Key Takeaways
- • BH Macro Limited posted 9.13% year-to-date returns as of June 2018, outperforming the flat FTSE 100 Index, with an 8% gain in May alone driven by volatility spikes tied to Italian political concerns, demonstrating the fund's responsiveness to market stress periods.
- • BH Macro trades at an 8-9% discount to net asset value, positioning it as a potential opportunity for investors seeking exposure to a macro-focused hedge fund strategy during periods of elevated uncertainty.
- • Brevan Howard's flagship macro strategy is being repositioned as portfolio insurance rather than a standalone return driver, according to BH Macro Chairman Huw Evans, acknowledging that the fund underperforms during extended low-volatility environments but provides downside protection when markets deteriorate.
- • Long periods of equity market calm have pressured Brevan Howard's macro fund performance, but rising geopolitical and market uncertainties are creating renewed opportunities for the strategy's core volatility-trading mandate.
Summary
Brevan Howard, once synonymous with the high-conviction macro hedge fund gains characteristic of the pre-2008 era, is attempting to reposition its flagship strategy amid a decade-long period of compressed volatility and historically accommodative monetary policy. The fund's recent performance resurgence—BH Macro Limited, the London-listed vehicle providing access to the Brevan Howard Master Fund, gained 8% in May 2018 and delivered 9.13% year-to-date returns—signals renewed investor interest in macro-oriented hedge funds as equity volatility resurfaces.
The May gains were catalyzed by market turbulence surrounding Italian political uncertainty, illustrating the fund's structural bet on stress regimes. BH Macro's year-to-date outperformance against the FTSE 100 Index, which remained flat since January 2018, underscores a widening performance gap between traditional equity benchmarks and alternative strategies designed to exploit volatility expansion. The fund's 8-9% discount to net asset value suggests potential value for investors despite its recent underperformance during the extended low-volatility bull market.
Huw Evans, chairman of BH Macro, articulated a strategic reframing of the fund's value proposition, arguing that investors should regard their exposure as portfolio insurance rather than a primary return driver. "They regard an investment in BH Macro as an insurance policy in the event that markets go down. Wealth managers, in particular, realise there will be rainy days at some point," Evans stated. This positioning acknowledges that the fund's underperformance during calm markets represents a drag on returns, but frames that cost as an explicit insurance premium paid for downside protection when systemic risk materializes.
The fund's recent revival reflects structural market shifts: after years of predictions that the equity bull market would terminate and central bank accommodation would normalize, volatility indicators have begun rising, creating the exact conditions macro managers have long anticipated. Whether Brevan Howard can sustain this performance inflection remains uncertain, but the spike in uncertainty around trade policy, monetary policy normalization, and geopolitical risks has provided the fund's first meaningful test of its volatility-harvesting mandate in several years.
The May gains were catalyzed by market turbulence surrounding Italian political uncertainty, illustrating the fund's structural bet on stress regimes. BH Macro's year-to-date outperformance against the FTSE 100 Index, which remained flat since January 2018, underscores a widening performance gap between traditional equity benchmarks and alternative strategies designed to exploit volatility expansion. The fund's 8-9% discount to net asset value suggests potential value for investors despite its recent underperformance during the extended low-volatility bull market.
Huw Evans, chairman of BH Macro, articulated a strategic reframing of the fund's value proposition, arguing that investors should regard their exposure as portfolio insurance rather than a primary return driver. "They regard an investment in BH Macro as an insurance policy in the event that markets go down. Wealth managers, in particular, realise there will be rainy days at some point," Evans stated. This positioning acknowledges that the fund's underperformance during calm markets represents a drag on returns, but frames that cost as an explicit insurance premium paid for downside protection when systemic risk materializes.
The fund's recent revival reflects structural market shifts: after years of predictions that the equity bull market would terminate and central bank accommodation would normalize, volatility indicators have begun rising, creating the exact conditions macro managers have long anticipated. Whether Brevan Howard can sustain this performance inflection remains uncertain, but the spike in uncertainty around trade policy, monetary policy normalization, and geopolitical risks has provided the fund's first meaningful test of its volatility-harvesting mandate in several years.
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