Financial Pacific - Slow growth but no Recession (third party)
Upcoming SlideShare
Loading in...5
×
 

Financial Pacific - Slow growth but no Recession (third party)

on

  • 592 views

Visit our website for more information: http://www.investingpacific.com/...

Visit our website for more information: http://www.investingpacific.com/

Financial Pacific: “The Right Wave to Invest”
License CNV 319-03

In today’s global economy it is important to be fully aware of the intricacies of international investments and the opportunities that these have to offer. Financial Pacific offers proven overseas investment opportunities.
If you are interested in a reliable investment institution look no further because Financial Pacific provides: Wealth Management, Online Trading, Institutional Services and Corporate Finance. With cutting edge technology we are capable to support highly specialized derivatives instruments such as: CFDs, ETFs, CFDs on Commodities, ETCs, Futures and Options. In addition investors have access to a wide range of investment opportunities through: Structured Notes, Fixed Income, Reverse Convertibles, Preferred Stocks, and Institutional Hedge Funds.
Fully regulated by Comisión Nacional de Valores de Panama since 2003; allow us to provide you with the necessary tools to take advantage of the global markets.

Statistics

Views

Total Views
592
Views on SlideShare
592
Embed Views
0

Actions

Likes
0
Downloads
1
Comments
0

0 Embeds 0

No embeds

Accessibility

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    Financial Pacific - Slow growth but no Recession (third party) Financial Pacific - Slow growth but no Recession (third party) Document Transcript

