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 31 January 2018
| 2018 |
Rates |
FX |
Commodity |
Credit |
Equity |
Total |
| January 2018 |
1.24 |
0.34 |
0.03 |
-0.07 |
1.01 |
2.54 |
| QTD 2018 |
1.24 |
0.34 |
0.03 |
-0.07 |
1.01 |
2.54 |
| YTD 2018 |
1.24 |
0.34 |
0.03 |
-0.07 |
1.01 |
2.54 |
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 31 January 2018
| 2018 |
Macro |
Systematic |
Rates |
FX |
Equity |
Credit |
EMG |
Commodity |
Total |
| January 2018 |
2.45 |
0.08 |
-0.14 |
0.02 |
-0.00 |
-0.04 |
0.17 |
-0.00 |
2.54 |
| QTD 2018 |
2.45 |
0.08 |
-0.14 |
0.02 |
-0.00 |
-0.04 |
0.17 |
-0.00 |
2.54 |
| YTD 2018 |
2.45 |
0.08 |
-0.14 |
0.02 |
-0.00 |
-0.04 |
0.17 |
-0.00 |
2.54 |
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 Employment growth bounced back in January, despite inclement weather that would have normally disrupted hiring. The unemployment rate remained at a very low 4.1%, while wages showed some signs of life by accelerating to a 2.9% increase over the last year. The latter move caught the equity market off guard and helped contribute to the recent retrenchment in risky asset prices. Real Gross Domestic Product (“GDP”) rose 2.6% at an annual rate in Q4. Private domestic final purchases (essentially GDP less government, inventories and net exports) jumped 4.6%, its best outturn in more than three years. The external sector subtracted 1.1ppts from growth, as the brisk pace of imports outpaced healthy exports, and the change in inventory investment subtracted another 0.7ppts. Looking forward, growth momentum appears to be well maintained. The fundamentals underlying consumption are solid, despite the most recent divot in equity wealth. Forward-looking indicators of business investment are near record highs and hard data are positive. Given the strong underlying dynamics, inventories will have to be rebuilt in the first half of the year, a development that will add to growth. The only notable drag on growth should remain net exports, as the US tends to import more than it exports during periods of strong activity. Core inflation bottomed at 1.3% y/y in August and inched up to 1.5% in December. In the last three months, core prices have accelerated to an annual rate of 1.9%, little different from the Federal Reserve’s 2% target. As the one-time declines in mobile phone prices last spring drop out of the y/y calculations in the coming months, core inflation should stabilise around 1.75%. Headline inflation has edged up as well on firmer energy prices. Drama in Washington attracted investors’ attention in the last month. Secretary of the Treasury, Steven Mnuchin, seemed to favour a weak US dollar policy with comment in Davos, but quickly backtracked after a sharp market response. After several iterations, Congress passed a budget outline for fiscal years 2018 and 2019 that results in sizable increases in federal spending on everything from defense, domestic entitlements, fighting opioid addiction, and infrastructure. Although there is a difference between budget authority and outlays, estimates suggest that the spending will add at least a few tenths to growth over the next two calendar years. That comes on top of the added growth from the recently passed tax reform/cuts. Meanwhile, in its January Federal Open Market Committee statement, the Federal Reserve hinted at more confidence in the economic outlook and additional rate hikes. UK Although the economy has slowed over the past year, on account of prevailing political uncertainty, real GDP in the UK has continued to grow at a moderate pace, supported by a thriving global economy and a low exchange rate. GDP grew 0.5% q/q in Q4, up from 0.4% in Q3, bringing the annual rate to 1.5% y/y. The relatively resilient pace of growth in Q4 occurred despite the temporary shut-down of the North Sea ‘Forties pipeline’, which detracted roughly 5bps from GDP. Looking ahead, the resumption of the Forties pipeline should boost GDP by 0.1ppts in the next quarter. More generally, although business surveys have moderated somewhat in January, the composite Purchasing Managers’ Index (“PMI”) fell 1.5pts to 53.5, surveys suggest that the economy should continue to grow broadly in line with the pace seen over the past year. The labour market has also continued to perform moderately well, with employment growing 1.3% y/y. The rise in employment has just been sufficient enough to keep the unemployment rate unchanged at 4.3% over the latest four months, which is otherwise at the lowest rate since 1975. The mix of ongoing employment growth, a modest pick-up in wages and slowing price inflation should support the outlook for the consumer, especially in the face of a housing market which has slowed materially since the EU membership referendum; house prices have risen by around 2% y/y, a much more modest pace compared to the 6-7% pace seen prior to the referendum. Despite only moderate growth, data suggests there is little spare capacity in the economy. Alongside the low levels of unemployment, there has been a pick up in wage growth in most recent data, with average weekly earnings growing around 3% annualised as of November. Although wage growth remains muted compared to pre-crisis average growth rates, the current pace of wage growth should contribute to higher unit labour costs given the modest rate of productivity growth. In addition, various surveys have alluded to increasing difficulties in the recruitment of labour, suggesting wages may grow more markedly in the future. Headline inflation, which currently sits near its recent peak at 3%, is projected to moderate in the medium term as the effects from the earlier exchange rate shock are expected to fade. However, the rise in prices stemming from the earlier depreciation in the exchange rate is proving to be more