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  • The primary determinant of client outcomes is not manager selection, but the behavior of the client themselves. You can create a portfolio of five star managers and end up with a two star client outcome, simply because investors oftentimes get fearful during inevitable periods of tough performance, and sell at the worst possible times. I believe we can help modify investor behavior so that investors can stick with their investment portfolio and achieve their goals. If investors invest in diversified portfolios where total portfolio risk is understood and compensated, thereby creating a lower-volatility portfolio, then they will be able to stick with their investments. UBS Global Asset Management has a 28-year investment process and offers institutional-quality strategies, such as UBS Global Allocation Fund, that allow Financial Advisors to spend less time managing managers and more time coaching, leading and educating clients to help them stick with their investments. Let our resources be your resources.
  • The primary determinant of client outcomes is not manager selection, but the behavior of the client themselves. You can create a portfolio of five star managers and end up with a two star client outcome, simply because investors oftentimes get fearful during inevitable periods of tough performance, and sell at the worst possible times. I believe we can help modify investor behavior so that investors can stick with their investment portfolio and achieve their goals. If investors invest in diversified portfolios where total portfolio risk is understood and compensated, thereby creating a lower-volatility portfolio, then they will be able to stick with their investments. UBS Global Asset Management has a 28-year investment process and offers institutional-quality strategies, such as UBS Global Allocation Fund, that allow Financial Advisors to spend less time managing managers and more time coaching, leading and educating clients to help them stick with their investments. Let our resources be your resources.
  • Allocating assets properly across stocks, bonds and cash is a critical element of any successful investment program. In 1986, our groundbreaking research examined the performance of 91 large pension funds. The study concluded that, on average, more than 90% of the variation in portfolio performance could be attributed to asset allocation. Investors should take away three key lessons from this important study: Focus on asset allocation. It determines over 90% of the variance in a portfolio’s return. Don’t just chase the “hottest” stocks. (Security selection determines only a small portion [5%] of performance.) Besides, today’s bright stars may quickly fade and become tomorrow’s lackluster performers. Don’t try to time the market . (Only 2% of a portfolio’s return depends on market timing.) With wide daily market fluctuations, one can never be sure which way stock prices will go.
  • The primary determinant of client outcomes is not manager selection, but the behavior of the client themselves. You can create a portfolio of five star managers and end up with a two star client outcome, simply because investors oftentimes get fearful during inevitable periods of tough performance, and sell at the worst possible times. I believe we can help modify investor behavior so that investors can stick with their investment portfolio and achieve their goals. If investors invest in diversified portfolios where total portfolio risk is understood and compensated, thereby creating a lower-volatility portfolio, then they will be able to stick with their investments. UBS Global Asset Management has a 28-year investment process and offers institutional-quality strategies, such as UBS Global Allocation Fund, that allow Financial Advisors to spend less time managing managers and more time coaching, leading and educating clients to help them stick with their investments. Let our resources be your resources.
  • Trade diversification Directional vs. intramarket – trades should benefit from both absolute market direction as well as relative discrepancies across markets Need an appropriate balance of directional and intramarket trades Time horizon – need the appropriate balance between short-term, medium-term and long-term trades Need to harvest new ideas as profitable trades are unwound (3 x 3 debate) Economic scenarios – portfolio should be tilted with trades that benefit from the baseline scenario but should also incorporate trades from risk and outlier scenarios Portfolio composition will change as global macroeconomic outlook changes
  • Broadly diversified in terms of asset classes, across sectors and geographically Clear investment parameters Active asset allocation People Deeply resourced and experienced team across asset allocation, currency allocation and risk management Process Robust and time-tested Accountability at every stage Leverages UBS’s expertise in alternative asset classes Integrated risk management process Performance Established track record in asset allocation, currency allocation and risk management
