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Us total yield   presentation - apac oct 2013 thai-final Us total yield presentation - apac oct 2013 thai-final Presentation Transcript

  • High Quality Yields American Style UBS US Total Yield Equity Jeremy Raccio, CFA Citywire Asia 2013 Asset management Thai Version Confidential. Information herein is solely intended for the specified recipient only and not for redistribution
  •  11 Distinguishing characteristics of the UBS US Total Yield Strategy  Offers attractive total yields in the US market – High dividend yield and high share buyback yield  Focus on sustainability of total yields via quality criteria – Leads to defensive portfolio with good upside participation  Top quartile ranking since inception  Strategy’s AuM is over USD 360m¹ Past performance is not indicative of future results. 1 Source: UBS Global Asset Management & Morningstar, as at end of September 2013.
  •  2 Table of Contents SECTION 1 Why total yield is important in the US 3 SECTION 2 Investment process of the UBS US Total Yield strategy 7 SECTION 3 Performance & positioning 11 SECTION 4 Investment management team 17 APPENDIX 20
  •  Section 1 Why total yield is important in the US
  •  4 Dividend yields are lower in the US.... Source: UBS Global Asset Management, Factset (MSCI Net div. reinv). Data as of 31 July 2013. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 in% MSCI EM MSCI EU MSCI US
  •  5 0 200 400 600 800 1000 1200 1400 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 NumberofFirms Net Share Repurchases Dividends Both Neither ..because US companies return profit in two ways Source: UBS Global Asset Management, MSCI, Compustat. Universe is union of S&P 500, S&P 400, Russell 1000 and MSCI USA. MSCI USA data is available starting in November 2003; Russell 1000 data is available starting in October 2005. Most companies repurchase shares and pay dividends = total yield From here on including MSCI USA From here on including Russell 1000
  •  6 What is share buyback yield? Why do companies buyback stock?  Essentially, share buyback yield is the expected long-term appreciation in stock price as a result of buybacks (excluding other impacts to stock price such as changes in company sales & profits, news, broad macroeconomic factors, equity market volatility, etc.)  By repurchasing its own shares, a company reduces the number of publicly held shares outstanding. Assuming constant earnings, this increases earnings per share (EPS), which can lead to a higher stock price in the medium to long run. Share buybacks allow companies to have increased flexibility when making decisions about how to return profits to shareholders.
  •  Section 2 Investment process of the UBS US Total Yield strategy
  •  8 Our investment objective High yields  Seeks to capture high total yield opportunities including dividends and share buybacks  Focus on the companies’ stability and sustainability of dividends  100 equally weighted stocks  Across sectors and other factors High quality Highly diversified Combine high total yield + high quality characteristics in a diversified portfolio Source: UBS Global Asset Management
  •  9 Quality: Criteria 55% The high quality focus is key for the investment process High quality is of the utmost importance and is weighted slightly higher than the total yield criteria Total Yield: Criteria 45% Current Total Yield Source: UBS Global Asset Management Price Stability Sustainability of Dividends
  •  10 Transparent investment process US large and mid cap stock universe (approx. 1’100 stocks) Ranking from 1 – 1’100 stocks 100 equally weighted stocks High Total Yield High Quality screen High Total Yield and High Quality criteria are weighted and applied to the full universe. Constraints to balance portfolio Diversification constraints across sectors, liquidity and other factors are applied to the ranking. Plausibility checks Data quality checks for each stock. Source: UBS Global Asset Management
  •  Section 3 Performance & positioning
  •  12 Cumulative performance UBS US Total Yield Equity Strategy outperforming peers and indices Past performance is not indicative of future results. Performance figures are gross of fees and unaudited. Peers Group Average: Morningstar US Large-Cap Blend universe Source: UBS Global Asset Management & Morningstar. Strategy inception date: Feb 15, 2013. From end of Feb 2013 to end of Sep 2013
  •  13 Month-by-month performance UBS US Total Yield Equity Strategy outperforming peers and indices Past performance is not indicative of future results. Performance figures are gross of fees and unaudited. Peers Group Average: Morningstar US Large Cap Blend universe Source: UBS Global Asset Management & Morningstar. Strategy inception date: Feb 15, 2013. From end of Feb 2013 to end of Sep 2013
  •  14 Sector exposures Sector Weight (%) Deviation from index (%) Financials 12.6 Information Technology 20.5 Consumer Discretionary 19.8 Health Care 19.5 Industrials 10.7 Consumer Staples 6.9 Energy 5.9 Telecoms 1.0 Materials 2.0 Utilities 0.0 +2.1 +7.1 +6.7 +0.5 -3.5 -3.2 -4.7 -1.6 -1.5 -3.2 Source: UBS Global Asset Management, Factset, as of 30 August 2013. The strategy is actively managed, thus allocations can be changed any time at UBS’s discretion. Current portfolio structures may be found at www.ubs.com/fundgate. UBS US Total Yield Equity Strategy
