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 July 2018
| 2018 |
Rates |
FX |
Commodity |
Credit |
Equity |
Total |
| July 2018 |
0.62 |
0.44 |
-0.05 |
-0.11 |
0.01 |
0.91 |
| Q1 2018 |
0.93 |
-0.20 |
0.01 |
-0.06 |
-0.07 |
0.58 |
| Q2 2018 |
8.54 |
0.46 |
-0.02 |
0.02 |
-0.02 |
8.94 |
| QTD 2018 |
0.62 |
0.44 |
-0.05 |
-0.11 |
0.01 |
0.91 |
| YTD 2018 |
10.23 |
0.69 |
-0.05 |
-0.14 |
-0.08 |
10.58 |
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 July 2018
| 2018 |
Macro |
Systematic |
Rates |
FX |
Equity |
Credit |
EMG |
Commodity |
Total |
| July 2018 |
0.02 |
-0.08 |
0.71 |
0.04 |
-0.00 |
0.00 |
0.22 |
-0.00 |
0.91 |
| Q1 2018 |
0.87 |
0.02 |
-0.46 |
-0.09 |
-0.00 |
-0.03 |
0.28 |
-0.00 |
0.58 |
| Q2 2018 |
4.29 |
0.05 |
2.91 |
0.34 |
-0.00 |
-0.06 |
1.33 |
-0.00 |
8.94 |
| QTD 2018 |
0.02 |
-0.08 |
0.71 |
0.04 |
-0.00 |
0.00 |
0.22 |
-0.00 |
0.91 |
| YTD 2018 |
5.22 |
-0.01 |
3.16 |
0.28 |
-0.00 |
-0.08 |
1.84 |
-0.00 |
10.58 |
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 Growth in the US surged at an annual rate of 4.1% in Q2, paced by brisk consumption spending, solid investment outlays, and a jump in exports. Inventory investment subtracted a full percentage point from real GDP growth and the need to restock going forward may be a significant tailwind for growth in the second half of the year. So far, there is no tangible evidence that trade tensions or higher tariffs are exerting an appreciable drag on the economy, although some of the increase in exports appears to have been accelerated in order to beat the imposition of tariffs by trading partners. In the annual revision, the saving rate was reported to be 6.8% in Q2, a notable upward revision that implies stronger household fundamentals that could power consumption further still. Putting the pieces together, the economy does not appear to be late-cycle, as is commonly assumed due to the age of the expansion. The unemployment rate in July dipped to 3.9% and broader measures of labour market slack improved noticeably. Measures of wages continue to trend up gently, with the Employment Cost Index for private wages and salaries rising nearly 3% over the past year. Payroll employment increased by less than expected in July, partially caused by timing issues around seasonal fluctuations in employment in education, as well as a one-time closing of a major retailer. Headline inflation has been more than 2% for most of the year and, excluding food and energy, inflation has been hovering just below the Federal Reserve’s target of 2%. Looking forward, higher energy prices will probably keep headline inflation elevated while the strength of the economy should add a little to core inflation. However, the appreciation in the exchange value of the US dollar will probably push in the other direction. The closely watched developments in trade were mixed. The Trump administration keeps increasing trade threats against China. However, trade negotiations with Mexico are making good progress. A temporary ceasefire was agreed with the Euro area. But, as has proven the case with many Trump trade policies, the situation is highly fluid. UK After what appeared to be a temporary slowdown in the first quarter, economic activity in the UK has returned to its earlier moderate pace. However, Brexit as well as recent internal politics struggles act as a headwind on the economy. According to the Office of National Statistics, the economy grew 0.4% q/q in Q2, up from 0.2% in Q1 (which was upwardly revised by 0.1ppts). As the largest share of the economy, services output contributed 0.4ppts to growth. Construction also acted as a tailwind, as the influence of poor weather in Q1 unwound. However, this was slightly offset by weaker manufacturing. In general, business surveys such as the Purchasing Managers' Indexes (“PMI”), which edged back down 1.6pts in July, still suggest that growth should remain around a pace of 0.4% q/q, a modest rate compared to historical average, but a level that should be enough to absorb the little remaining slack in the economy. This is consistent with the fact that the unemployment rate continues to make new multi-decade lows, most recently reaching 4.0% in June, the lowest rate since 1975. Robust employment should support consumption; for example retail sales have grown 3.7% y/y in July, up from the lows of 1% last year. However, the softness in the housing market may still act as a drag; although house price growth remains positive at the national level, activity indicators remain modest. Moreover, tighter conditions around consumer lending may also act as a headwind to consumption. Overall, the tightness in the labour market should continue to put upward pressure on wage growth. Excluding bonuses, wage growth is averaging a pace of 2.7% 3m/12m, down from the peak of 3% in March, but still near post-crisis highs. Wage pressure should in turn cause inflation to pick up. Headline inflation rose 0.1ppts to 2.5% y/y in July, whilst core inflation was unchanged at 1.9%. The combination of moderate economic activity, a tight labour market, and gradually building wage pressure has caused the Bank of England to project inflation to remain above 2% for