  • Bank rates remain at historic lows – lowered to 0.5% at BoE MPC meeting on 5 th March 2009. UK government bonds remain under close attention from investors Levels of retirement income from annuities have now dropped for three consecutive years (see below) Corporate Bond spreads have tightened as a wall of money flowed in the hunt for yield UK Equity dividends remain low and concentrated- BP’s cancelled dividend exceeds entire FTSE 250 distribution (Source Capita Registrars UK Dividend Monitor – Issue 5 Q4 2010. Inflation continues to provide a threat to investor income More on annuities… Average rates for both males and females aged 65 purchasing a standard level without guarantee annuity, based on a £10,000 purchase price, fell by 2.7 per cent in 2010 (Moneyfacts) the third consecutive annual fall for annuity rates. Three factors exerting downward pressure on rates: Record number of individuals turning 65 this year (2011) Need for insurance companies to set aside more capital to back annuities in anticipation of new European rules on solvency levels, Solvency II. Life expectancy is still increasing – reducing the annual amounts that annuity providers can commit to paying each year. N.B. Age 75 rule is set to be scrapped from April ‘11, giving retirees more flexibility over the use of their pension savings. Wealthy pensioners who can prove they will have an income of at least £20,000 a year – and therefore not need state benefits – are expected to be able to take advantage of these freedoms. Spreads have tightened since peaks in 2008, bank rates low
  • Broadly diversified in terms of asset classes, across sectors and geographically Clear investment parameters Active asset allocation
  • Euro break-up – the consequences 􀂄 The Euro should not exist (like this) Under the current structure and with the current membership, the Euro does not work. Either the current structure will have to change, or the current membership will have to change. 􀂄 Fiscal confederation, not break-up Our base case with an overwhelming probability is that the Euro moves slowly (and painfully) towards some kind of fiscal integration. The risk case, of break-up, is considerably more costly and close to zero probability. Countries can not be expelled, but sovereign states could choose to secede. However, popular discussion of the break-up option considerably underestimates the consequences of such a move. 􀂄 The economic cost (part 1) The cost of a weak country leaving the Euro is significant. Consequences include sovereign default, corporate default, collapse of the banking system and collapse of international trade. There is little prospect of devaluation offering much assistance. We estimate that a weak Euro country leaving the Euro would incur a cost of around EUR9,500 to EUR11,500 per person in the exiting country during the first year. That cost would then probably amount to EUR3,000 to EUR4,000 per person per year over subsequent years. That equates to a range of 40% to 50% of GDP in the first year. 􀂄 The economic cost (part 2) Were a stronger country such as Germany to leave the Euro, the consequences would include corporate default, recapitalisation of the banking system and collapse of international trade. If Germany were to leave, we believe the cost to be around EUR6,000 to EUR8,000 for every German adult and child in the first year, and a range of EUR3,500 to EUR4,500 per person per year thereafter. That is the equivalent of 20% to 25% of GDP in the first year. In comparison, the cost of bailing out Greece, Ireland and Portugal entirely in the wake of the default of those countries would be a little over EUR1,000 per person, in a single hit. 􀂄 The political cost The economic cost is, in many ways, the least of the concerns investors should have about a break-up. Fragmentation of the Euro would incur political costs. Europe’s “soft power” influence internationally would cease (as the concept of “ Europe” as an integrated polity becomes meaningless). It is also worth observing that almost no modern fiat currency monetary unions have broken up without some form of authoritarian or military government, or civil war.

Ubs   nma presentation final Ubs nma presentation final Presentation Transcript

  • Multi-asset investing in an uncertain world 12 January 2012 David Buckle FOR PROFESSIONAL CLIENTS ONLY Multi-asset solutions
  • SECTION 1 The case for multi-asset investing
  • The challenges of an uncertain world
    • Global macro concerns
      • Will the Euro survive?
      • Is the Chinese growth story over?
      • Will US growth continue?
    • Closer to home…
      • Negative real yields
      • Fiscal austerity
      • Eurozone fallout
    • Demise of the ‘safe haven’ asset?
    … but investors still need to achieve their investment goals Setting the scene
  • Using a multi-asset approach to navigate volatile markets
    • Allocate assets across a global opportunity set
    • Adjust portfolios in response to changing market conditions
    • Make risk management a part of every investment decision
    • Don’t underestimate the impact of costs
    Multi-asset portfolios can offer a smoother ride Important considerations
  • Asset allocation is primary determinant of returns
    • Asset mix decision:
      • primary determinant of returns in long term
    • Active decisions:
      • Can generate additional returns
      • Can help to control risk
      • Can help to navigate volatile markets
      • Can be used to achieve a targeted outcome
    1 Gary P. Brinson, L. Randolph Hood and Gilbert L. Beebower, “Determinants of Portfolio Performance,” The Financial Analysts Journal, July/August 1986; and Gary P. Brinson, Brian D. Singer and Gilbert L.Beebower, “Determinants of Portfolio Performance, II: An Update,” The Financial Analysts Journal, May/June 1991. UBS asset allocation study: contribution to returns Strategic asset allocation can help manage risk and smooth returns Other 2.1% Security Selection 4.6% Allocation Policy 91.5% Market Timing 1.8% Asset