    •  Global Equity Research Americas UBS Investment Research Equity Strategy US Equity Strategy Investment Strategy Market Navigator — September 2011 6 September 2011  Welcome To The Market Navigator www.ubs.com/investmentresearch This monthly guide provides a summary of the UBS US equity market outlook, as well as proprietary analytics and other useful information about market returns, corporate profits, valuation, sectors, the economy, and credit. Jonathan Golub, CFA  Slow Growth But No Recession Strategist After dropping 13%, the market ended down 5% in August. We believe the jonathan.golub@ubs.com +1-212-713 8673 economy will experience slow growth — not a recession. As such we expect stocks to advance through the end of the year. That said, we expect markets to Manish Bangard, CFA remain quite volatile with European debt issues our main concern. While Strategist consumer and business survey data indicate a lack of confidence in the economy, manish.bangard@ubs.com +1-212-713 3036 more direct measures of activity such as retail sales and durable goods orders remain healthy. Daniel Murphy Strategist  14 Of The Past 9 daniel-d.murphy@ubs.com Since the end of World War II, there have been 14 instances where the S&P 500 +1-212-713 3186 fell by more than 17%. Only nine of these were accompanied by recessions. Vishal Patel Importantly, when recession was avoided, equities advanced an average of 15% Associate Strategist during the first four months after reaching a trough and 28% over one year. vishal-a.patel@ubs.com +1-212-713 4027  Price Target Of 1,350 Represents 15% Upside Thomas M. Doerflinger, Ph.D. We are trimming our 2011 and 2012 S&P 500 EPS estimates to $95.00 and Strategist $101.00 from $99.35 and $108.00 to reflect UBS’s recently lowered global growth tom.doerflinger@ubs.com outlook. Consistent with these changes, we are paring our year-end 2011 S&P 500 +1-212-713 2540 price target to 1,350 from 1,425. Natalie Garner, CFA Strategist natalie.garner@ubs.com +1-212-713 4915 This report has been prepared by UBS Securities LLC ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 60. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
    • US Equity Strategy 6 September 2011UBS Strategy & Economics Teams U.S. Equity Strategy Jonathan Golub Chief Strategist jonathan.golub@ubs.comManish Bangard Strategist manish.bangard@ubs.com Chip Miller Small-cap Strategist chip.miller@ubs.comDaniel Murphy Strategist daniel-d.murphy@ubs.com Tom Doerflinger Strategist tom.doerflinger@ubs.comVishal Patel Associate vishal-a.patel@ubs.com Natalie Garner Strategist natalie.garner@ubs.comU.S. Economics Global Economics & StrategyMaury Harris Chief Economist maury.harris@ubs.com Chief Economist Larry Hatheway larry.hatheway@ubs.comDrew Matus Economist drew.matus@ubs.com & StrategistSamuel Coffin Economist samuel.coffin@ubs.com Paul Donovan Economist paul.donovan@ubs.comKevin Cummins Economist kevin.cummins@ubs.com Andrew Cates Economist andrew.cates@ubs.comU.S. Accounting George Magnus Senior Advisor george.magnus@ubs.comJanet Pegg Analyst janet.pegg@ubs.com Jonathan Anderson Emg Markets jonathan.anderson@ubs.comU.S. Derivatives Sunil Kapadia Asset Allocation sunil.kapadia@ubs.comMitchell Revsine Strategist mitchell.revsine@ubs.com Global Equity StrategyBrian Russo Associate brian.russo@ubs.com Jeffrey Palma Chief Strategist jeffrey.palma@ubs.comU.S. Sector Heads Chris Ferrarone Strategist christopher.ferrarone@ubs.comAndrew Kligerman Financials andrew.kligerman@ubs.com Jerry McGuire Associate jerry.mcguire@ubs.comNikos Theodosopoulos Technology nikos.theodosopoulos@ubs.com Global Emerging Markets StrategyDavid Strauss Industrials david.strauss@ubs.com Nicholas Smithie Strategist nicholas.smithie@ubs.comDavid Palmer Consumer david-s.palmer@ubs.com Jennifer Delaney Strategist jennifer.delaney@ubs.comJohn Hodulik Telecom john.hodulik@ubs.com Stephen Mo Strategist stephen.mo@ubs.comBill Featherston Energy william.featherston@ubs.com Regional EconomicsRon Barone Energy ronald.barone@ubs.com Stephane Deo Europe stephane.deo@ubs.comJustin Lake Health Care justin.lake@ubs.com Amit Kara UK amit.kara@ubs.comRegional Strategy Duncan Wooldridge Asia duncan.wooldridge@ubs.comNick Nelson Europe nick.nelson@ubs.com Scott Haslem Australia scott.haslem@ubssecurities.comKaren Olney Europe karen.olney@ubs.com Tao Wang China wang.tao@ubssecurities.comNeil Cherry UK neil.cherry@ubs.com Credit, Rates & Currency StrategyGeorge Vasic Canada george.vasic@ubs.com George Bory Credit george.bory@ubs.comShoji Hirakawa Japan shoji.hirakawa@ubs.com Michael Schumacher Rates michael.schumacher@ubs.comNiall MacLeod Asia x-Japan niall.macleod@ubs.com Mansoor Mohi-Uddin Currency mansoor.mohi-uddin@ubs.comDavid Cassidy Australia david.cassidy@ubs.com Bhanu Baweja EM FICC bhanu.baweja@ubs.comJohn Tang China john.tang@ubs.com Quantitative StrategyTomas Lajous Mexico tomas.lajous@ubs.com David Jessop Global Head david.jessop@ubs.com Berry Cox US Head berry.cox@ubs.com UBS 2
