Ubs global asset management


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Ubs global asset management

  1. 1. FOR PROFESSIONAL CLIENTS Multi-asset solutions ONLYNew Model Advisor 2012Solving the income puzzleMatt BanceStrategist, Global Investment SolutionsSeptember 2012
  2. 2. SECTION 1The client conundrum
  3. 3. Traditional sources of income remain under pressure Inflation above Bank Interest rate/yield (%) of England target Inflation (CPI) 8.0 MAI BoE Base Rate Bank rates remain at fund launch1 10 yr Gilt 7.0 historic lows Iboxx £ Non-Gilt 6.0 FTSE All-Share Yield Government bond and corporate bond yields 5.0 near record lows 4.0 Dividend yields rising from low levels 3.0 2.0 1.0 0.0 Dec- M ay- Sep- Jan- Jun- Oct- Feb- Jun- Nov- M ar- Jul-Source: Bloomberg, DataStream and ONS. 08 09 09 10 10 10 11 11 11 12 12Note: As at 31 August 20121 Retail share class became available 16 November 2009 2 21794
  4. 4. There’s no place like home?FTSE 100 - Dividend Concentration by Sector FTSE 100 - Dividend Concentration by Security 4 sectors out of 40 make up over 70% of dividends in Q1 2012 Top 15 companies contribute 87% of Q1 2012 dividends 1 Top 5 companies were: Vodafone, Cairn Energy, Royal Dutch Shell, AstraZeneca and HSBC Oil and Gas The rest Producers The rest 27% 12.8% 28% Next 10 Top 5 Banks 29.8% 57.4% 9% Mobile Telecoms 21% Pharmaceut icals & Biot echnology 15%Source: Capita Registrars UK Dividend Monitor Q1 2012 report. Data as at Q1 2012 Source: Capita Registrars UK Dividend Monitor Q1 2012 report. Data as at Q1 2012(latest available). 1 Top 15 companies in terms of dividend payouts 3 21794
  5. 5. SECTION 2What is the solution to the income conundrum?
  6. 6. Key consideration for income portfoliosAsset allocation across a broad investment universeDiversify across asset classes Combining different sources of income can generate more stable yields and lower price volatilityDiversify within asset classes Within one asset class, geographical diversification can also help to generate a more stable income and reduce volatilityConsider the need for inflation protection Acknowledgement of the erosion effects of inflationConsider the full range of investment opportunities Traditional asset classes, alternative asset classes, and altering the characteristics of asset classes to better suit the needs of an income driven investor, e.g. call overwritingActively manage asset allocation Dynamically manage allocations to capture most attractive income opportunities while minimising risk – no single asset class continuously offers the best risk-adjusted return 5 21794
  7. 7. Combining asset classes with inflation / incomecharacteristicsAsset classes across the total return risk spectrum offer different combinations ofincome and inflation protection HighHigh Equity¹ Commodities¹ Total return risk High Yield Low Investment Grade Income Real Estate Government Bonds Index Linked CashLow Inflation protection Low HighSource: UBS Global Asset ManagementNote: For illustrative purposes only1 Covered calls on equity/commodity portion 6 21794
  8. 8. Current investment strategyUBS Multi-Asset Income Fund Global Real Estate 24.00% 12.75% Index-Linked Bonds UK 36.50% 11.25% US Mortgage-Backed 5.00% Securities 5.00% Index-Linked Bonds 36.50% Global 8.75% EU US High Yield 8.75% 5.00% UK 9.75% 11.00%Source: UBS Global Asset ManagementNote: Data as at 31 August 2012 Investment Grade Bonds 25.75% 7
  9. 9. Asset allocation changes in the Multi-Asset Income FundMonthly strategy asset class weights of Multi-Asset Income Fund (UK) – Data to 31 August 2012 100% 90% 80% 70% 60% Weight 50% 40% 30% 20% 10% 0% Oct -09 Mar-10 Aug-10 Jan-11 Jun-11 Oct -11 Mar-12 Aug-12 Index-linked bonds Invest ment grade bonds High yield bonds Mort gage-Backed Securit ies Equit ies Real est at e Source: UBS Global Asset Management 8