  • Tactical decisions can enhance returns Source: Gilts: FT Over 15 year Gilt Index sourced from Mellon. US Equities: S&P 500 index sourced from Lipper. Corporate Bonds: Iboxx Sterling non-Gilt All Stocks index sourced from Mellon. UK Equities: FTSE All Share index sourced from Mellon. Overseas Bonds: Datastream. Real Estate: Investment Property Forum Consenus Forecasts released on 24 November 2011. Emerging Markets Equities: MSCI Emerging Markets index sourced from Lipper. All data for 2011 to 31 December 2011 except Real Estate as noted. TOP BOTTOM Position Movement of UK Equities returns No single asset class delivers consistent top performance
  • Tactical decisions can also help to control risk Asset classes do not have stable correlations over time Source: DataStream (local currency, total return indices) Note: Rolling 24 month correlations (31/12/90 – 31/10/11) Rolling 24 month correlations with UK government bonds
  • Cost is another significant determinant of investor returns Source: UBS Global Asset Management, Datastream Note: As at 30 November 2011. Portfolio consists of 65% FTSE All-Share (total return) and 35% FTSE British Government All-Stocks Index (total return). Assumes starting value of £100 with monthly contributions of £100. Since 1976, a fund with a TER of 2.4% would leave an investor contributing £100 a month with just 70% of the value of an identical fund with a TER of 1.1%
  • The importance of multi-asset investing
    • The world is uncertain
    • Take a diversified, multi-asset approach
    • Dynamically manage to adapt to rapidly changing market conditions
    • Understand the impact of costs on overall performance
    • Funds available for different target outcomes:
      • Income: UBS Multi-Asset Income Fund
      • Capital growth: UBS Global Diversified Fund
    US-R Investors need a flexible approach to navigate volatile markets
  • SECTION 2 UBS – multi-asset specialists
  • A ‘lost’ period for equities but… … not for UBS multi-asset strategies Long-term performance vs. equity indices, 2000 – 2011 Source: UBS Global Asset Management, as at 30 November 2011 Note: Past performance is not a guarantee for future returns. GSP is a multi-asset composite. Total return over period UBS GSP 96.2% HFRI FoF Index 48.1% MSCI World USD 9.2%
  • Building a diversified portfolio
    • 112 employees across the world; multi-asset portfolio managers on 3 continents
    • 15 PhDs and 66 professional designations spanning investing disciplines
    USD 97.5bn assets under management Trade ideas Trade ideas Trade ideas Trade ideas Trade ideas Portfolio Construction Objectives Regulations UBS multi-asset funds Portfolio Manager
    • Trade selection
    • Oversight
    Risk Management team
    • Oversight
    • Allocation advice
    UBS multi-asset team Source: UBS Global Asset Management.
  • SECTION 3 Introducing the UBS Global Diversified Fund
  • What is the UBS Global Diversified Fund?
    • The UBS Global Diversified Fund offers lower cost access to long-term capital growth by allocating to a diversified mix of asset classes
    • Global diversified growth strategy
    • Long-term exposure to multiple asset classes, including alternatives
    • A more sophisticated investment choice than traditional balanced funds
    • Cost efficient:
      • RDR share class: 0.4% p.a.
      • Retail share class: 0.9% p.a. (including 0.5% p.a. annual commission)
    • Targets two-thirds of equity market returns with half the volatility
    Key characteristics Addressing clients’ evolving needs
  • Targeting an efficient risk/return profile through diversification Source: UBS Global Asset Management. Note: The risk and return expectations are based on the long term equilibrium assumptions used in our Strategic Analysis and Risk Tool. We would expect market returns and volatility to trend towards these levels over many years, but the return and volatility experienced in any specific time period may differ substantially from these figures. UBS Global Diversified Fund: Expectations of risk and return
  • A diversified offering and approach to managing portfolios Emerging market equities Emerging market equities Developed equities Government bonds Diversification is achieved on many levels Investment grade credit Property Commodities Hedge funds By asset class By trade type/horizon By source of return By region High yield credit UK US Europe Asia Emerging Markets Strategic allocation Tactical asset allocation Active currency management Relative value Time horizon Economic scenario Directional
  • UBS Global Diversified Fund Cash² Equities Up to 60% Bonds Up to 100% Alternatives¹ Up to 40% Source: UBS Global Asset Management Note: As at 31 December 2011 . Current indicative ranges - ranges will be reviewed periodically as new asset classes become available or the investable universe changes. 1 Alternative asset classes as defined by UBS Global Asset Management. 2 Cash exposure includes combination of physical and synthetic cash Market exposures Current market exposures: incorporating tactical views
  • UBS Global Diversified Fund Source: UBS Global Asset Management. 1 Based on key decision makers within the Asset Allocation & Currency team Summary of opportunity
  • SECTION 4 Introducing the UBS Multi-Asset Income Fund
  • Traditional sources of income remain under pressure
    • Inflation above Bank of England target
    • Bank rates remain at historic lows
    • Government bond yields low
    • Corporate bonds – spreads are volatile
    • Annuity rates – under pressure
    • Dividends rising from low levels
    Interest rate/yield (%) Source: Bloomberg, DataStream and ONS. Note: As at 07 December 2011 1 Launched 16 November 2009 MAI fund launch 1
  • UBS Multi-Asset Income Fund
    • Diversification across asset classes
    • Combining different sources of income can generate more stable yields and lower price volatility
    • Diversification within asset classes
