Europe’s second largest hedge fund, Brevan Howard Global Ltd., gained 0.58 percent in August, compared to 2.31% for July. The fund, which has $37 billion of assets under management, is up 1.43 percent YTD. Its commodity fund, BHCS, generated the highest gains of 3.86 percent in August. Most of the BHCS gains came from long positions in oil and precious metals.
Brevan Howard said in its monthly shareholder report that the Investment Committee is confident of all the underlying funds to generate returns, so it made no changes in the allocation weights this month.
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The fund states that the labor market and growth in the US are still disappointing. Though the unemployment rate has fallen to 8.1 percent, it is mainly because many people have stopped looking for jobs. The average hourly earnings have also declined since last month. Unfortunately, there is no hope for improvement during the second half of this year. Manufacturing reports are disappointing, and the sectors that were maintaining the momentum now seem vulnerable.
CEO Alan Howard says that even the third quantitative easing by the Federal Reserve won’t help the economy much. At most, it may increase the GDP by 0.25-0.50 percent. Additionally, QE3 has serious downside risks, such as inflation.
In the European Monetary Union (EMU), the conditions have become worse. The combined GDP of the union contracted by -0.2 percent on a quarterly basis, pushing the EU into a renewed recession. PMI of Germany has fallen further to 47.0. Unemployment rates have reached new highs in Italy, Greece, and Spain. And, despite the economic slowdown, inflation is going upward, another cause of worry.
The UK reported second and third quarter growth of only between 0.0-0.5 percent. In simple terms, the UK’s growth prospects are somewhere between those of the United States and the Eurozone. The UK policymakers were expecting that the investment and export recovery would alleviate the three biggest headwinds – bank deleveraging, fiscal austerity, and household deleveraging. But that won’t happen, because more than half of the UK’s exports go to the Eurozone, where the demand is declining sharply.
Activities in Japan are somewhat similar to that of the UK. Domestic and external demands are decelerating, and exports have dropped 4.5 percent during the second quarter.
The world’s second largest economy, China, witnessed its official manufacturing PMI falling to 49.2, which shows a renewed slowdown in manufacturing activities. The fund says that besides manufacturing, the rest of the economy is still robust. Since the country doesn’t have any aggressive easing in the pipeline, the growth rate is likely to decline further in the third quarter.
Overall, Alan Howard thinks that the US and European economies are in a gloomy state.