  •  15 Portfolio characteristics UBS US Total Yield Equity Strategy UBS US Total Yield Equity Strategy MSCI USA Holdings 101 598 Beta 0.93 1.00 Price-to-book 2.63 2.45 Price-to-earnings 14.53 15.98 Price-to-cash flow 10.58 8.99 Debt-to-equity 0.38 1.10 EV-to-EBITDA 7.12 9.52 ROE 21.95% 13.90% ROA 9.69% 3.12% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% UBS US Total Yield Equity Strategy* MSCI USA Share buyback yield Dividend yield 5.5% 2.9% Source: UBS Global Asset Management, MSCI, and Bloomberg. Data as of 30 August 2013. The strategy is actively managed, thus allocations can be changed any time at UBS’s discretion. Current portfolio structures may be found at www.ubs.com/fundgate * Indicative current total yield: This figure is indicative and gross of flat fee. The indicative current total yield is the sum of yields from dividend distributions and from company profits returned to shareholders via share buybacks. The dividend yield portion is based on the dividends of last year, net of US withholding tax of 30%. The portion of yield derived from share buybacks is calculated as the net cash each company held in the strategy used to repurchase shares (gross share buybacks minus share issuance) based on the most recent annual financial statement. This net cash is divided by the market capitalization from the previous month end resulting in the share buyback yield. Adding the dividend yield results in the total yield. The final total yield can deviate significantly from the indicative current total yield due to changes in company earnings, dividends, share buybacks, stock prices etc. In accumulating share classes, the total yield, net of fees, will be accumulated. In distributing share classes, the total yield, net of fees, will be distributed. • Risk information: UBS US Total Yield Strategy has the risk characteristics of a typical equity investment and is not designed to be a replacement for bond investments. The strategy is suitable for risk-tolerant investors who are willing to bear the risk and volatility of equity investments. Total yield must by no means be confused with total return
  •  16 Selected portfolio holdings UBS US Total Yield Equity Strategy Share price is up over 20% in 2013. Net buybacks increased 15% with the release of the company’s quarterly financial results. Moderate total yield but solid quality scores, specifically dividend stability, ROE, and ROA. Home Depot Share price is up over 25% in 2013. Net buybacks increased 2.8% and dividends increased 3.3% with the release of the company’s quarterly financial results. The stock has strong quality scores. Recently announced a $40 billion share buyback program. Share price is up over 36% 2013. Net buybacks increased 7.7% with the release of the company’s quarterly financial results. The stock combines a solid total yield, driven entirely by the share buyback yield, with very good quality scores. It has no long-term debt. Microsoft Yahoo Dividend Yield Buyback Yield Source: UBS Global Asset Management, Factset, as at 30 August 2013. The strategy is actively managed, thus allocations can be changed any time at UBS’s discretion. Current portfolio structures may be found at www.ubs.com/fundgate. This information should not be considered a recommendation to purchase or sell any particular security.
  •  Section 4 Investment management team
  •  18 Distinguishing features of the investment team Investment team Jeremy Raccio, Lead Portfolio Manager 12 years investment experience Patrick Zimmermann, Deputy Portfolio Manager 15 years investment experience  Experienced team with a solid history of working together  Research and investment process is transparent  Rigorous and disciplined portfolio construction and risk management Members of a global team of 15 investment professionals
  •  19 Equities - Applied Research Group Name Location Years in industry Years in company John Cotton, CFA London 18 9 Chris Coward, CFA New York 16 14 Jay Eisenhardt London 9 9 Art Gresh, Ph.D. New York 17 9 Chris Hughes, Ph.D., CFA Zurich 8 5 Shaheen Iqubal, CFA Chicago 13 13 Adam Jokich Chicago 1 1 Kazuki Kagohashi Tokyo 5 5 Ian McIntosh, CFA Chicago 14 9 Ian Paczek, Ph.D., CFA London 17 9 Scott Payseur, Ph.D. New York 8 5 Jeremy Raccio, CFA New York 12 5 Masafumi Sasai Tokyo 14 7 Katsumi Tsuzura Tokyo 28 15 Patrick Zimmermann, CEFA Zurich 16 5 Source: UBS Global Asset Management As of June 15, 2013 Local equity trading Over 20 equity dealers in London, Zurich, Chicago and Singapore Currency specialists 6 experienced FX traders plus 4 spot order generators Independent Risk Management Specialist team of 12 professionals utilizing proprietary Global Risk System Supported by global resources of UBS Global Asset Management 15 Investment professionals positioned in offices across the globe Applied Research Group team members
  •  APPENDIX
  •  21 Supplemental information – performance attribution since inception Performance versus MSCI USA index Past performance is not indicative of future results. Source: UBS Global Asset Management, MSCI Barra. As of 30 August 2013.
