.00 |
0.00 |
1.91 |
March
2017 |
-2.79 |
-0.02 |
-0.26 |
-0.07 |
-0.00 |
0.15 |
0.15 |
-0.00 |
0.00 |
-2.84 |
April
2017 |
-0.79 |
-0.06 |
0.29 |
0.01 |
-0.00 |
0.01 |
-0.09 |
-0.00 |
4.46 |
3.84 |
May
2017 |
-0.82 |
0.00 |
0.23 |
0.02 |
-0.00 |
-0.01 |
-0.01 |
-0.00 |
0.00 |
-0.60 |
June
2017 |
-1.05 |
-0.02 |
-0.35 |
-0.02 |
-0.00 |
0.01 |
0.05 |
-0.00 |
0.00 |
-1.39 |
July
2017 |
1.38 |
0.06 |
-0.03 |
0.02 |
-0.00 |
0.00 |
0.11 |
-0.00 |
0.00 |
1.54 |
August
2017 |
0.03 |
0.01 |
-0.06 |
0.07 |
-0.00 |
0.05 |
0.09 |
-0.00 |
0.00 |
0.19 |
September 2017 |
-0.58 |
-0.02 |
-0.15 |
-0.06 |
-0.00 |
0.01 |
0.01 |
-0.00 |
0.00 |
-0.78 |
October
2017 |
-0.88 |
0.04 |
0.13 |
0.04 |
-0.00 |
0.04 |
-0.21 |
-0.00 |
0.00 |
-0.84 |
November 2017 |
0.34 |
0.01 |
-0.07 |
-0.03 |
-0.00 |
-0.03 |
-0.01 |
-0.00 |
0.00 |
0.20 |
December 2017 |
0.32 |
-0.01 |
0.03 |
-0.01 |
-0.00 |
0.01 |
-0.24 |
-0.00 |
0.00 |
0.11 |
Q1
2017 |
-2.29 |
-0.03 |
-0.18 |
-0.51 |
-0.00 |
0.35 |
0.23 |
-0.00 |
0.00 |
-2.44 |
Q2
2017 |
-2.64 |
-0.08 |
0.17 |
0.01 |
-0.00 |
0.01 |
-0.05 |
-0.00 |
4.46 |
1.79 |
Q3
2017 |
0.82 |
0.05 |
-0.24 |
0.03 |
-0.00 |
0.06 |
0.21 |
-0.00 |
0.00 |
0.94 |
Q4
2017 |
-0.23 |
0.04 |
0.10 |
-0.00 |
-0.00 |
0.02 |
-0.46 |
-0.00 |
0.00 |
-0.53 |
2017 |
-4.30 |
-0.02 |
-0.15 |
-0.47 |
-0.00 |
0.44 |
-0.08 |
-0.00 |
4.46 |
-0.30 |
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
“Tender Offer”: repurchases under the tender offer
launched on 27 January 2017.
The information in this section has been provided to BHM by
BHCM
US
Private domestic economic activity in the US was very strong in
Q4. In particular, core retail sales rose at a torrid 9% annualised
pace in the last three months. Household spending looks to be
picking up speed with moderate income growth, brisk gains in
wealth, clean balance sheets, and positive sentiment. Similarly,
business investment is also on a solid footing. The acceleration in
these two key sectors suggests that the business cycle has more
room to run, despite entering its ninth year. Nevertheless, overall
real Gross Domestic Product (“GDP”) growth should be held below 3%
annualised in Q4 because of a sizable subtraction from trade.
Although exports have risen, imports have increased by even
more.
Inflation has bottomed and is slowly moving up. Core consumer
price index inflation rose 0.3% in December, which helps allay some
of the concern that the low prints seen earlier in the year would
persist. When the weak numbers from last spring are no longer
included in the y/y figures, core inflation will move closer to the
Federal Reserve's 2% inflation target.
The labour market trod water in December. The unemployment rate
was unchanged at 4.1% and employment growth slowed. The seasonal
patterns in certain sectors, like retail, are difficult to pin down
during the holidays so it generally makes sense to average the
employment gains in November and December. On that basis, the
average monthly increase was an impressive 200,000. Wages did tick
up in December, rising 0.3% m/m which left the y/y change at 2.5%,
which is in line with subdued productivity trends during this
cycle.
