BH Macro Limited - Monthly Shareholder Report - April 2018

Source: BHCM

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Kurse

BH Macro Ltd 4,16 € +0,48%

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 30 April 2018

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 30 April 2018

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 information in this section has been provided to BHM by BHCM

US

The unemployment rate dropped to 3.9% in April, nearly matching some of the lows seen in the last 50 years. Payroll gains were well-maintained, with the average monthly increase over the last three months approximately 200,000. However, wages gains were mixed. The Employment Cost Index perked up in the first quarter, but average hourly earnings were subdued in April. The debate about how much slack remains in the labour market will continue.

Q1 gross domestic product (“GDP”) rose by a better-than-expected 2.3% (annual rate), a soft patch that is nevertheless above the trend rate of growth of the economy. Some of the strength reflected the contributions of inventories and trade that may not be sustainable over the coming quarter. At the same time, consumption is unlikely to be as weak as seen in Q1 given the strong fundamentals in the household sector.

Inflation reached the Federal Reserve’s (“Fed”) target in April, with headline personal consumption inflation hitting 2%, and core inflation rising to 1.9%. Notably, core inflation has been running at an annual rate of 2.3% over the last 6 months and is on track to hit 2% sometime in the summer.

In Washington, the Fed changed little in its May statement, leaving it on track to raise rates again when it meets in June. Elsewhere in Washington, the Trump administration tried to diffuse trade tensions with Canada and Mexico, and started negotiations with China. It is hard to guess how the negotiations will eventually pan out.

UK

Consistent with the moderation in global growth, activity in the UK has moderated according to recent data. The latest estimates from the Office for National Statistics (“ONS”) showed that GDP grew 0.1% q/q in Q1, markedly slower compared to the 0.4% pace seen in Q4. Some of the weakness appeared to be temporary; for example construction was particularly weak, detracting 0.2ppts from GDP, and was likely reflective of the higher than usual snowfall. However, growth in both the service and manufacturing sectors were also more modest compared to recent history. The weakness apparent in March appears to have persisted; business surveys had failed to rebound materially in April, with the composite Purchasing Managers’ Index (“PMI”) only rising 0.8pts to 53.2, after having fallen 2.1pts in the month prior. GfK’s Consumer Confidence Index also fell in April by 2pts to -9, returning to long term average levels. Retail sales volumes have also been somewhat muted of late, barely growing over the past half 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 pace 6-7% seen in 2015 and the first half of 2016. Overall, data suggests that the pace of growth has moderated compared to the relatively resilient pace seen in 2017, but the economy is still expected to grow in line with potential growth over the next year.

Despite less buoyant activity data, the labour market has continued to perform well, with employment growing 1.2% y/y as of March 18, and the unemployment rate is at a multi-decade low of 4.2%. The improvement in the labour market has also been finally matched with improved wage growth data. Average weekly earnings (excluding bonuses) are now running at a pace of 2.9% 3m/12m, the fastest pace since 2015. Surveys related to pay growth, like wage settlements or recruitment difficulties, also suggest that underlying wages may continue to improve. Meanwhile, headline inflation fell 0.2ppts in March to 2.5% y/y, whilst core inflation fell 0.1ppts to 2.3% y/y. Core inflation is expected to trend lower as the influence of the post-referendum depreciation in the exchange rate starts to fade. However, the most recent rise in oil prices should provide some support for headline inflation, likely keeping it above the 2% target throughout the next year. At the Bank of England’s (“BoE”) most recent Monetary Policy Committee (“MPC”) meeting in May, two members voted to raise the official bank rate a further 0.25% whilst the 7 person majority voted to keep rates unchanged at 0.5% (as was the case in the previous meeting). It appears as though the moderation in recent data had dissuaded the majority of MPC members from voting for a rate rise in May. However, the monetary policy statement still concluded that if the economy were to develop broadly in line with the May Inflation Report projections, ‘an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon’.

Meanwhile, the Brexit process continues to cloud the outlook for the United Kingdom. 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 June 28th where issues such as the Irish border, and terms for the future trade, are to be discussed.

EMU

In Q1 2018 the EMU economy grew by 0.4% q/q (1.6% annualised), marking a clear slowdown from the 0.7% q/q (2.8% annualised) pace of the previous four quarters, and way undershooting the 0.7% q/q prediction made by the European Central Bank (“ECB”) in the macroeconomic projection presented as recently as March. Although the moderation was exacerbated slightly by temporary effects, mostly related to unseasonably cold and snowy conditions in some regions, it appears mainly related to a downshift in underlying growth dynamics. Indeed, the slowdown in hard data was matched by the drop recorded in most relevant business conditions surveys, from the EMU PMI, to the German ifo Business Climate Index (“IFO”). Most importantly, business confidence continued to slip into Q2, as EMU PMI orders, the most relevant cyclical component, fell from 55.0 to 54.5, the lowest level since January 2017, while the Expectations component of the IFO dropped from 100 to 98.7, the lowest in two years. Behind this slowdown, which was quite widespread with the exception of Spain, is the lagged effect of the appreciation of the euro in 2017, the diminishing impulse provided by the ECB quantitative easing through the credit channel, and slower imports from China of European goods. These factors had contributed to the significant acceleration of activity in 2017, in an opposite direction. The drop of core inflation to 0.7% y/y in April, although exaggerated by an Easter effect, supported the notion that underlying price dynamics are not improving in a way consistent with the self-sustaining path toward the medium term ECB objective, which the President of the ECB, Mario Draghi stated as being the main condition to end net security purchases by the ECB from September onward.

Japan

The Bank of Japan (“BoJ”) announced no changes to its current policy after its late April policy meeting. Analysts saw meaning in a change to the quarterly outlook report. In January, the BoJ wrote: “the timing of the year-on-year rate of change in the consumer price index (“CPI”) reaching around 2 percent will likely be around fiscal 2019”. The April report merely noted that “comparing the current projections through fiscal 2019 with the previous ones, the projected rates of increase in the CPI are more or less unchanged”. The structure of official communications tends not to be written from new every time, so it is natural to surmise some meaning in the change. At the same time, the forecast for the core CPI in fiscal year 2019 was the same in April as it was in January.

One does run the risk of taking these forecasts too seriously. The forecast for 2018 was marked down by 0.1pp to 1.3%. Even so, to reach that rate, over the next 12 months the core rate will have to move up to average a 1.6% annual rate, double the rate seen through March of this year. That still seems optimistic given that the latest western core index unwound the cumulative increases over the first two months of the year. However, some fundamentals are a little more constructive. Over the last month or so, the yen has depreciated about 2% against the dollar, and consumer inflation expectations rose 0.1pp in April.

Activity has downshifted somewhat, which was evident in some of the survey data, though not uniformly. In Q1 2018, real GDP declined 0.6%, at an annual rate, following a moderate 0.6% gain in Q4. That stands in contrast to the 2.2% average rate seen over the first three quarters of 2017. The Economy Watchers index was essentially at a middling level. IHS Markit Purchasing Managers’ surveys have essentially moved sideways for over a year, but in contrast to the Economy Watchers index, at a more constructive level.

The Company Secretary

Northern Trust International Fund Administration Services (Guernsey) Limited

bhfa@ntrs.com

+44 (0) 1481 745736