After generating paltry returns near 1% in 2013, the Brevan Howard Multi-Strategy fund has given back all of the gains in the first two months of 2014, down just over 1% as of February.

Brevan Howard Multi-Strategy fund invests across firm strategies

Brevan Howard

The Multi-Strategy fund invests in seven of Brevan Howard’s various strategies, with the larges allocation going to the Master Fund (48.3%) while the second largest fund allocation provides exposure to the Credit Catalysts fund (16%) followed by the Systematic Trading fund at (8%).  The fund also maintains a direct investment and treasury allocation (13.7%).

The biggest winners in the portfolio on the month were the Commodities Strategies fund (+4.63%) followed by the Credit Catalyst fund.  The fund’s largest exposure to the master fund experienced a loss of -1.02% on the month.

Noting that temporary disruptions have slowed economic activity, the fund’s market commentary noted other factors playing into the economic outlook. “Bad weather is not the only reason why growth has disappointed in the current quarter,” the letter said, then hinted at a slowdown in one sector followed by a potential economic shining light. “Coming into this year, manufacturers needed to tap the brakes on the pace of inventory investment, especially in the automobile sector where stocks had ballooned compared with sales. As a result, surveys of purchasing managers suffered and factory output declined. However, new orders rose in the most recent surveys, a development that points to growing production in the coming months.”

“Tailwind for growth”

Considering housing a “tailwind for growth,” the letter noted, “The fundamentals in housing are still favorable. Looking forward over the next year, housing is expected to be a tailwind for growth albeit a much more modest one compared with the big addition seen earlier in the expansion.”

“Inflation stuck in low gear”

Noting that “inflation remains stuck in low gear,” the letter considered US Federal Reserve policy, noting that “as the unemployment rate has fallen quickly, they will have to tweak their forward guidance before long.”  Then the letter entered a hot debate and noted a potential shift in the data on which the central bank would remain dependent. “It appears that the Fed will eventually settle on qualitative guidance that de-emphasizes the unemployment rate in favour of a broader dashboard of indicators as a guide to when to expect rate hikes.”

Europe growing: Brevan Howard

Turning to Europe, the letter noted a dichotomy, saying “UK data is strong growth with weak inflation,” which surprised fund analysts. “If anything, been a little more resilient than had been expected,” the letter noted.  Considering the Bank of England actions with rates, the letter concluded “The case for rate hikes would mostly rest on a desire to move away from emergency policy settings, rather than a need to curtail immediate inflation pressures.”

Asia mixed: Brevan Howard

The outlook in Japan was mixed to muddled, as the fund is keeping an eye on government wages and GDP growth. “Not to be ignored is the 8% wage increases scheduled for Government workers, as the wage cut they took a few years ago to help pay for earthquake reconstruction is unwound.”  In China the fund notes key themes were the Renminbi (“RMB”) currency depreciation late in the month and the continuation of a cyclical slowdown. “Industrial production, fixed asset investments and retail sales have all showed a meaningful slowdown, largely undershooting market expectations,” the letter noted.

Fund returns investor assets: Brevan Howard

The fund also announced that following the departure of Geraldine Sundstrom, the portfolio manager of the Brevan Howard Emerging Markets Strategies Fund (“BHEMS”), the fund will return investors’ capital.