Morning Note: Market news and an update on BH Macro.

Market News

Equity futures for the US and Europe retreated in a cautious start to the week after President Trump dialled up trade tensions by announcing a 30% tariff on goods from the EU and Mexico, citing their trade deficits with the US as a “major threat” to national security. The EU said it would extend its suspension of countermeasures until early August and continue to push for a negotiated settlement. The EU plans to team up with nations hit by tariffs and will reach out to Canada and Japan for possible cooperation, people familiar said.

Trump will announce a new plan to arm Ukraine that’s expected to include offensive weapons, Axios reported. The president said he’s very disappointed with Vladimir Putin, who “talks nice” and then “bombs everybody in the evening.” Emmanuel Macron plans to double France’s annual defence budget to €64bn by 2027 from when he took office in 2017.

The Q2 corporate earnings season kicks off this week with results from financials including JPMorgan, Wells Fargo, and American Express, as well as Experian, J&J, Assa Abloy, Richemont, and Atlas Copco.

Gold traded higher at $3,370 an ounce – Goldman Sachs is sticking with its bullish outlook as central bank buying continues. Silver prices climbed towards $39 per ounce, reaching their highest level in over 13 years. Bitcoin rose to a record $122k. Andrew Bailey cautioned banks against issuing their own stablecoins. Brent Crude moved back above $70 a barrel.

The FTSE 100 is currently 0.2% higher at 8,952, while Sterling trades at $1.3480 and €1.1535. The Labour government plan to spend millions on electric car handouts.

Source: Bloomberg

Fund Update – BH Macro

Diversification across asset classes is a critical element of managing your investments. At Patronus, when we construct a portfolio, we look to allocate a proportion of capital to so-called ‘anti-fragile’ investments that provide shelter in difficult times when other (‘fragile’) asset classes (such as equities and bonds) are struggling to a generate positive return. We believe BH Macro is one such investment.

BH Macro is a London-listed closed-ended investment company that invests substantially all its assets in the ordinary shares of $12bn Brevan Howard Master Fund. This is BH’s longest running fund and one of the most successful hedge funds of all time in terms of the absolute amount of money returned to investors.

Following the 2021 merger with BH Global (Brevan Howard’s other listed investment strategy), a larger, more liquid, entity with the same investment policy was created. There are sterling and dollar classes available and total company assets currently stand at around £1.6bn. Fund fees are made up of a fixed component (management fee and operational services fee) of 2% and a 20% performance fee subject to a high-water mark. For 2024, the fee was 2.95%.

The objective of the fund is to generate consistent long-term appreciation through active leveraged trading on a global basis. The fund pursues a multi-trader model that includes a combination of macro directional and macro relative value strategies which mainly focus on economic change, monetary policy, and market inefficiencies. Exposure is predominantly to global fixed income and currency markets, with peripheral exposure to other asset classes, such as equity, credit, and commodities. The fund seeks to achieve positive returns, uncorrelated with other markets and with low volatility. The underlying philosophy is to construct strategies, often contingent in nature, with superior risk/return profiles, whose outcome will often be crystallised by an expected event occurring within a pre-determined period of time.

The decision to hold the shares depends on whether the fund will provide capital protection during periods of market stress. In this regard, it has a good track record when equity markets are falling and has shown correlation with market volatility. Since inception in 2007 to the end of March 2025, in the 20 worst performing months for equities, the BH Macro share price has produced 16 positive monthly returns. Over the same period, the annualised NAV return is 8.3%, with volatility (i.e., annualised standard deviation of returns) of 8.1%.

Risk management has helped reduce the number and extent of negative outcomes. Risks are minimised by diversifying exposures, sensible trade construction, and strict stop-losses. As a result, capital has been protected when things have not gone the manager’s way and drawdowns have been significantly lower than other assets classes.

In 2020, the fund really proved its worth in the face of the challenges arising from Covid-19, with the NAV rising by 28% while the FTSE 100 fell by 11.6%. Again in 2022, when there was a marked pick-up in risk and volatility following Russia’s invasion of Ukraine, the fund generated another outstanding performance, rising by 22%, compared to an 8% decline in global equities in sterling terms and a 15% drawdown in UK bonds.

In the first half of 2025, the NAV fell by 0.34%, with the 5.35% decline in Q1 almost reversed in the second quarter driven by a strong uplift in April. Gains in equities, US rates, and emerging markets rates were offset by losses in currency trading and euro rates.

The share price fell by 3.3% in the first half of 2025. We would highlight that the BH Macro share price has been more volatile than the NAV, with significantly larger drawdowns – a risk of the investment trust structure. There are several reasons why the shares have moved from a premium to a discount over recent years.

Firstly, in February 2023, and in response to persistent requests from its shareholders, the company placed £312m of new Sterling shares to increase the liquidity of the stock and spread the company’s fixed costs over a wider base. However, the move caused some indigestion and the shares moved from a 19% premium to a substantial 19% discount at its low point in March 2024.

The overhang was exacerbated by the merger of two of the company’s largest shareholders, Rathbones and Investec. Although The Takeover Panel has given clearance that the combined entity is not under any obligation to make sales of the stock, it has gradually reduced its holding from 29% at the start of 2024 to 21% on 12 February 2025. We note there have been no sales since then.

At the same time, BH Macro is buying back its shares, an accretive move given the discount. During 2024, the company increased its Annual Buyback Allowance (ordinarily 5% of the shares) in respect of the year, allowing it to repurchase further shares without incurring the additional fees ordinarily payable to the manager under the Management Agreement. Since the programme was initiated, and up until 10 July 2025, the company has bought back 45.1m shares, 12.4% of the total.

The buyback has been accretive to the NAV to the tune of 1%. It has also had a positive impact on the size of the discount – moving from 19% to 8% – and the share price, which is 23% above the March 2024 low point. The shares currently trade on a 8% discount to NAV.

Another discount control mechanism is the Class Closure Resolutions which can be triggered if the average month-end discount to NAV for a share class exceeds 8% over a calendar year. At the EGM in February 2025, 98.22% of shareholders voted against the Sterling class closure (and 99.86% for the dollar class).

We remain very positive on the company given its portfolio diversification attributes at a time when the geopolitical and macro-economic outlook remain very uncertain and volatile. Clearly, the Trump presidency is a key driver, as the US looks to change almost every part of the post-Cold War international order, starting with trade, defence, and multilateral alliances. We believe this all provides a rich opportunity set for macro trading. Furthermore, the current 8% discount to NAV provides an added incentive to purchase the shares at this level.

Source: Bloomberg