BH Macro (BHMG)

10/04/2024

Results analysis from Kepler Trust Intelligence

BH Macro has reported a NAV total return of -1.81% for the sterling share class (BHMG) and -1.44% for the dollar share class (BHMU), for the financial year ending 31/12/2023. By the Chairman's admission, it was something of a "rollercoaster year", as the first half saw the NAV per sterling share down 6%, before a recovery in the second half.

Turmoil in rates markets in the first quarter contributed to the failures of Silicon Valley Bank and Credit Suisse. The Master Fund (in which BH Macro invests) was positioned for rising interest rates, but short rates fell sharply as the crisis unfolded (which the chairman of the board described as "the greatest reversal in interest rate expectations for 40 years"), negatively impacting returns. The risk management team eliminated these loss-making directional positions within two days.

The second half of the year was much better, and saw BH Macro recover most of the lost ground, delivering five positive NAV months out of six. The shares moved from a large premium to a discount over the year, contributing to a sterling share price return of -18.3% for 2023, and the discount to NAV finishing the year at 11.7%. Discounts across the sector have widened, but the NAV falls in Q1 2023 and fears of an overhang of stock following the merger of two of the trust's largest shareholders have also likely contributed.

In December, the board began a controlled buyback programme, and the discount marginally narrowed over the month. Buybacks have continued in 2024.

Chairman of the board, Richard Horlick, said: "The geopolitical and economic environment remains highly uncertain.  … In these circumstances, your board believes that the company represents an attractive diversifying investment uncorrelated to both bond and equity markets."

Kepler View

2023's result followed a stellar 2022 for BH Macro (BHMG). The buyback programme provides some support to the share price rating, although we note that the discount has widened this year to 17.7% at the time of writing. Perhaps more importantly for long-term holders, the NAV performance improved markedly over the second half of the year, and with central bank policy now the topic of constant debate, the market environment is arguably much more conducive for Brevan Howard's traders. We think it's important to note that BH Macro's excellent returns in 2022 came during a period of negative returns for equities and bonds, while 2023's more disappointing NAV returns came in the context of rallying equity markets, when one might argue that the diversifying features of the BH Macro proposition were less urgently needed.

BH Macro's share price has clearly been under pressure, partially due to fears of an overhang of stock. We think the strong track record of NAV returns, the uncorrelated source of returns and record as a portfolio diversifier make BH Macro an attractive proposition. While the discount may be uncomfortable to existing investors, we think it makes the shares look exceptionally attractive given the long-term strengths of the investment strategy.

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