  10. 10. A move up in yields is the biggest risk facing the FundWhile we are not expecting this to happen imminently, we are preparing the Fund forthis potential headwindYields are currently c1.7%. Our current fair value estimate for UK 10 year bonds is 3.7%, an increase of 2%. 0% -2% -4% Impact on Fund perf ormance -6% -8% -10% -12% -14% -16% -18% -20% 0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 1.50% 1.75% 2.00% 2.25% 2.50% Parallel shif t in yieldsNote: For illustrative purposes only as at 31 August 2012.Source: UBS Global Asset Management 9 21794
  11. 11. Where next?Balancing income needs with inflation and duration risks Commodities (with call overwriting programme) Insurance-linked bonds Bank loans Infrastructure 10 21794
  12. 12. Strong performance… ….but total returns tell just part of the story MAI (UK) accumulation share class 30% IMA Global Equit y IMA UK Equit y Income UBS Mult i Asset Income 25% 20% 15%Grow t h 10% 5% 0% Risk adjust ed Ret urn Risk ret urn 2 M ult i-Asset Incom e 16.8% 5.1% 3.3% -5% IM A UK Equit y Income 1.6% 21.2% 13.0% IM A Global Equit y Income 25.7% 12.4% 2.1% -10% Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul 09 10 10 10 10 10 10 11 11 11 11 11 11 12 12 12 12 Source: Lipper as at 31 August 2012. Performance is based on NAV prices (A Acc) with income reinvested net of basic rate tax and in Sterling terms. 1 Distribution yield 3.6% p.a. as at 31 August 2012. The yield figure shown is for the A Acc share class. The distribution yield reflects the amount that may be expected to be distributed over the next twelve months as a percentage of the current share price. The calculation does not include any preliminary charges and investors may be subject to tax on distributions. 2 Risk adjusted return calculated by dividing return by risk 11 21794
  13. 13. Generating a stable level of income in-line with the fund’s target above cash of 3%….. Gross dividend yields (12 months previous cash flow divided by current Fund price) 10% A decent level of income is important… 9% 8% 7%Gross dividend yield 6% 5% 4% 3% 2% 1% UBS Mult i Asset Income Fund A Fund B Fund C Fund D 1 year cash ret urn (LIBOR 1m) +3% 0% Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul 08 08 09 09 09 09 09 09 10 10 10 10 10 10 11 11 11 11 11 11 12 12 12 12 Source: Bloomberg and Datastream Note: Data as at 31 Aug 2012 12 21794
  14. 14. …without eroding the fund’s capital base Net of fees, UBS MAI has Income share class price performance delivered on its income 120 objective and more than kept …but it should not come at the expense of the fund’s capital base the value of its capital base 115 110 105Grow t h 100 95 90 85 UBS Mult i Asset Income Fund A Fund B Fund C Fund D 80 Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul 09 10 10 10 10 10 10 11 11 11 11 11 11 12 12 12 12 Source: Datastream Note: Data as at 31 August 2012 13 21794
  15. 15. UBS Multi-Asset Income Fund: summaryIncome target: one month Sterling LIBOR plus 3% net of fees1 UBS M ult i-Asset Incom e Fund Income paid quart erly – Current yield 3.6% p.a.2  M ult i-asset approach – broadly diversif ied  Disciplined asset allocat ion w it h a f ocus on higher yielding asset classes  Highly experienced t eam  Robust and consist ent invest ment philosophy  Comprehensive risk management  Core or complement ary holding  Compet it ive TER3 Source: UBS Global Asset Management.1 This target is not part of the fund’s stated investment objective or policy in its prospectus and is not guaranteed.2 Distribution yield 3.6% p.a. as at 31 August 2012. The yield figure shown is for the A Inc share class. The distribution yield reflects the amount that may be expected to be distributed over the nexttwelve months as a percentage of the current share price. The calculation does not include any preliminary charges and investors may be subject to tax on distributions.3 TER available on request 14 21794