    • US Equity Strategy 6 September 2011Table of ContentsOutlook ▪ Market Outlook ……….…………………………………….……………………..… 4-5 Highlights ▪ S&P 500 Targets & Key Calls ...…………….………………………...…………... 6Equities ▪ Current Environment .…..……………………………………………....…………... 7-10 • Market Outlook — ▪ Past Recessions ……….………....…………………....………..………………...... 113 Pages 4-5 ▪ Revenues & Margins …………....…………………....………..………………...... 12-15 ▪ Valuation ..………………..…………….………….……..……………..……...…… 16-22 ▪ Market Leadership ……………...…………….……..…….………………..……… 23-26 ▪ Earnings Analysis ………………………………………...……...……...…………. 27-31 • Current Environment — ▪ Index Returns .................................................................................................... 32-34 Pages 7-10 ▪ Correlations & Leading Indicators ……………….………..……………………….. 35 ▪ Sector Recommendations .….………………….……………………..……...…… 36-37 ▪ Cash, Balance Sheet & Corporate Spending …………..……………………….. 38-41 • Valuation —Economy Pages 16-22 ▪ ISM ………………..……………………………….…………………………...…….. 42 ▪ Inflation & Currencies ………………………………………………………………. 43-45 ▪ Employment ………..………………………………………….…………................ 46 ▪ Retail Sales, Savings & Wealth …………………….……………………………… 47 • Market Leadership — ▪ Housing ………………………………………………………….…………………… 48 Pages 23-26 ▪ Loan Volumes & Delinquencies …………………………………………………… 49 ▪ US Fiscal Imbalances ……………....……...………………………….…………… 50-51Credit • Sector Recommendations — Pages 36-37 ▪ Yield Curves & Treasuries ………………...……………..…………………...…… 52-54 ▪ Bond Spreads …………………………………………………….…….…………… 55Appendix • Inflation & Currencies — ▪ S&P 500 Valuation …..……………………..…………..……………..……………. 56 Pages 43-45 ▪ Inter-Sector Valuations .……………………..…………..…………………………. 57 ▪ UBS Return Drivers ….……………………..…………..……………..……………. 58-59All data as of 08/31/2011 unless noted otherwise. UBS 3
    • US Equity Strategy 6 September 2011Market OutlookOutlook Constructive on Stocks. We believe signs point to slow growth — not a recession — and expect stocks to drift higher as We anticipate a relief rally as worst-case outcomes are avoided and risk appetite improves. the economy avoids recession While recent survey data indicate a lack of confidence in the and risk appetite improves economy, more direct measures of activity such as retail sales and durable goods orders are stronger. 14 of the Past 9. By our count, the S&P 500 predicted 14 of The market has a less-than- the past nine recessions which suggests the market is not a impressive track record in particularly good early indicator of economic downturns. Of predicting recessions the five non-recessionary periods, the market was up an average of 15% during the first four months after the trough and 28% over one year. Economic Soft Patch Extended. 2Q GDP was revised down from 1.3% to 1.0% and 1Q grew just 0.4%. We believe that Debt issues in U.S. and Europe are prolonging the economic debt and budgetary issues in Europe and the U.S. will weigh on soft patch 2H11 growth. Chief U.S. Economist Maury Harris recently lowered 3Q11 GDP to 1.5% from 2.5%.. Valuation. At 10.9x forward EPS, stock multiples are well below long term averages. Attractive valuations, improving M&A activity, and large share repurchases should help drive stock prices higher. Valuation is well below long term averages Trimming S&P 500 EPS. We are trimming our 2011 and 2012 S&P 500 EPS estimates to $95.00 and $101.00 from $99.35 and $108.00, respectively. This change reflects our economists’ view that the global economy will be weaker, though non-recessionary. More specifically, UBS recently lowered its forecast for 2012 global GDP growth to 3.3% from 15% upside to our new 2011 3.8%. year-end S&P 500 target of 1350 Year-end S&P 500 Price Target to 1,350. Consistent with these changes, we are lowering our 2011 year-end price target for the S&P 500 to 1,350 from 1,425. This forecast represents a 15% upside from current levels. UBS 4