    • Within one asset class, we seek geographical diversification so as to generate a more stable yield
    • Offering potential for inflation protection
    • Inclusion of real rate / index-linked government bonds component to reduce exposure to inflation risk
    • Enhancing income from equities by the use of covered call options
    • Selling potential upside from rising equity markets generates additional income
    Asset allocation actively and dynamically set towards higher yielding asset classes, taking into consideration diversification
  • Current investment strategy Source: UBS Global Asset Management Note: Data as at 31 December 2011 UBS Multi-Asset Income Fund High Yield 8.75% Real Estate 24.00% Investment Grade Bonds 27.75% Index-Linked Bonds 39.50%
  • UBS Multi-Asset Income Fund: summary Current yield of 4.8% p.a. 1 Source: UBS Global Asset Management. 1 Distribution yield 4.8% p.a. as at 31 December 2011. 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 TER available on request
  • SECTION 5 Appendix
  • UBS Global Diversified Fund 1 Swing pricing applies (see prospectus for details). 2 A Shares accumulation (net) 3 K Shares accumulation (net) 4 R Shares accumulation (net) 5 Fund charges relate to OEIC and ISA investments for the A Share class and R Share class Fund details
  • UBS Multi-Asset Income Fund 1 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 not guaranteed 2 As at 31 December 2011. 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 value preservation 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 Fund details
  • Asset allocation changes in the Multi-Asset Income Fund Monthly strategy asset class weights of Multi-Asset Income Fund (UK) – Data to 31 December 2011 Source: UBS Global Asset Management
  • Our commitment to you
    • Offering you support
      • Quarterly overview / investor report (suitable for Retail Client use)
      • Quarterly fund update in a webinar format
    • Materials available
      • Client brochure
      • Client factsheet
      • Suitability report (for Adviser use only)
    Fund brochure (in-depth overview) Suitability report (for Adviser use only) Monthly factsheet
  • Europe: Time to decide to break up or not break up?
    • Either the current structure will have to change, or the current membership will have to change
    • The cost of a weak country leaving the euro is significant
    • The economic cost is, in many ways, the least of the concerns investors should have about a break-up
    • Recent talks about the possibility of a revised treaty
    Source: UBS Investment Bank, 6 September 2011, UBS Global Asset Management Under the current structure and with the current membership, the euro does not work
  • Asia: Can China avoid a hard landing? Japanese growth extrapolation proved too optimistic Source: Datastream, UBS Global Asset Management Ballooning investment spending in China Source: Datastream, UBS Global Asset Management Market extrapolation high growth rate Here is what actually happened United States Japan
  • US: Starting the slowing cycle from a weak position …… and a bigger negative output gap Source: UBS Global Asset Management, as of 30 November 2011 The US starts a slowdown from a: … ..higher US unemployment rate Source: UBS Global Asset Management, as at 30 November 2011
  • We are not currently positive on equities Source: UBS Global Asset Management 1 Applicable to global equity only 30 November 2011 Fund Manager Position 1 Earning Revision Economic Surprise Index 1 Monetary Policy Support Stress Index 1 Fed Model Valuation ValMod Economic Cycle Valuation Market Behavior Equity Positive Equity Negative Equity Neutral Recession Recovery Slowdown Expansion
  • Credit remains attractive Source: Datastream, Moody’s, UBS Global Asset Management As of 31 October 2011 US High Yield US-I
  • Index-linked gilts look attractive relative to nominal bonds Source: Datastream, UBS Global Asset Management. Note: Data to 30 November 2011 UK inflation and 10 year breakeven inflation rates Range-bound nature of breakeven inflation
  • Important information
    • This document is for Professional Clients only. It is not to be distributed to or relied upon by Retail Clients under any circumstances.
    • Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and are not guaranteed. Investors may not get back the amount originally invested. Changes in rates of exchange may cause the value of this investment to fluctuate.
    • The Fund will use derivatives as part of its investment capabilities which will include short positions. These instruments carry a material level of risk and the Fund could be potentially exposed to enhanced/magnified falls, should the market move against them. The Fund is also subject to counterparty risk. As the annual management fee of the Fund is charged to capital, the potential capital growth of the Fund 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 investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The information contained in this document should not be considered a recommendation to purchase or sell any particular security and the opinions expressed are those of UBS Global Asset Management and are subject to change without notice. Furthermore, there can be no assurance that any trends described in this document will continue or that forecasts will occur because economic and market conditions change frequently.
    • Issued in January 2012 by UBS Global Asset Management (UK) Ltd, a subsidiary of UBS AG, 21 Lombard Street, London EC3V 9AH. Authorised and regulated by the Financial Services Authority. Telephone calls may be recorded. © UBS 2012. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.
    www.ubs.com/ifa | 0800 587 2111