  •  22  Dividends have been an important part of total equity return. Share buybacks too are a well known return driver. Decreasing the number of shares outstanding - assuming constant company earnings - will increase earnings-per-share and dividends-per-share. This makes each share more valuable and should increase the stock price over the long run.  Empirical evidence has shown that high quality companies with the ability to sustain above average total yields have provided better returns over time than the broad equity market.  The rules based backtest of the UBS US Total Yield Strategy (see chart) confirms this showing a strong outperformance versus the MSCI USA.  Our investment thesis is that the quality and total yield bias of the companies in this strategy will continue to be rewarded and add value especially during market downturns.  A positive return impact in the backtest versus the index stems from the equal stock weighting in the portfolio construction process. It reduces the weight of mega caps and increases the weight of large and mid caps in the portfolio compared with its bench- mark. This characteristic is expected to persist. 0 50 100 150 200 250 300 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Rules based backtest of US Total Yield strategy MSCI USA Nov 12 Why a US total yield strategy is expected to add value The benefits of high quality companies and high total yields Rules based backtest of the US Total Yield Strategy Note: These figures refer to the past. Past performance is not a reliable indicator of future results. The US Total Yield backtest is not a live portfolio, but a simulation using the same rules based model as the UBS US Total Yield Equity Strategy will use. The backtest results takes into account transaction costs, but is gross of fees. Source: UBS Global Asset Management, MSCI. Data as of end of November 2012.
  •  23 Total yield is an attractive alpha factor The benefits of high quality companies and high total yields Best quintile minus worst quintile -3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% Entire Period 1970s 1980s 1990s 2000s Last Five Years Annualizedreturn Total Yld Dividend Yld Source: Empirical Research Partners. One year holding periods 1973 through May 2012. Methodology: At the beginning of each period form portfolios based on level of total yield or dividend yield. Hold the best quintile portfolio long and sell the worst quintile portfolio short. Hold the long-short portfolios for a year, measure performance, and rebalance. In all periods, long-short portfolios formed by using the total yield factor outperformed long-short portfolios formed by dividend yield alone. Note: These figures refer to the past. Past performance is not a reliable indicator of future results. The US Total Yield backtest is not a live portfolio, but a simulation using the same rules based model as the UBS US Total Yield Equity Strategy will use. The backtest results takes into account transaction costs, but is gross of fees. Source: UBS Global Asset Management, MSCI. Data as of end of November 2012.
  •  24 Total yield 0% 2% 4% 6% 8% 10% 12% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Beginning of period yield End of period yield Universe yield Persistence in total yield Firms that return capital in one year are likely to return capital the next year Past performance is not indicative of future results. Source: UBS Global Asset Management, MSCI, Compustat. Universe is union of S&P 500, S&P 400, Russell 1000 and MSCI USA. MSCI USA data is available starting in Nov 2003; Russell 1000 data is available starting in Oct 2005. Using the High Total Yield model, portfolios were formed on 31-July of a given year and held for one year without rebalancing. Total yield of the portfolio is measured at the beginning of period (blue bars) and again at the end of the period (red bars). The brown bars are the total yield of the entire universe at a given date. As an example, the portfolio formed at 31-July-2005 had a total yield of 3.76% based on returning $159.9 Bn to shareholders. At 31-July-2006 the same portfolio had a total yield of 4.52% based on $205.9 Bn of returned capital over the 1 year period.