    • US Equity Strategy 6 September 2011Market OutlookMarket Leadership Sector Positioning. Since mid-February, defensives have led the market, however, this leadership has reversed course over We favor cyclicals including the past couple of weeks. Looking to the remainder of 2011, Tech, Industrials and we favor economically sensitive names. More specifically, we Financials expect Tech, Industrials and Financials to do especially well in an up market. We are underweight Staples, Telecom and Utilities. Small Caps. During the current soft patch, smaller companies have underperformed their larger peers. We expect small-caps Small caps should regain to regain their leadership role as they benefit from margins that their leadership are much further from peak levels. M&A trends are also a positive. Large Caps. S&P 500 margins are close to cyclical peaks. As a result, companies exhibiting strong top-line success should remain clear winners in this universe.Risks European Sovereign Debt: We believe the greatest risk to U.S. stocks is the potential for a credit disruption emanating from Europe. Global Growth. Fallout from the debt debate has extended the economic soft patch in the U.S. Separately, monetary tightening across emerging economies has led to heightened Government policy is growth concerns in a number of markets. constrained Fiscal Policy. While the fight over raising the debt ceiling is over, the appointment of a super committee to find ways to reduce debt should extend the policy debate. Monetary Policy. The Fed is constrained by the lower bound on interest rates and the effectiveness of alternative tools, such as quantitative easing, is unclear. Inflation. Despite the economic slowdown, the most recent headline inflation data came in ahead of expectations, suggesting that inflationary pressures could be less transitory than the Fed, and many investors, believe. UBS 5
    • US Equity Strategy 6 September 2011S&P 500 Price & Earnings TargetsS&P 500 Price & Earnings TargetS&P 500 Price Level Price % Change Current (as of 09/02/11) 1,174 Our 1,350 target represents a 2011 Year-End Target Price 1,350 15.0% 15% upside from currentOperating Earnings EPS Y/Y Growth levels 2009 Actual 62.25 0.6% 2010 Actual 85.49 37.3% 2011 Estimate 95.00 11.1% 2012 Estimate 101.00 6.3% Current Year-EndP/E Multiple Price Price on UBS 2011 EPS 12.4x 15.8x on Consensus NTM EPS of $107.93 10.9x 12.5x on Consensus 2012 EPS of $112.56 10.4x 12.0x on UBS 2012 EPS 11.6x 13.4xSource: Standard & Poor’s and UBS Note: Table updated as of Sep.2, 2011UBS Key CallsTicker Company Ticker CompanyAAPL Apple Inc. F FordBHI Baker Hughes GE General ElectricCAH Cardinal Health GOOG GoogleCELG Celgene JOYG Joy GlobalC Citigroup PRU Prudential FinancialCNX Consol Energy QCOM QualcommDOW Dow Chemical SNDK SanDiskDE Deere & Co.Source: UBS Note: All stocks are rated ‘Buy’ by UBS analysts. Updated as of Sep.2, 2011 UBS 6
    • US Equity Strategy 6 September 2011Current EnvironmentS&P 500 vs. Cyclical Outperformance Feb 2011 95 1360 Cyclicals have Cycl. vs. ► 88 underperformed since mid- Non-Cycl. February 1185 81 1010 74 835 ◄ S&P 500 67 660 60 Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11Source: Standard & Poor’s, Haver, FactSet and UBSNote: Cyclical Outperformance indexed to 100 as of December 31, 2004Pair-wise Correlations 1.0 0.9 Higher stock correlations pose a challenge for 0.8 investors 0.7 0.6 0.5 0.4 0.3 0.2 04 05 06 07 08 09 10 11Source: S&P, FactSet and UBS Note: Data calculated for S&P 500 Industry Groups on a 30-day rolling basis UBS 7
    • US Equity Strategy 6 September 2011Current EnvironmentVIX 60 12/31/2010: 17.75 06/30/2011: 16.52 The VIX rose in August due 08/31/2011: 31.62 50 to macro concerns in the US and Europe 40 31.6 30 20 10 90 92 94 96 98 00 02 04 06 08 10Source: CBOE, FactSet and UBSS&P 500 Volatility Skew 32 Near-term implied volatility 28 has risen more than longer-term 24 08/31/11 ▲ 12/31/10 ▼ 20 16  6/30/11 12 1M 3M 6M 9M 12MSource: Bloomberg and UBS Note: All periods reflect annualized numbers UBS 8
    • US Equity Strategy 6 September 2011Current EnvironmentEuropean CDS 1600 1400 1200 1000 800 600 ◄ Portugal, Ireland & 400 Greece CDS Basket 200 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11Source: Bloomberg and UBSNote: European CDS basket is the 5-day moving average of Portugal, Ireland and Greece CDS.Euribor–OIS Swap Spread 250 bps Pressure on European 200 financial system is increasing 150 100 50 0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11Source: Bloomberg and UBS UBS 9
    • US Equity Strategy 6 September 2011Current EnvironmentU.S. Economic Surprise Index 3 > 0 represents Positive Surprise 2 Economic surprises have improved as expectations have come down 1 0 -1 -2 -3 < 0 represents Negative Surprise -4 06 07 08 09 10 11Source: Bloomberg and UBS Global Economics Team3Q11 GDP Forecasts vs. S&P 500 EPS Estimates 4.0 % $ 26.0 Consensus 3Q GDP and S&P 3.5 500 earnings estimates have 25.5 fallen ◄ 3Q11 GDP Est 3.0 25.0 2.5 24.5 2.0 3Q11 EPS Est ► 1.5 24.0 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11Source: Bloomberg, Thomson Financial, FactSet and UBS UBS 10
