Morning Note: Market News and an update on BH Macro
Market News
President Trump said he had a “wonderful” call with Narendra Modi in a move that offers to ease tariff tensions. Microsoft will invest $30bn in the UK through to 2028 to expand AI infrastructure, while GSK will invest $30bn in R&D and manufacturing in the US over next five years.
House Republicans unveiled a stopgap spending bill to keep the government open until mid-November, but it may need Democratic votes to pass before an October 1 shutdown deadline.
French PM Sebastien Lecornu will meet with Socialist party leaders today for budget talks. He’s expected to court the party’s top brass with new proposals that could include some iteration of a wealth tax.
Ahead of tonight’s US interest rate decision, Treasuries were mostly firmer with yields down at the short end. The 10-year currently yields 4.03%. Having breached the $3,700 an ounce barrier yesterday, gold has drifted back to $3,666. Brent Crude rose to $68 a barrel, with the focus on Russian supply risks.
US equities edged lower last night – S&P 500 (-0.1%); Nasdaq (-0.1%) – and were mixed this morning in Asia: Nikkei 225 (-0.3%); Hang Seng (+1.7%); Shanghai Composite (+0.3%). China tech stocks surged to their highest level in almost four years on AI optimism, led by Baidu.
The FTSE 100 is currently little changed at 9,208. Sterling remained steady at $1.3640 and €1.1505 following the release of inflation figures for August. CPI held steady at 3.8%, in line with expectations. The core figure was 3.6%, still well above the 2% target, strengthening the case for the Bank of England holding interest rates at 4.0% when the Monetary Policy Committee meets next week. 10-year gilts currently yield 4.62%.
Source: Bloomberg
Alternative Investment Update – BH Macro
BH Macro has today released its Interim Report and Unaudited Financial Statements for the period ended 30 June 2025.
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 £1.5bn. 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, commodities, and digital assets. 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 July 2025, in the 20 worst performing months for equities, the BH Macro share price has produced 17 positive monthly returns. Over the same period, the annualised NAV return is 8.2%, 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 gone against the manager 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.
So far in 2025, performance has remained within the expected range of returns. In the year to 12 September, the NAV was up 0.54%, with the 5.35% decline in Q1 recovered later in the year. However, despite the flat performance so far this year, the fund did its ‘job’ in April when the market was thrown around by President Trump’s ‘Liberation Day’ measures. The 4.44% increase in the Sterling NAV once again illustrates the fund’s ‘anti-fragile’ characteristics.
The share price has fallen 3.7% so far this year. We would highlight that over time 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 20% on 4 August 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 16 September 2025, the company has bought back 51.7m shares, 14.3% 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 10% – and the share price, which is 20% above the March 2024 low point. However, with the shares still trading on a large discount, the board has said it recognises the need to attract new investors to the company.
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). If the crossing of the 8% threshold at the end of 2025 triggers another vote, the directors, having consulted regularly with the company’s broker, have no reason to believe at the current time that there would not be a similarly high level of shareholder support for the company as at the 2025 class closure meetings.
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. President Trump’s administration continues to pursue policies which have set it apart from the consensus of recent decades, while the geopolitical situation remains tense. We believe this all provides a rich opportunity set for macro trading. Furthermore, the current 10% discount to NAV provides an added incentive to purchase the shares at this level.
Source: Bloomberg