In Washington, the President signed tax reform into law. The
Internal Revenue Service rushed to change withholding tables so
that individuals will see higher take home pay early in 2018. On
the business side, the cut in the corporate tax rate to 21% and the
wholesale reform of international tax rules immediately transforms
the US into the most competitive G-7 economy. Putting the pieces
together, economists raised their real GDP forecasts for the next
couple years providing a modest further boost to an already healthy
outlook. At her last press conference, Chair of the Federal Reserve
Janet Yellen raised rates but downplayed the improvement in the
incoming data and the impact of the tax reform. The median policy
maker still sees three rate hikes in 2018, which is the same
guidance they had been offering since late 2016.
UK
Although the UK economy has continued to evolve at a moderate
pace, there are signs that spare capacity has continued to erode.
GDP grew 0.4% q/q in Q3, a modest pace compared to historical
rates, but still an improvement from the 0.3% q/q pace seen in the
previous two quarters. On the expenditure side, growth was
supported by a pick up in consumption, supported by a drawdown in
savings. In general, surveys of activity have remained resilient;
most recently the composite Purchasing Managers’ Index (“PMI”) rose
0.1pts to 54.9 in December, still pointing towards a pace of growth
close to the UK’s economic potential. Hard data appears to have
followed suit with the resilient surveys; industrial production
grew 0.4% m/m in November, aided by another strong increase in
manufacturing output. Manufacturing has been growing at an
annualised pace of 5% over the past 6 months, still supported by
the lower exchange rate. However, the economy continues to face a
multitude of headwinds, in part caused by uncertainty around the
Brexit process. For example, non-housing construction has fallen 5%
over the past 3 months, whilst business investment remains meagre
and the outlook for the housing market remains benign, with price
expectations of housing remaining relatively subdued. The labour
market has also started to moderate lately, with the level of
employment falling 56,000 over the three months to October. At the
same time, the participation rate has fallen by 0.3ppts, allowing
the unemployment rate to remain unchanged for the third month at
the recent lows of 4.3%. This is 0.2ppts below the Bank of
England’s (“BoE”) estimate of the long-term equilibrium
unemployment rate.
Despite the moderate economic growth, data suggests there is
little spare capacity in the economy. Alongside the low level of
the unemployment rate, there has been a pick up in wage growth in
most recent data, with average weekly earnings growing around 3%
annualised as of October. Meanwhile, headline inflation rose
0.1ppts to 3.1% y/y in November, the highest rate since April 2012.
In addition, various surveys including the PMI, the British
Chambers of Commerce’s Quarterly Economic Survey, and the BoE’s
Agents' summary of business conditions have alluded to increasing
difficulty in recruitment of skilled labour, which would point to
higher wage growth in the future. At the most recent BoE Monetary
Policy Committee (“MPC”) meeting in December, members voted
unanimously to keep the policy rate unchanged at 0.5%, after having
raised the policy rate 0.25ppts for the first time in a decade at
the November meeting. The MPC noted that should the economy evolve
in line with its November forecasts, further modest increases in
the Bank Rate would be warranted over the next few years. In
addition, the MPC stated that it will incorporate the small
stimulus announced in the Government’s Autumn Budget into the
February forecasts, as well as the positive developments around the
Brexit negotiations.
Brexit negotiations moved forward in December, with the EU
council declaring that sufficient progress has been made on the
first phase of the negotiations (divorce bill, rights of citizens
and the Irish border) to move onto the second phase regarding
transition and the framework for the future relationship. Although
still subject to change, the first phase of negotiations had agreed
on the methodology for calculating the Brexit settlement, now cited
to be around €45-55bn. It was also agreed that there would be no
hard border between Northern Ireland and the Republic of Ireland.
President of the European Council, Donald Tusk, said ‘exploratory
contacts’ will begin on Britain’s future relationship, but formal
talks are not expected to begin before March. In the meantime, the
UK still has to decide the nature of the end relationship it is
aiming to achieve with the EU.