    • US Equity Strategy 6 September 2011Past RecessionsPast Market Declines Subsequent Returns Peak Date Trough Date Return 4 Months 1 Year The market has predicted 14S&P 500 Declines of More Than 17% Followed By Recession of the past 9 recessions Jun-48 Jun-49 -20.3 17.9 42.1 Aug-56 Oct-57 -21.6 4.9 31.0 Nov-68 May-70 -36.1 21.2 43.7 In the 5 instances where a Jan-73 Oct-74 -48.2 25.0 38.0 17% market decline was not Feb-80 Mar-80 -17.1 23.0 37.1 Nov-80 Aug-82 -27.1 36.3 58.3 followed by a recession, Jul-90 Oct-90 -19.9 24.7 29.1 stocks rebounded 15% in Mar-00 Oct-02 -49.1 6.8 33.7 four months and 28% in one Oct-07 Mar-09 -56.8 30.5 68.6 yearAverage 15 mths -32.9 21.1 42.4S&P 500 Declines of More Than 17% Not Followed By Recession Dec-61 Jun-62 -28.0 4.2 32.7 Feb-66 Oct-66 -22.2 18.8 32.9 Sep-76 Mar-78 -19.0 8.6 14.0 Aug-87 Dec-87 -33.5 14.4 21.4 Jul-98 Aug-98 -19.3 28.4 37.9Average 7 mths -24.4 14.9 27.8S&P 500 Declines of Less Than 17% Followed By Recession Jan-53 Sep-53 -14.8 10.9 37.7 Aug-59 Oct-60 -13.9 20.2 30.7Current Fall Apr-11 Aug-11 -17.9Source: S&P, Haver and UBS.EPS Declines in Recessions Quarter EPS EPS Change Year Peak Trough Peak Trough % The market has predicted 14 of the past 9 recessions 1970 3Q69 4Q70 5.89 5.13 -12.9 1974-75 3Q74 3Q75 9.11 7.65 -16.0 1981-82 4Q81 1Q83 15.36 12.42 -19.1 1990-91 3Q90 4Q91 23.8 20.34 -14.5 2000-01 3Q00 1Q02 56.71 44.19 -22.1 2008-09 4Q07 3Q09 93.41* 60.14* -35.6 Average 5.3 qtrs -20.1Source: S&P, Thomson Financial, FactSet and UBSNote: 2008-09 EPS of $93.41 and $60.14 adds back $8.85 and $9.30, respectively, to account for extraordinarywrite-offs taken by the Financials sector. UBS 11
    • US Equity Strategy 6 September 2011Revenues & MarginsS&P 500 Revenues vs. Nominal GDP 18% Y/Y Y/Y 8% ◄ Revenues Revenues for the S&P 500 are driven by nominal GDP 12% GDP ► 6% but are 3–4x more volatile 6% 4% 0% 2% Revenues have held up well -6% Sectors Multiplier despite weak GDP Energy 6.8 0% -12% Materials 3.4 Technology 2.9 Discretionary 2.7 -2% -18% Industrials 2.1 -24% -4% 00 01 02 03 04 05 06 07 08 09 10 11Source: BEA, S&P, Compustat, FactSet and UBS Note: Universe excludes Financials. Data as of 2Q11Operating Margins vs. Capacity Utilization (Mfg) 82 15.0% 15% 14.8% Margins have surpassed last Capacity 78 cycle’s peak Utilization ► 75.0% 13% 74 70 11% ◄ S&P 500 (ex-Finl.) 66 Operating Margins 9.8% 9% 62 00 01 02 03 04 05 06 07 08 09 10 11Source: S&P, Compustat, FactSet and UBS Note: Universe excludes Financials. Data as of 2Q11 UBS 12
    • US Equity Strategy 6 September 2011MarginsOperating Margins vs. CRB Raw Industrials 15% 600 In the last cycle, margins 14% continued to rise despite elevated input costs 13% 500 ◄ Margins 12% 400 CRB Raw 11% Industrials ► 300 10% 9% 200 00 01 02 03 04 05 06 07 08 09 10 11Source: S&P, Compustat, Wall Street Journal, FactSet and UBSNote: Universe excludes Financials. Data as of 2Q11Unit Labor Cost 12 Labor costs are on the rise 9 6 2.1 Avg: 3.8 3 0 Avg: 1.7 -3 50 55 60 65 70 75 80 85 90 95 00 05 10Source: Department of Labor, FactSet and UBS UBS 13
    • US Equity Strategy 6 September 2011MarginsLarge-cap vs. Small-cap EBIT Margins 15.0% 10% 15% 14.8% 9.4% 9% Small-cap margins remain Small-cap ► substantially below their 14% 8% large-cap counterparts’ 7.2% 13% 7% 12% 6% 5% 11% 4% ◄ Large-cap 10% 3% 9% 2% 99 00 01 02 03 04 05 06 07 08 09 10 11Source: S&P, Compustat, FactSet and UBS Note: Universe excludes Financials. Data as of 2Q11Large/Small-Cap EBIT Margin Spread 8% 7.8% The margin differential points 7% to greater opportunity in the small-cap world 6% 5% 4% 3% 00 01 02 03 04 05 06 07 08 09 10 11Source: S&P, Compustat, FactSet and UBS Note: Universe excludes Financials. Data as of 2Q11 UBS 14
    • US Equity Strategy 6 September 2011Current & Peak Operating Margins Current Last Prior 2Q11E 1Q11A 4Q10A 3Q10A 2Q10A 1Q10A Peak MarginCyclicals Technology 22.3% 22.3% 23.2% 22.0% 21.4% 20.3% 4Q10 23.2% Software 28.0 27.0 29.2 27.4 26.7 25.0 4Q09 31.9 Hardware 17.5 17.4 17.0 16.1 15.1 15.2 4Q09 17.6 Semis & Equipment 24.6 26.8 28.3 29.1 28.4 25.5 1Q00 34.9 Industrials 14.5 15.0 15.8 14.0 14.5 12.7 2Q07 16.8 Capital Goods 14.4 15.6 16.2 13.8 14.5 12.9 2Q07 17.0 Commercial Svcs 14.1 13.0 14.8 14.5 14.3 13.5 3Q00 17.7 Transportation 15.0 12.3 14.3 15.2 14.2 11.6 2Q06 16.5 Cons Discretionary 12.1 11.3 11.3 11.4 11.7 11.3 2Q11 12.1 Autos 9.4 10.1 5.1 10.0 11.1 10.5 2Q09 11.6 Durables & Apparel 10.7 9.9 11.1 11.1 10.0 10.7 4Q05 13.7 Consumer Svcs 18.3 20.1 17.1 21.0 17.5 19.6 3Q10 21.0 Media 21.1 17.7 19.4 18.6 19.4 17.6 2Q03 22.3 Retailing 7.6 7.2 8.5 6.7 7.7 7.4 4Q03 9.5 Materials 17.0 17.0 13.5 13.3 14.1 13.7 1Q11 17.0 Energy 16.7 16.0 15.0 14.3 14.9 15.3 3Q08 22.1Non-Cyclicals Health Care 13.9 14.4 12.4 13.8 14.0 13.8 2Q00 18.6 Healthcare Svcs 7.3 7.6 6.6 7.0 7.0 7.2 3Q07 7.8 Phama & Biotech 29.0 30.3 25.0 29.7 29.7 29.3 2Q03 34.1 Consumer Staples 10.0 9.3 10.0 10.3 10.1 9.7 2Q05 11.8 Food Retailing 5.1 4.8 5.6 4.7 5.1 5.0 2Q05 7.3 Food, Bev & Tob 16.7 15.9 15.7 18.5 18.4 16.7 2Q01 19.8 Household Prod 16.3 17.7 19.2 20.0 15.8 19.1 4Q03 26.8 Telecom Svcs 17.0 16.9 18.6 17.0 18.4 17.8 3Q00 27.8 Utilities 19.0 19.2 15.6 22.2 19.2 19.3 3Q09 23.7S&P 500 S&P 500 (ex-Finl.) 15.0 14.7 14.3 14.4 14.3 13.9 2Q11 15.0Source: Standard & Poor’s, Compustat, Thomson Financial, FactSet and UBS UBS 15