persistent than originally anticipated; for example core inflation rose 0.2ppts to 2.7% y/y in January. In general, the lack of spare capacity and expected pick up in wages should support domestic inflationary pressures in the medium term. At the Bank of England’s most recent Monetary Policy Committee (“MPC”) meeting, members voted unanimously to keep the Bank Rate unchanged at 0.5%, after having already raised it 25bps in November. However, due to a greater prospect of excess demand, the MPC said that it will need to bring inflation back to the 2% target within a ‘more conventional horizon’, i.e. sooner than was previously indicated. This implies that monetary policy would need to be tightened somewhat earlier, and by a somewhat greater extent, over the forecast period than was anticipated at the time of the November Inflation Report. In December, the EU council declared that sufficient progress has been made on the first phase of the Brexit negotiations (divorce bill, rights of citizens and Irish border) to move onto the second phase regarding transition and the framework for the future relationship between the EU and UK. Although much of the detail still needs to be agreed, officials are aiming to achieve a deal on the transition period by the end of March. Meanwhile, the UK government is yet to publicly announce what kind of ‘end-state’ relationship it is seeking to achieve with the EU. EMU In Q4 of 2017, the EMU economy, although still expanding at a relative brisk pace (0.6% q/q and 2.7% y/y), slowed somewhat from Q3 (0.7% q/q and 2.8% y/y). Amongst major countries, Italy remained the underperformer, at 0.3% q/q, while, for the first time in a while, France was the outperformer, at 0.7% q/q. The rhythm of activity was sturdy at the beginning of 2018 according to the PMI survey, whose composite index advanced further from 58.1 to a very strong 58.8. However, some signs that the business cycle might be peaking stemmed from the usually leading Manufacturing PMI component, which fell from 60.5 to 59.5, and from the “Expectations” component of the German ifo Business Survey, which fell for the second month in a row from 109.4 to 108.4, 2.6 points below the November high. Inflation remained subdued, with the headline Harmonised Index of Consumer Prices (“HICP”) slowing in January from 1.4% y/y to 1.3% y/y and, most importantly from a monetary policy standpoint, core inflation at 1.01% y/y, was only marginally up from 0.95% y/y in the last month of 2017. Moreover, the very modest pick up of core inflation in January was due to a spike in non-energy industrial goods (2.3% m/m annualised according to the seasonally adjusted estimates of the European Central Bank (“ECB”)), likely due to a shift in seasonality of clothing prices which is poised to unwind in February. Consistently, at its first policy meeting of 2018, the ECB’s monetary policy stance and communication remained unchanged, defying expectations of some market participants of a shift especially of forward guidance in a more hawkish direction. Indeed, both the Introductory Statement and the Q&A session led by the ECB President, conveyed the message that, although economic growth is exceeding expectations, inflation remains far from the self-sustained convergence to the ECB definition of price stability. Moreover, the ECB stepped up its tones against the pace of the appreciation of the exchange rate of the EUR which was not consistent with fundamentals, inducing an unwanted tightening of financial conditions which would pose additional downside risks to the inflation outlook. Japan Two developments this month confirm that the authorities are not ready to shift their stance on yield-curve control policy, and that some market participants got ahead of themselves. First, multiple media reports indicate that the government is ready to reappoint Haruhiko Kuroda as head of the Bank of Japan (“BoJ”). Even though it is not official yet, it is still an affirmation of BoJ policy to date. Second as the 10-year Japanese Government Bond rate moved up to 0.10% the BoJ announced in early February unlimited fixed-rate purchases at 0.11%. Given market chatter associated with the lower purchase level in January and the drift in rates, the BoJ probably needed to draw a line somewhere that it was not ready to abandon its yield-control policy. That signals an intent to maintain its policy going forward. On the other hand, the BoJ has also painted a bright target that markets could view as an explicit test the next time pressures mount. The latest inflation information has been mixed. Japan’s western core rate was flat on a seasonally adjusted basis in December. It seems to be running at about a 0.5% rate, a little faster than the y/y rate of 0.1% but still well behind a path consistent with the BoJ’s expectations. Tokyo prices have been running hotter, increasing 0.2% on a seasonally adjusted basis in December and January. Inflation expectations have edged up of late, rising 0.3ppts over the last four months. On the other hand, the yen has strengthened against the dollar, moving to the firm end of the range seen in the last year. Real GDP rose only 0.5% at an annualised rate in Q4, its slowest level since the end of 2015, which is the last time GDP dipped. Coming off two straight quarters of growth well above a 2% rate, the weakness in itself does not portend a softening in demand. Net exports reduced growth by 0.3ppts, as imports rose even faster than the 10% pace of exports. Industrial production rose sharply in December, but the Economy Watchers index dropped sharply in January to a level just below the waterline and to its relatively weakest level since July. The Company Secretary Northern Trust International Fund Administration Services (Guernsey) Limited bhfa@ntrs.com +44 (0) 1481 745736 |