EMU
At the end of 2017, the economy of the Eurozone continued to
perform strongly, if not accelerate, according to some business
surveys. Indeed, the Economic and Monetary Union (“EMU”) Composite
PMI increased further, from 57.5 to 58.1, the highest level since
2006, while the Economic Sentiment Indicator surged from 114.6 to
116.0, the strongest since 2000. A fly in the ointment was that two
key national business condition indicators fell, especially in
their most leading components, although remaining close to their
highs. The German ifo Business Climate Index fell from an all-time
high of 117.6 in November to 117.2 in December, as the leading
expectations component dropped more significantly, from 111.0 to
109.5. The National Bank of Belgium's business survey fell from 1.6
to 0.1. At the same time, actual activity indicators referring to
the month of November, from industrial production to retail sales
marked a substantial rebound from relatively soft outcomes in
October.
However, despite this relatively strong cyclical recovery phase,
underlying inflation dynamics remain very subdued; showing none of
the pick-up signs looked for by the European Central Bank (“ECB”)
in its latest macroeconomic projections. Indeed, after the December
ECB policy meeting, the release of the December Harmonised Index of
Consumer Prices (“HICP”) report showed core inflation falling back
to below 1%, while wage dynamics slowed again in Q3, from 2.1% to
1.7% y/y, as did unit labour costs. The latest Producer Price Index
release provided was subdued, while import prices are deflating
again due to the on-going strengthening of the euro, especially
against the US dollar.
China
Activity data was mixed in December. The official Purchasing
Managers’ Index (“PMI”) was weaker at 51.6 in December versus 51.8
for November, but the Caixin PMI was stronger at 51.5 for December.
Fixed Asset Investment growth recorded was 7.2% for December, which
was the same as November. Industrial production growth was
stronger at 6.2% for December. Retail sales weakened and printed
9.4% y/y for December. Inflation rose to 1.8% from 1.7% prior.
Producer prices again dipped from the prior month, printing 4.9%.
On the external side, export data weakened to 7.4% y/y for December
and imports fell significantly to 0.9% y/y. The seven day repo rate
was on average 3.4% for December compared to 3.3% for November.
Japan
Inadvertently or not, the Bank of Japan (“BoJ”) caused a bit of
a stir in bond markets by purchasing a surprisingly light amount of
Japanese Government Bonds (“JGBs”) in its latest round of bond
buying. The 10-year JGB rate moved up 4bps or so, and the yen
strengthened against the dollar. The market suspects that the BoJ
may be less than steadfast in its announced yield-curve control
policy, but faltering now makes no sense. Clearly, the BoJ can not
declare victory. The 12-month core rate is currently running
at 0.8%, and most of that is due to energy prices. Inflation
expectations as measured in the consumer survey have inched up over
the last few months but hardly at a speed, or level, that would
suggest an upturn in inflation is in the offing. Spring wage
negotiations have yet to run their course, but early indications do
not suggest significantly higher increases than seen a year ago.
Pressure from the bond market had been expected in the event of the
BoJ prematurely changing its policy, for example if the buying
required to keep rates around zero became too onerous. However, so
far that has not been the case, as 10-year rates have been fairly
quiescent, at least up to the point when the BoJ surprised markets.
The 10-year JGB rate remains within the range seen over the last
twelve months, albeit now at the top of that range.
Now may not be the time for the bond market to challenge the
BoJ, but it may not be too far away. Markets are beginning to
sense a turn in central bank accommodation around the world as the
global economy is powering ahead. Clearly, Japanese aggregate
demand is contributing to the overall gains. Industrial
production continues to move up, rising 0.6% in the latest
report. The Tankan survey remained strong with 2017 Q4
results moving up, and the 2018 Q1 forecast for large enterprises
unchanged at a high level. The Economy Watchers Survey
improved from the November level, which was already the highest for
four years.
The Company Secretary
Northern Trust International Fund
Administration Services (Guernsey) Limited
bhfa@ntrs.com
+44 (0) 1481 745736
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