  16. 16. APPENDIXAdditional asset class information and MAI tradeexamples
  17. 17. Where next? Commodities?Altering the characteristics of an asset class to make it attractive for incomeportfolios¹ Exposure to ‘real’ asset class Provides further diversification Returns linked to inflation: – Commodities = 24% of RPI basket – Commodities, such as oil and gas, are an input into almost all products and services Yield likely to rise if: Global Inflation economy becomes a starts to problem improve Commodities should do well1 Call overwriting on a commodity ETF – Internal approval would be required in advance of incorporating this strategy into the fund 16 21794
  18. 18. Where next? Insurance-linked securities?Income generation with low correlation to other asset classes Cashflows are dependent on the non-occurrence of a previously specified catastrophic event – For example an earthquake Earthquakes are uncorrelated with financial markets.Correlations across asset classes Cit igroup Barclays Sw iss Re World Invest m ent Barclays US Global Cat M SCI World Governm ent Grade Credit Treasury US FTSE EPRA Bond Index Index Bond Index Index TIPS REITsSw iss Re Global Cat Bond Index 1.00M SCI World Index 0.43 1.00Cit igroup World Government Bond Index 0.07 -0.28 1.00Barclays Invest ment Grade Credit Index 0.42 0.37 0.49 1.00Barclays US Treasury US TIPS 0.31 0.13 0.54 0.73 1.00FTSE EPRA REITs 0.34 0.73 -0.08 0.40 0.23 1.00 -1.0< 0 Correlations are in the range of -1 to +1 0<0.5 0.5<1.0 17 21794
  19. 19. Where next? Bank loans?As bank loans are linked to floating rates they have lower duration than high yield debt… andhistorically have had lower default rates and higher recovery ratesTrailing 12-Month Issuer-Weighted Default Rates Recovery Rates (Per $100 Par)¹ 18% 80 16% 70 14% 60 12% 50 10% USD 40 8% 6% 30 4% 20 2% 10 0% 0 Jan 96 Jan 99 Jan 02 Jan 05 Jan 08 Jan 11 May 07 May 08 May 09 May 10 May 11 May 12 US Loan Issuer Def ault Rat e US High Yield Debt Issuer Def ault Rat e US Loans US High Yield DebtSource: Moody’s (to 31/07/12)1 Measured by bond prices taken one month after default 18 21794
  20. 20. Mortgages – maybe a less familiar investment in the UK but… … at 31%1, securitised products represents the second largest sector of the US fixed income market only behind the US treasury market If the MBS market was a sovereign, how would it stack up? Most MBS are guaranteed and/or issued by a 14 US government agency Guarantees implicitly or explicitly backed by 12 the full faith and credit of the US Government 10 Bespoke portfolio managed by a specialist UBS team in the US 8 (USDt n) Portfolio composed of high quality commercial and residential mortgages 6 Portfolio targets 4% income with zero duration 4 2 0 Japan USA US MBS It aly UK1Source: Datastream as at 30 June 2012 As at 30 June 20122Source: SIFMA as at 30 June 2012 Source: Bloomberg/SIFMA 19 21794
  21. 21. Trade example: index-linked giltsIf the fund doesn’t need to bear high risk to achieve its targets, it doesn’t…Asset class performance October 2010 – June 2012 Observation 130 We believed that inflation data was likely to remain ‘sticky’ in the UK. We also expected the UK to 125 increasingly become a destination for Eurozone 120 outflows on account of the Eurozone debt crisis. 115 Action 110 Increased allocation from 3% to a peak of 39% in September 2011. 105 Outcome 100 Not only did index-linked gilts perform very strongly 95 but they provided the fund with good diversification 90 benefits and a degree of inflation protection. 85 Oct 10 Feb 11 Jun 11 Oct 11 Feb 12 Jun 12 I-L gilt s Corporat e bonds UK REITs S&P 500 I-L gilt s allocat ion increasesSource: Datastream 20 21794