    • US Equity Strategy 6 September 2011ValuationDow Jones Industrials — Super Cycle Log Scale 10,000 all Equities experience 5,000 or prolonged booms or periods 4,000 of anemic returns 3,000 nothing 2,000 1,000 500 These “investment regimes” 400 300 hold the key to stock prices 200 100 50 40 10 20 30 40 50 60 70 80 90 00 10Source: Dow Jones, FactSet and UBSS&P 500 E/P vs. Baa Yields (Millennium Regime) P/E Anchored to Slower Recession The forward consensus P/E Fears is 10.9x. The bond market is 10 Baa Bond Yields Growth implying 18.2x P0 pr pr1 9 = 1 = E1 k − g (i + rrf + erp) − g 8 Earnings Yield ► 7 6 ▲ Baa Yield 5 04 05 06 07 08 09 10 11Source: Moody’s, Standard & Poor’s, Thomson Financial, FactSet and UBS UBS 16
    • US Equity Strategy 6 September 2011ValuationS&P 500 E/P vs. 10 Yr Treasuries(Great Moderation/The Fed Model) 16 During the “Great ◄ Earnings Yield Moderation”, the “Fed 14 Model” explained returns 12 10 8 6 10-year Yield ▲ 4 82 84 86 88 90 92 94 96 98Source: Federal Reserve, Standard & Poor’s, Thomson Financial, FactSet and UBSS&P 500 E/P vs. 10 Yr Treasuries 10 However, since 2000, this Earnings Yield ► relationship has broken 8 down 6 4 10-year Yield ▲ 2 00 02 04 06 08 10Source: Federal Reserve, Standard & Poor’s, Thomson Financial, FactSet and UBS UBS 17
    • US Equity Strategy 6 September 2011ValuationS&P 500 E/P vs. Inflation (Disco Regime) 16 In the 1970s “Disco Regime”, 14 inflation was the primary driver of stock values Earnings Yield ▼ 12 Inflation ► 10 8 6 4 72 74 76 78 80Source: Standard & Poor’s, Dept. of Labor, Thomson Financial, FactSet and UBSNote: Earnings Yield based on trailing earnings; CPI (+2%) is lagged by 3 monthsThe Disco Regime (1981 – Present) Falling inflation since the late ’70s has made CPI less 15 important to valuations 12 9 Earnings Yield ► 6 3 ▲ Inflation 85 90 95 00 05 10Source: Standard & Poor’s, Dept. of Labor, Thomson Financial, FactSet and UBSNote: Earnings Yield based on trailing earnings; CPI (+2%) is lagged by 3 months UBS 18
    • US Equity Strategy 6 September 2011ValuationNTM P/E – Cyclicals vs. Non-Cyclicals 16 Cyclical stocks appear 15 attractively valued vs. more defensive names 14 ◄ Cyclicals 13 12.6x 12 ◄ Non-Cyclicals 11 10.9x 10 Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11Source: Standard & Poor’s, Compustat, Thomson Financial, FactSet and UBSNote: Cyclicals are comprised of Energy, Materials, Industrials, Consumer Discretionary, Financials and Technologywhile Non-Cyclicals include Consumer Staples, Health Care, Telecom and UtilitiesChange in NTM P/E Forward P/E % Chg — Apr 29 to Now Apr 29 Now Change Price NTM EPSCyclicals The recent shift in multiples Industrials 15.2 11.8 -3.4 -17.0 7.0 is the result of both price and EPS changes Materials 13.8 11.1 -2.7 -13.1 8.1 Energy 12.1 9.6 -2.5 -16.5 4.9 Financials 11.8 9.6 -2.2 -17.5 1.6 Technology 13.2 11.3 -1.9 -9.4 5.9 Discretionary 15.5 13.7 -1.8 -8.5 3.8Non-Cyclicals Health Care 12.2 11.1 -1.1 -6.2 3.5 Telecom 16.8 15.5 -1.3 -7.7 0.1 Staples 14.5 13.8 -0.7 -2.4 2.7 Utilities 13.3 13.5 0.2 1.6 0.3Source: Standard & Poor’s, Compustat, Thomson Financial, FactSet and UBS UBS 19
    • US Equity Strategy 6 September 2011Inter-Sector Relative ValuationsRelative Valuation – Overvalued/Undervalued Overvalued 2.8 2.3 On a relative basis, Utilities & Telecoms look the most 1.5 overvalued; Materials & Tech P/E Multiple Points 1.3 the cheapest 0.3 -0.7 -0.7 -0.7 -1.0 Undervalued -2.1 MAT TECH FIN IND EN DISCR HC STPLS TCOM UTIL Cyclicals Non-CyclicalsSource: Standard & Poor’s, Compustat, Thomson Financial, FactSet and UBSNote: Analysis performed on a 36-month rolling basisEnergy vs. Materials 3.3 4.6 Overvalued Materials appear cheap 2.3 3.4 versus Energy 1.3 ◄ Energy 2.1 P/E Multiple Points 0.3 0.8 -0.7 -0.4 -1.7 -1.7 Materials ► -2.7 -3.0 Undervalued -3.7 -4.2 97 99 01 03 05 07 09Source: First Call, Standard & Poor’s, FactSet and UBS Note: Analysis performed on a 36-month rolling basis UBS 20
