Morning Note: Market News and an Update from BH Macro.

Market News

Volatility shows little signs of easing as concerns that President Donald Trump’s fast-evolving trade policy is not only shaking the global economy but threatening the US status as the world’s safe haven.

At the end of last week, there was a report that a Federal Reserve official said the central bank is ready to help stabilise markets, if needed. US 10-year yields came well off Friday’s highs – currently 4.46% – but saw their biggest weekly surge in over two decades. The dollar continues to drift lower; gold currently trades at $3,230 an ounce.

In Asia this morning, stocks advanced after President Donald Trump paused import duties on a range of consumer electronics, lifting sentiment, though he indicated a specific tariff will be announced in due course: Nikkei 225 (+1.2%); Hang Seng (+2.1%); Shanghai Composite (+0.8%). Equity-index futures rose in the US – the S&P is currently expected to jump by 1.3% at the open this afternoon. The FTSE 100 is currently 1.5% higher at 8,085.

China’s exports rebounded 12.4% in dollar terms in March, ahead of the massive tariff hikes imposed against it by the US. Economists expected a 4.6% gain.

This week is a busy one for corporate earnings and macro data. Q1 results will be released by Goldman Sachs, J&J, Netflix, Heineken, ASML, and Citigroup. Investors will see looking for comments on the early impact of the recent turmoil.

The UK passed an emergency bill to take control of its last primary steel manufacturer, while Business Secretary Jonathan Reynolds said full nationalisation of British Steel is still “the likely option.” Sterling trades at $1.3160 and €1.1540.

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 Brevan Howard Master Fund. 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 strategies mainly focus on economic change, monetary policy, and market inefficiencies. Exposure is predominantly to global fixed income and currency markets, employing a combination of macro and relative value trading strategies. 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 2024, in the 20 worst performing months for equities, BH Macro has produced 18 positive monthly returns. Over the same period, the annualised NAV return is 8.6%, 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 quarter of 2025, the NAV declined by 5.35%, with losses in fixed income, currency, and digital asset trading, more than offsetting gain in equity and commodity trading. However, in the first four days of April, the fund recovered 3.53%, to year-to-date (4 April) decline at 2.01%.

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.

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.

At the same time, BH Macro has started to buy 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 7 April 2025, the company has bought back 39.4m shares, 11.5% 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 6% – and the share price, which is 26% above the March 2024 low point.

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. Clearly, the new 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 discount to NAV provides an added incentive to purchase the shares at this level.

Source: Bloomberg