  22. 22. Trade example: equities into fixed incomeReducing equities in Q3 2010 & putting proceeds into fixed income – achievingincome objective with minimum level of riskBalancing income needs with capital volatility Observation: 140 After benefitting from equity exposure in the year to High Yield +15% Investment Grade +11% October 2010, the steepness of the yield curve (the difference between short term and long term rates) 130 Equities -24%, was such that we felt that we no longer needed to Index-linked gilts -1%, bear equity risk to achieve the fund’s income target REIT’s -1% 120 Action We further invested in corporate bonds and high yield 110 debt by significantly reducing the fund’s equity exposure 100 Outcome A smoothed client experience and strong 90 performance, satisfying income objectives with low levels of capital volatility 80 Oct 09 Feb 10 Jun 10 Oct 10 Feb 11 Jun 11 MSCI World High Yield Invest ment GradeSource: Bloomberg/UBS Global Asset Management 21 21794
  23. 23. Trade example: intra-investment grade bondsPreference for US over European investment grade bonds in 2011Observation 70 In 2011 we noticed that there was no discernible difference between pricing of European and US 60 investment grade bonds which seemed anomalous given the uncertainty within the Eurozone at the 50 European credit time weaken versus US Spread (bps)Action 40 Sold all European investment grade bonds and 30 replaced them with US and UK exposureOutcome 20 The fund did not carry unnecessary high levels of risk from European exposure when holdings in US 10 and UK investment grade bonds provided a similar return at a lower level of risk. 0 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 European credit spreads minus US credit spreads Trade init iat ion Trade close Source: Bloomberg (data to 31 March 2012) 22
  24. 24. APPENDIXPhilosophy and process
  25. 25. UBS Multi-Asset Income FundFund detailsFund nam e: UBS M ult i-Asset Income FundYield t arget : 1 mont h LIBOR +3% net of f ees¹Dist ribut ion yield: 3.6% 2Underlying yield: 1.7% 2Fund size: £32.5m 2Launch dat e: 30 Oct ober 2009 (Ret ail Share class 16 November 2009)Sect or: IM A M ixed Invest ment 20-60% SharesBase currency: GBPSubscript ions/Redem pt ions: Daily3Sedol codes: B4S2TV94 B4V91K05ISIN: GB00B4S2TV984 GB00B4V91K055Incom e dist ribut ion: Quart erlyFund charges6: Init ial charge 4.0% Commission 3.0% Annual charge 1.25% Trail 0.5%Dealing closing t im e and valuat ion point : 12 noonM inim um invest m ent : £1,000 lump sum(f or A Shares) £50 per mont hISA opt ion: YesISA t ransf er: Yes1 The investment manager’s target income is one month sterling LIBOR plus 3% net of fees. This target is not part of the fund’s stated investment objective or policy in its prospectus and is notguaranteed2 As at 31 August 2012.3 Swing pricing applies to all daily subscriptions and redemptions except those of the last day of the calendar year, when swing pricing will be waived to ensure maintenance of the foreseen valuepreservation level.4 A Shares accumulation (net)5 A Shares income (net)6 Fund charges relate to OEIC and ISA investments for the A Share class 24 21794
  26. 26. Asset Allocation investment process PhilosophyProcess-driven approach: Disciplined, accountable, repeatable, continuous Market developments Valuation Trades Market behaviour analysis Portfolios Cyclical Market Forum Idea Monitoring Generation Portfolio Debate & Construction Analysis Risk capital allocation Scenario analysis Trade sponsorship Correlation analysis Stress testing Trade co-sponsorship 25
  27. 27. Proposing a trade – a team driven processMoving from a trade idea to a portfolio position Idea generation Information gathering Valuation Market behaviour analysis Cyclical Market Forum Decision- José Risk Andreas Jon Jonathan AA/C making Koester Adams Antonio Iain Barnes Davies Keiko Kondo Strategists Management forum Blanco team Trade tracker ‘menu’ Sponsor – Proposes trade – Defends trade to group Co-sponsor – Needs to be found to endorse trade idea Once endorsed, trade milestones and review levels are set and trade becomes part of trade tracker ‘menu’ Sponsor and co-sponsor remuneration connected to performance of trade 26 21794
