Brevan Howard Global commentary for the month ended September 30, 2016.
[drizzle]BH Global Limited (“BHG”) is a closed-ended investment company, registered and incorporated in Guernsey on 25 February 2008 (Registration Number: 48555).
Prior to 1 September 2014, Brevan Howard Global invested all its assets (net of short-term working capital) in Brevan Howard Global Opportunities Master Fund Limited (“BHGO”). With effect from 1 September 2014, BHG changed its investment policy to invest all its assets (net of short-term working capital) in Brevan Howard Multi-Strategy Master Fund Limited (“BHMS” or the “Fund”) a company also managed by BHCM.
BHG was admitted to the Official List of the UK Listing Authority and to trading on the Main Market of the London Stock Exchange on 29 May 2008.
BHMS has the ability to allocate capital to investment funds and directly to the underlying traders of Brevan Howard affiliated investment managers. The Direct Investment Portfolio (the “DIP”) is the allocation of BHMS’ assets to individual trading books. The BHMS allocations are made by an investment committee of BHCM who draw upon the resources and expertise of the entire Brevan Howard group.
Monthly Performance Review for Brevan Howard Global
The information in this section has been provided to BHG by BHCM.
Brevan Howard Global Monthly Commentary
The NAV per share of BHG’s USD shares depreciated by 0.23% and the NAV per share of Brevan Howard Global’s GBP shares depreciated by 0.34% in September 2016.
Brevan Howard Master Fund Limited (“BHMF”)
The NAV per share of BHMF Class Z USD shares depreciated by 0.70% in September. Interest rate trading detracted overall with gains from swap spread and cross market trading in European government bonds more than offset by losses from Japanese interest rate volatility positions which declined in value following the Bank of Japan’s September policy announcement in favour of yield curve control. Further small losses came from directional trading in Japanese and GBP interest rates. Tactical trading in FX markets including the JPY, EUR and GBP also contributed to losses. Small gains were generated from commodity trading in gold and oil as well as in credit markets primarily from US mortgage agency as well as CMBS trading, however these gains were largely offset by losses in equity trading, predominately from option positions in the Nikkei.
Brevan Howard Asia Master Fund Limited (“BHA”)
The NAV per share of BHA Ordinary USD shares depreciated by 0.14% in September. Interest rate trading was modestly positive for the month, with gains from yield curve trading in Korea being partially offset by losses from US directional trading. The impact on interest rate trading PnL from the Bank of Japan’s (“BoJ”) policy announcement of yield curve targeting was roughly neutral with losses from Japanese interest rate volatility positions being offset by gains from directional trading. FX trading detracted over the month in part as option positions failed to cover their theta decay and partly from tactical trading of Australian and New Zealand dollars. Option trading in Japanese and Korean equity indices also detracted modestly over the month.
BH-DG Systematic Trading Master Fund Limited (“BHDGST”)
The NAV per share of BHDGST Class Z USD shares depreciated by 0.47% in September. At the sector level, negative overall returns were primarily driven by positioning in bond futures which delivered a loss of 0.71%. This was partially offset by small gains in agriculturals, FX and equities. Bond risk was reduced during a poor first half of the month before being rebuilt late on via longs in German and US positions across the curve. Equity index performance was mixed across all regions. The best performing market was the Nasdaq however gains made here were largely offset by losses attributed to long S&P positions. Longs in the FTSE also performed notably well with a weaker Sterling supporting the international earnings of multinationals on the index. In FX, September saw the model increase its net long in the Japanese Yen with positive results. The Yen was the best single performing position this month, supported by a combination of weak US data, a dovish Fed and a BoJ policy regime change to yield curve targeting. Positioning in the agricultural sector was the most successful of all commodities. Long positions in Robusta Coffee and Sugar futures were increased, with the latter performing strongly in September as the fourth highest contributor to profits at an individual market level. Elsewhere, returns from metals were muted as BHDGST took an increasingly bullish stance throughout the month, while net long exposure to the energy sector was also increased.
Direct Investment Portfolio (“DIP”)
The DIP appreciated by 0.16% in September. The risk level was kept relatively low during the month and PnL moves were modest in most asset classes with credit trading being the highest positive contributor. Gains in credit, commodities and interest rates were partly offset by losses in FX and equity. In credit, the bulk of the gains arose from US RMBS, where a number of long positions traded at higher levels. Valuations increased partly on the back of putback settlements and the continued strong appetite for yielding assets. Within the ABS/MBS portfolio, there were additional gains from European RMBS and some US legacy CMBS positions. A part of the profits were realised at attractive levels. The portfolio made additional credit gains in emerging market relative value positions and agency trading. Exposures within interest rates were kept low during the month but added small gains in EUR and GBP. In commodities, the portfolio generated modest gains from long exposure to gold and oil early in the month. Gains were partly offset by losses in FX and equity trading. In FX short exposure to JPY was the main detractor. Additional smaller losses arose from a decline in FX volatility and tactical trading in GBP. In equity, long exposure to the Nikkei was the main detractor. The exposures to both FX and equity indices were reduced during the month.
Manager’s Market Review and Outlook
The information in this section has been provided to Brevan Howard Global by BHCM.
Payroll employment rose at a solid pace in September. The unemployment rate ticked up to 5.0%, but that was attainable to an increase in the participation rate. Taking the longer view, the improvement in job opportunities has drawn substantial numbers of workers into the labour force over the last year. As a consequence, the unemployment rate has been broadly unchanged over the same period. Signs point to additional slack in the labour market with the average work week well off its