most of the projection horizon. It was in this context that the Monetary Policy Committee (“MPC”) voted unanimously to raise the official bank rate 0.25ppts to 0.75% in August. The key message from the MPC’s statement was left broadly unchanged: “were the economy to continue to develop broadly in line with [the Bank’s] Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to the 2% target at a conventional horizon. Any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.” Of course, the state of the Brexit negotiations remains a key risk to the economic outlook. According to the latest White Paper, the UK aims to achieve a post-Brexit “association agreement” with the EU, including a “free-trade area” for goods and a looser arrangement for financial services. On account of the proposal which was set out at Chequers, various ministers of the government who were leaning towards a harder Brexit have resigned, including both Boris Johnson and David Davis. Although not the base case, one concern is the possibility of a leadership election. There would need to be signatures from 48 Conservative MPs to trigger a vote of no confidence in the Prime Minister, which the Prime Minister would have to then lose, before having a leadership election. EMU In Q2 2018, EMU GDP expanded by a mere 0.37% q/q, or 1.5% annualised, exactly the same as Q1, thus confirming that the downshift in the first three months of the year relative to the 2.8% recorded in H2 2017 was signal rather than noise. Not only did these growth dynamics largely disappoint the consensus forecasts of only a few months ago, but also more importantly, both the March and the June 2018 European Central Bank (“ECB”) macro projections, which envisaged a growth rate of 0.7% q/q in Q1 and 0.5% q/q in Q2. As such, the whole ECB medium-term view of robust, above consensus, structural recovery is being challenged by actual dynamics, which showed only a cyclical recovery in 2016-17, and is fading in 2018. Monthly data also suggests that activity was not showing signs of a pick-up either at the end of Q2, or at the beginning of Q3. EMU industrial production fell -0.7% m/m, upsetting consensus expectations and the EMU Composite PMI fell from 54.9 to 54.3, also undershooting market forecasts, and was at its lowest level since November 2016. On the inflation front, July’s Harmonised Index of Consumer Prices (“HICP”) inflation rose from 2.0% to 2.1% y/y, driven not only by energy prices, but also by an, albeit modest, bounce back in Core inflation from 0.9% to 1.1% y/y, a level still very distant from the ECB threshold. At the July policy meeting, the ECB was unwilling to make any change to the macroeconomic outlook which underpinned the June decision to likely end net bond purchases at the end of 2018, while keeping the current level of policy rates “through to the summer of 2019”. However, should the growth downshift also be confirmed by incoming data, the ECB should be forced to take account of it in the new macroeconomic projections, which it is likely to present at the 13 September policy meeting. Japan The Bank of Japan (“BoJ”) took half a step to move away from its yield control policy. It reaffirmed negative short-term rates, as well as the target for the 10 year of around zero. However, it widened the band in which it would allow the 10 year rate to vary to ± 0.20ppts. That was immediately tested, but the BoJ knocked that rate back down through asset purchases. It appears that the rate has settled at just above 0.10%, outside of the previous band, but well inside the new one. Normally, controlling long-term rates would be a dicey proposition; once markets sniff a change in the target is coming, it usually tests the central bank to push the outcome. Halfway measures, like the BoJ’s latest action, would normally be quite dangerous, but as this is Japan, its institutional structures and long-time tradition of private-public cooperation suggests that the BoJ can still muddle through. The latest activity data are mixed. Real GDP rose 1.9% at an annual rate in Q2, better than the previous two quarters. Personal consumption expenditure increased, while investment and net trade were drags. Industrial production, on the other hand, dropped sharply in June, with decreases posted in a number of manufacturing industries. The Economy Watchers survey fell again, and is at its lowest level in almost two years. The improvement in wages has not shown through to the broader inflation complex. Y/Y rates of increases in wage indexes moved up in May. The rate of increase in scheduled earnings remained relatively high in June. Broader indexes, which include bonuses accelerated further in June. But, the tenor of the consumer price inflation data has not changed. National core prices were unchanged again in June, while western core inflation, prices excluding all food and energy, slipped on a seasonally adjusted basis. Tokyo data, which lead the national data by a month, were somewhat better. They moved up for a second month after outright declines in spring. Consumer inflation expectations have generally moved sideways this year. The Company Secretary
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