  •  25 -4% -2% 0% 2% 4% 6% 8% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%Monthly (lh side) Cumulative (rh side) Supplemental information - backtest data Performance versus MSCI USA index Source: UBS Global Asset Management. 31 May 2012. Portfolio Annualised excess return 5.10% Annualised risk 5.00% Information ratio 1.02% Median monthly excess return 0.25% Max. monthly excess return 5.76% Min. monthly excess return -3.39%
  •  26 Strategy has defensive characteristics Best performance comes during market downturns 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Down markets High Total Yield Relative return in down markets Annualised excess return 14.75% Annualised risk 6.40% Information ratio 2.30% Median monthly excess return 1.19% Max. monthly excess return 5.76% Min. monthly excess return -1.86% Relative return in up markets Annualised excess return 0.54% Annualised risk 3.50% Information ratio 0.15% Median monthly excess return 0.10% Max. monthly excess return 2.05% Min. monthly excess return -3.39% Note: These figures refer to the past. Past performance is not a reliable indicator of future results. The US Total Yield backtest is not a live portfolio, but a simulation using the same rules based model as the UBS US Total Yield Equity Strategy will use. The backtest results takes into account transaction costs, but is gross of fees. Source: UBS Global Asset Management, MSCI. Data as of end of November 2012.
  •  27 Total yield theme is efficiently captured Higher total yield than MSCI USA index with similar dividend yield Net dividend yield 0% 1% 2% 3% Nov-2003 May-2004 Nov-2004 May-2005 Nov-2005 May-2006 Nov-2006 May-2007 Nov-2007 May-2008 Nov-2008 May-2009 Nov-2009 May-2010 Nov-2010 May-2011 Nov-2011 May-2012 MSCI USA High Total Yield High Quality Net total yield 0% 3% 6% 9% 12% 15% 18% 21% Nov-2003 May-2004 Nov-2004 May-2005 Nov-2005 May-2006 Nov-2006 May-2007 Nov-2007 May-2008 Nov-2008 May-2009 Nov-2009 May-2010 Nov-2010 May-2011 Nov-2011 May-2012 median = 1.33% median = 1.33% median = 6.00% median = 2.27% Note: These figures refer to the past. Past performance is not a reliable indicator of future results. The US Total Yield backtest is not a live portfolio, but a simulation using the same rules based model as the UBS US Total Yield Equity Strategy will use. The backtest results takes into account transaction costs, but is gross of fees. Dividend yield and total yield are net of 30% non-reclaimable withholding tax on dividend income which Lux funds are subject to. Source: UBS Global Asset Management, MSCI. Data as of end of November 2012.
  •  28 High Total Yield + High Quality is key to outperformance Empirical evidence has shown that high quality companies with the ability to sustain above average total yields have provided better returns over time High Total Yield High Quality High Total Yield Annual excess rtn 5.10% 3.35% Annual risk 5.00% 5.85% IR 1.02 0.57 Median monthly excess rtn 0.25% 0.10% Max monthly excess rtn 5.76% 7.71% Min monthly excess rtn -3.39% -4.10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Jan-2001 Jul-2001 Jan-2002 Jul-2002 Jan-2003 Jul-2003 Jan-2004 Jul-2004 Jan-2005 Jul-2005 Jan-2006 Jul-2006 Jan-2007 Jul-2007 Jan-2008 Jul-2008 Jan-2009 Jul-2009 Jan-2010 Jul-2010 Jan-2011 Jul-2011 Jan-2012 High Total Yield High Quality High Total Yield Note: These figures refer to the past. Past performance is not a reliable indicator of future results. The US Total Yield backtest is not a live portfolio, but a simulation using the same rules based model as the UBS US Total Yield Equity Strategy will use. The backtest results takes into account transaction costs, but is gross of fees. Performance is versus the MSCI USA. Source: UBS Global Asset Management, MSCI. Data as of end of November 2012.
  •  29 Different sector exposures than a dividend yield strategy More exposure to cyclical sectors relative to a dividend yield product 0% 5% 10% 15% 20% 25% Consumer Discretionary ConsumerStaples Energy Financials HealthCare Industrials Information Technology Materials Telecommunication Services Utilities High Total Yield High Quality High Dividend Yield High Quality Average sector weight Note: These figures refer to the past. Past performance is not a reliable indicator of future results. The US Total Yield backtest is not a live portfolio, but a simulation using the same rules based model as the UBS US Total Yield Equity Strategy will use. The backtest results takes into account transaction costs, but is gross of fees. Source: UBS Global Asset Management, MSCI. Data as of end of November 2012.
  •  30 Before the share buyback After the share buyback Change Market capitalization USD 200m USD 200m 0% Number of shares outstanding 4m 3.8m -5% Share buyback yield = 10m/200m = 5% Assuming annual earnings remain constant 20m 20m 0% Earnings per share (EPS) = 20m/4m = USD 5.0 = 20m/3.8m = USD 5.26 = (5.26/5) – 1 = 5.22% How does this translate into a share buyback yield? Example  Company ABC returns part of its annual profits through buying back 5% of its shares outstanding. This reduces the number of shares outstanding by 5%. Assuming constant earnings, earnings per share (EPS) will increase by approx. 5%.  Given the company returns 5% of market capitalization to shareholders, the share buyback yield is 5%. Illustration of company ABC with real numbers: Assumption: Cash used for net share buybacks = USD 10m An example to illustrate the share buyback yield For illustrative purposes only. Note: total yield and share buyback yield can be calculated at a single stock level, as well as at an aggregate portfolio level.
