A fund that's never lost money in a calendar year – and you can buy at a discount

Investment trust bargain of the week: BH Macro goes against the crowd. Richard Evans investigates

By Richard Evans 29 September 2014 • 11:55pm

Private investors can’t normally put money into hedge funds and many would not want to, given their complexity and high costs. But there may be good reasons to take a different view at the moment.

One advantage a hedge fund has over a conventional unit or investment trust is that it can profit even when shares, bonds and other assets are all falling together. This is partly because hedge funds can “short-sell” and party because they can switch nimbly in and out of the more exotic assets such as commodities.

The ability to profit when most conventional assets are falling could appeal to those who fear an imminent “correction” in the stock market. One in this camp is Alan Brierley, an investment trust analyst at Canaccord Genuity, the City broker. He said the investment environment in recent years had been one in which “the authorities have successfully fuelled a surge in risk assets [such as shares]”. As a result, “the stock market is looking increasingly vulnerable to a correction”.

Investors could seek safety in an investment trust that invests in one of the world’s largest hedge funds. The BH Macro trust puts its money into the Brevan Howard hedge fund, which manages about $30bn (£18bn) and has never suffered a loss in any calendar year since its launch in 2002.

Most of its investments are in the bond and foreign exchange markets. Some of its investment decisions are driven by an analysis of the major forces in the global economy, others by exploiting differences in asset valuation. Recent performance has, in the words of the fund’s boss and co-founder, Alan Howard, been “somewhat disappointing”. He promised that in the future, “we will continue to press winners but recognise we must also focus on better protecting gains”.

Mr Brierley agreed, but expected “a more challenging market backdrop to be a fertile environment” for the fund managers thanks to the hedge fund’s tendency to move in the opposite direction to the stock market. He said: “We believe it has an important role to play in improving portfolio diversification.” He named the trust as one of his strongest “buy” recommendations among investment trusts.

Analysts at Investec, the rival broker, said: “If the rot has stopped, BH Macro looks an interesting opportunity. After all, this is the only realistic way for the average investor to access Alan Howard and his team.”

The trust is trading at a discount to the value of its assets of about 5pc. This means you are getting exposure to one of the world’s biggest hedge funds more cheaply than those who can invest in it directly.