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
Northern Trust International Fund
Administration Services (Guernsey) Limited
bhfa@ntrs.com
+44 (0) 1481 745736
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