  •  3131 Portfolio construction: the in-house developed POP system For illustrative purposes only. This information should not be considered a recommendation to purchase or sell any particular security. Maximize alphas Manage risk Allocate to stock specific risk Minimize trading costs Scenario and sensitivity analysis Rebalance analysis
  •  32 Jeremy E. Raccio, CFA Portfolio Manager Director  Jeremy Raccio is a portfolio manager and quantitative analyst within Structured Equities. Jeremy’s focus is US equities and High Yield High Quality strategies.  Prior to joining UBS Global Asset Management, Jeremy was a quantitative analyst in the Quantitative Strategies Group at Credit Suisse Asset Management where he was responsible for the development of quantitative stock selection models, portfolio optimization and implementation, and new product development.  Jeremy is a CFA Charterholder. Jeremy is also a member of the CFA Institute, the New York Society of Security Analysts (NYSSA), and the Chicago Quantitative Alliance (CQA).  Jeremy is a member of the Technical Review Committee of the Global Initiative for Sustainability Ratings (GISR). GISR is a non-profit program that has brought together various stakeholders to design and implement a global sustainability ratings standard. Years of investment industry experience: 12 Education: Rensselaer Polytechnic Institute (US), BS; Stern School of Business at New York University (US), MBA
  •  33 Patrick Zimmermann, CEFA Senior Portfolio Manager Executive Director  Patrick Zimmermann is a Senior Portfolio Manager on the Applied Research team, part of Equities. He is primarily responsible for the management of active high dividend yield strategies.  Prior to joining UBS Global Asset Management in 2008, Patrick was an Equity Portfolio Manager at Credit Suisse Asset Management, focusing on quantitative equity investment products and research for European equities. He has also worked as a Senior Economist and Strategist at Zürcher Kantonalbank.  Patrick has published articles in refereed financial industry journals.  Patrick is a member of the Swiss Bankers Association. Years of investment industry experience: 16 Education: University of Zurich (Switzerland), Lic. oec. publ.
  •  34 Disclaimer This document and its contents have not been reviewed by, delivered to or registered with any regulatory or other relevant authority in Thailand. This document is for informational purposes and should not be construed as an offer or invitation to the public, direct or indirect, to buy or sell securities. This document is intended for limited distribution and only to the extent permitted under applicable laws in Thailand. No representations are made with respect to the eligibility of any recipients of this document to acquire interests in securities under the laws of Thailand. Using, copying, redistributing or republishing any part of this document without prior written permission from UBS Global Asset Management is prohibited. Any statements made regarding investment performance objectives, risk and/or return targets shall not constitute a representation or warranty that such objectives or expectations will be achieved or risks are fully disclosed. The information and opinions contained in this document is based upon information obtained from sources believed to be reliable and in good faith but no responsibility is accepted for any misrepresentation, errors or omissions. All such information and opinions are subject to change without notice. A number of comments in this document are based on current expectations and are considered “forward-looking statements”. Actual future results may prove to be different from expectations and any unforeseen risk or event may arise in the future. The opinions expressed are a reflection of UBS Global Asset Management’s judgment at the time this document is compiled and any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise is disclaimed. You are advised to exercise caution in relation to this document. The information in this document does not constitute advice and does not take into consideration your investment objectives, legal, financial or tax situation or particular needs in any other respect. Investors should be aware that past performance of investment is not necessarily indicative of future performance. Potential for profit is accompanied by possibility of loss. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. Source for all data and charts (if not indicated otherwise): UBS Global Asset Management. © Copyright UBS 2013. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved. NOTICE TO RESIDENTS OF THAILAND – the securities will not be offered or sold, directly or indirectly, in Thailand. UBS Global Asset Management is not licenced to publicly offer securities in Thailand. Thai investors must be authorised to engage in the purchase of Securities of the type being offered or sold. Thai investors are responsible for obtaining all relevant government regulatory approvals/licences, consents, verification and/or registrations from relevant Thai governmental and regulatory authorities required to invest in the securities and required for the purposes of remitting any amounts in foreign currencies for the investment.