    • US Equity Strategy 6 September 2011Inter-Sector Relative ValuationsIndustrials vs. Technology 2.6 2.2 Overvalued Industrials valuations have 1.6 1.3 come down sharply P/E Multiple Points 0.6 0.4 Tech trades in line with the -0.4 -0.5 broad market Technology ► ◄ Industrials -1.4 -1.4 Undervalued -2.4 -2.3 97 99 01 03 05 07 09Source: First Call, Standard & Poor’s, FactSet and UBS Note: Analysis performed on a 36-month rolling basisConsumer Discretionary vs. Financials 1.8 2.1 Overvalued Discretionary is the most ◄ Discretionary overvalued of the cyclical Financials ► sectors P/E Multiple Points 0.8 0.8 -0.2 -0.6 Undervalued -1.2 -2.0 See Appendix for inter-sector 97 99 01 03 05 07 09 valuation methodologySource: First Call, Standard & Poor’s, FactSet and UBS Note: Analysis performed on a 36-month rolling basis UBS 21
    • US Equity Strategy 6 September 2011Inter-Sector Relative ValuationsTelecommunication Services vs. Utilities 3.1 Overvalued 3.9 Telecom and Utilities look 2.1 2.7 extremely expensive ◄ Telecom P/E Multiple Points 1.1 1.4 0.1 0.2 -0.9 -1.1 -1.9 -2.3 Utilities ► Undervalued -2.9 -3.6 97 99 01 03 05 07 09Source: First Call, Standard & Poor’s, FactSet and UBS Note: Analysis performed on a 36-month rolling basisHealth Care vs. Consumer Staples 2.0 2.4 Overvalued While expensive, Health Care and Staples are much more 1.0 ◄ Health Care Staples ► 1.4 attractively valued than Utilities or Telecom P/E Multiple Points 0.0 0.4 -1.0 -0.6 -2.0 -1.5 Undervalued -3.0 -2.5 97 99 01 03 05 07 09Source: First Call, Standard & Poor’s, FactSet and UBS Note: Analysis performed on a 36-month rolling basis UBS 22
    • US Equity Strategy 6 September 2011Market LeadershipUBS Market Leadership Framework I. Early Phase II. Middle Phase III. Late Phase Different investment characteristics are rewarded at each stage of the Earnings Fundamentals investment cycle Op Leverage Valuation Volatility Quality Cyclicals Non-CyclicalsSource: UBSS&P 500 vs. Cyclical Outperformance 1675 Early Middle Late Current 140 Cyclicals typically 1475 Cycl. vs. 130 outperform in the early stage Non-Cycl. ► and during periods of 1275 120 economic strength 1075 ▲ S&P 500 110 875 100 675 90 475 80 02 03 04 05 06 07 08 09 10Source: Standard & Poor’s, Haver, FactSet and UBSNote: Cyclical Outperformance indexed to 100 as of Jan, 1990 UBS 23
    • US Equity Strategy 6 September 2011Market Leadership — Return DriversPrice Volatility & Operating Leverage 4% 3-Month Moving Avg ◄ Op Levg Similar to 2010’s mid-year slowdown, early-cycle 2% characteristics have rolled over 0% -2% ◄ Price Vol -4% Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11Source: Standard & Poor’s, Compustat, Thomson Financial, Worldscope, FactSet and UBSROE 3% 3-Month Moving Avg At the same time, defensive 2% traits are adding value 1% 0% We expect these trends to reverse -1% ROE ► -2% -3% -4% Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11Source: Standard & Poor’s, Compustat, Thomson Financial, Worldscope, FactSet and UBS UBS 24
    • US Equity Strategy 6 September 2011Market Leadership — Return DriversOp Lev Return Index vs. Op Margins S&P 500 (ex- Finl.) 15% 110 Operating Margins ► Operating Leverage is highly 14% correlated with margin upside 106 13% 12% 102 11% ◄ Op. Leverage 98 Return Driver Index 10% 94 9% 00 02 04 06 08 10Source: Standard & Poor’s, Compustat, Thomson Financial, Worldscope, FactSet and UBSVolatility Return Driver in Up S&P 500 Months 20 Performance in Up SPX Months Avg: 1.9% More volatile stocks should Max: 17.5% benefit the most from a 15 Min:-2.7% market rebound Months Outperforming: 56 of 77 10 5 0 See Appendix for calculation -5 methodology on UBS Return 1 7 13 19 25 31 37 43 49 55 61 67 73 DriversSource: Standard & Poor’s, Compustat, Thomson Financial, Worldscope, FactSet and UBS UBS 25
    • US Equity Strategy 6 September 2011Market Leadership — Return DriversForeign Sales Return Index 135 Foreign Sales has added 130 considerable alpha over time… 125 120 …but has detracted value more recently 115 110 1.2% avg alpha per year 105 100 90 92 94 96 98 00 02 04 06 08 10Source: Standard & Poor’s, Compustat, Thomson Financial, Worldscope, FactSet and UBSForeign Sales – Industry Group Breakdown Foreign Sales Foreign Sales Exposure ExposureCyclicals Non-CyclicalsInformation Tech 55.5 Consumer Staples 26.6 Software & Services 44.1 Food & Staples Retail 15.9 Hardware 56.1 Food Bev. & Tobacco 40.8 Semiconductors 84.9 Household Products 54.6Energy 48.7 Health Care 18.2 Equip. & Services 5.0Materials 45.5 Pharma/Biotech 47.9Industrials 37.3 Utilities 5.2 Capital Goods 41.4 Services 22.6 Telecom 0.1 Transportation 16.0Consumer Cyclicals 24.9 S&P 500 Index 29.7 Autos 53.6 Durables & Apparel 34.1 Consumer Services 43.0 Media 20.6 Retailing 12.9Financials 17.0 Banks 0.0 Diversified Financials 22.7 Insurance 17.2 Real Estate 12.9Source: Standard & Poor’s, Compustat, Thomson Financial, Worldscope, FactSet and UBS UBS 26