  28. 28. Portfolio construction PhilosophyNamed portfolio manager selects sponsored trades for portfolioTrade tracker ‘menu’ Sponsored trade Portfolio manager Allocates risk to sponsored trades from ‘menu’ Sponsored trade Sponsored trade Fund objectives Multi-Asset Income Sponsored trade Feasibility Fund Conviction Sponsored trade Sponsored trade Risk Management team Assess risk impact of trades Sponsored trade on portfolio 27 21794
  29. 29. Global Investment Solutions Global Investment Solutions Business Management Curt Custard Assistant Patrick Hurless S. Kalsi / T. Hill-Davis Stefan LecherStrategic Investment Risk Strategists Asset Allocation Portfolio Structured Alpha Synthesis InvestmentInvestment Solutions & Currency Engineering Solutions AnalyticsAdvisoryCharlie Service Rich Kiel Stefan Lecher Andreas José Antonio Richard Lloyd Mabel Lung Patrick HurlessJ. Ledford E. Beekman M. Bance Koester Blanco M. Berchier D. Clarke E. Bauersachs1A. Malovance M. Deans E. Bang J. Adams D. Alonso L. Browne D. Comer N. Haja1J. Nager A. Fishman L. Finney I. Barnes J. Andres Y. Hino J. Corcoran J. Hill1N. Olympio S. Kessler D. Fischer D. Birkenkamp B. Baertsch J. Holt M. Franchi N. LukinF. Pellerin B. Malinovic S. Friel J. Broadbent M. Bicheler T. Oesch J. Ge M. Lacy1F. Zumstein A. Perilla B. John J. Davies P. Bonvin M. Purtschert F. Lee M. Madhavan1 I. Pouchkarev M. Richards M. Gambera M. Both J. Russo M. Maldonado M. Padden1 G. Schwarz M. Rider G. Graff R. Brupbacher C. Wolff C. Miller G. Province1 D. Rudis K. Kondo P. Dutli J. Neisewander F. Rajkovic1 J. Saxon G. Murray V. Duval R. O’Connell M. Wallace M. Schaffner M. Quaife A. Eckmann A. Prewitt J. Zhang1 D. To T. Rivers D. Hayley-Barker M. Price L. Yura J. Tang R. Hellstrand V. Russo K. Watson L. Henzen M. Ryan P. Weller D. Locher M. Stavropoulou D. Lutz L. Vasquez U. Sperl S. SteibAs of September 20121 Does not reflect reporting line 28 GEN0190n.ppt
  30. 30. Important informationThis document is for Professional Clients only. It is not to be distributed to or relied upon by Retail Clients under anycircumstances.Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as upand are not guaranteed. Investors may not get back the amount originally invested. Changes in rates of exchange may cause the valueof this investment to fluctuate.The Fund will use derivatives as part of its investment capabilities which will include short positions. These instruments carry a materiallevel of risk and the Fund could be potentially exposed to enhanced/magnified falls, should the market move against them. The Fund isalso subject to counterparty risk. As the annual management fee of the Fund is charged to capital, the potential capital growth of theFund will be reduced.This document is a marketing communication. Any market or investment views expressed are not intended to be investment research.The document has not been prepared in line with the FSA requirements designed to promote the independence of investmentresearch and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The informationcontained in this document should not be considered a recommendation to purchase or sell any particular security and the opinionsexpressed are those of UBS Global Asset Management and are subject to change without notice. Furthermore, there can be noassurance that any trends described in this document will continue or that forecasts will occur because economic and market conditionschange frequently.Issued in September 2012 by UBS Global Asset Management (UK) Ltd, a subsidiary of UBS AG, 21 Lombard Street, London EC3V9AH. Authorised and regulated by the Financial Services Authority. Telephone calls may be recorded. © UBS 2012. The key symbol andUBS are among the registered and unregistered trademarks of UBS. All rights | 0800 587 2111 29 21794