    • US Equity Strategy 6 September 2011Earnings Analysis2Q11 Earnings Scorecard Earnings Growth Earnings Surprise Rptd Total YoY (% ) Pos Neg Pct (% ) Beat MissCyclicals ex-Finls 282 284 24.7 230 48 6.0 212 57 Stocks beat 2Q expectations Cons. Discretionary 78 79 10.8 60 18 7.3 64 11 by 5% Energy 41 41 41.3 35 5 2.1 29 11 Industrials 59 60 18.2 52 6 3.5 42 14 Materials 30 30 49.7 27 3 3.5 18 9 Technology 74 74 20.4 56 16 10.7 59 12 74% of companies have beaten on the bottom-lineNon-Cyclicals 132 134 6.9 96 33 3.3 90 30 Cons. Staples 39 41 9.6 30 7 2.6 30 6 Health Care 52 52 5.2 44 8 4.0 37 7 Telecom 8 8 -0.1 3 5 -7.0 4 4 Utilities 33 33 10.8 19 13 11.4 19 13S&P 500 ex-Finls 414 418 18.3 326 81 5.1 302 87 Financials 81 82 10.8 60 19 6.2 62 15S&P 500 495 500 17.0 386 100 5.3 364 102Source: Standard & Poor’s, Compustat, Thomson Financial, FactSet and UBS2Q11 Revenue Scorecard Revenue Growth Revenue Surprise Rptd Total YoY (% ) Pos Neg Pct (% ) Beat MissCyclicals ex-Finls 282 284 18.3 246 36 3.4 188 57 65% of companies (ex- Cons. Discretionary 78 79 11.3 65 13 3.2 53 13 financials) have delivered Energy 41 41 38.2 39 2 5.6 30 9 positive revenue surprises Industrials 59 60 8.4 52 7 1.2 36 15 Materials 30 30 17.8 29 1 2.6 19 7 Technology 74 74 12.8 61 13 2.9 50 13Non-Cyclicals 132 134 7.8 110 21 1.4 79 33 Cons. Staples 39 41 9.1 33 6 1.8 25 9 Health Care 52 52 6.4 46 6 1.6 35 7 Telecom 8 8 7.9 8 0 0.4 3 3 Utilities 33 33 7.0 23 9 -0.6 16 14S&P 500 ex-Finls 414 418 14.1 356 57 2.6 267 90 Financials 81 82 7.4 61 18 4.6 55 13S&P 500 495 500 13.2 417 75 2.9 322 103Source: Standard & Poor’s, Compustat, Thomson Financial, FactSet and UBS UBS 27
    • US Equity Strategy 6 September 2011Earnings AnalysisS&P 500 Earnings Surprise 11.5 9.9 EPS has beaten expectations 8.9 in each of the past 9 quarters 8.0 7.0 6.2 5.9 5.2 5.1 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11ESource: Standard & Poor’s, Compustat, Thomson Financial, FactSet and UBSNote: Universe excludes FinancialsS&P 500 Revenue Surprise 2.6 2.3 Revenues are coming in much stronger than expected 1.4 1.0 0.4 0.5 0.4 -0.9 -0.1 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11ESource: Standard & Poor’s, Compustat, Thomson Financial, FactSet and UBSNote: Universe excludes Financials UBS 28
    • US Equity Strategy 6 September 2011Earnings AnalysisEarnings Surprise – Cyclicals vs. Non-cyclicals 15 14 Earnings surprises have been stronger for Cyclicals vs. Non-cyclicals 12 Cyclicals 10 9 Non-Cyclicals 8 7 7 6 6 6 5 5 4 4 3 3 3 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11ESource: Standard & Poor’s, Compustat, Thomson Financial, FactSet and UBSNote: Universe excludes Financials2011 EPS Revisions since 06/30/11 1.0 0.3 0.1 -0.4 -0.4 -1.0 -10.2 Earnings revisions have been negative for Financials and the commodity sectors Tech Non- Indls Matr Cons Energy Finls Cycls DiscSource: Standard & Poor’s, Compustat, Thomson Financial, FactSet and UBS UBS 29
    • US Equity Strategy 6 September 2011Earnings Analysis2Q11 Price Response to Surprises 2Q11 1Q11 Revenue Surprise Revenue Surprise Only companies beating on Beat Miss Beat Miss both the top- and bottom- lines are being rewarded EPS Surprise EPS Surprise Beat Beat 0.86 -0.24 0.55 0.79 -0.60 0.30 Miss Miss -2.84 -4.64 -3.89 -1.46 -2.54 -2.04 0.27 -2.24 0.20 -1.29Source: S&P, Compustat, Thomson Financial, FactSet and UBS.Note: Price action for above table is calculated for all companies reported 2Q results from 1 day before to 1 day afterreport date. For history shown in table below, price action is calculated from 1 day before to 2 days after report dateHistorical Price Response to Surprises Price Action (%) Beat EPS Beat EPS Miss EPS Miss EPS Quarter Beat Sales Miss Sales Beat Sales Miss Sales Companies beating on both 1Q11 0.69 -0.21 -1.42 -2.63 top- and bottom-lines 4Q10 1.61 -0.67 -1.23 -2.89 3Q10 1.00 -0.70 -2.87 -1.39 consistently outperform 2Q10 1.10 -1.57 -2.64 -3.79 1Q10 0.62 -0.63 -2.62 -3.53 4Q09 1.16 0.01 -3.07 -3.08 3Q09 0.87 -0.60 -2.79 -4.63 2Q09 1.58 -0.12 -1.51 -4.90 1Q09 4.91 1.68 -1.05 -3.21 4Q08 4.79 0.67 -2.04 -3.97 3Q08 2.33 -1.47 -2.15 -4.40 2Q08 1.91 0.39 -5.19 -5.36 1Q08 1.73 -0.27 -2.54 -4.07 4Q07 2.37 -0.09 -0.98 -5.47 3Q07 1.47 0.27 -0.90 -3.70 2Q07 1.59 -0.68 -2.77 -3.11 1Q07 1.69 -0.96 -1.57 -3.38 4Q06 1.48 0.69 -0.84 -2.60 3Q06 1.79 -0.28 -1.15 -3.48 2Q06 1.39 0.41 -4.55 -4.86 1Q06 1.01 0.85 -2.15 -4.13 4Q05 1.48 -0.22 -1.28 -3.77 3Q05 1.39 0.35 -2.44 -2.65 2Q05 2.01 0.23 -0.71 -2.89 1Q05 1.64 -0.34 -1.23 -4.83 4Q04 1.00 -0.62 -2.80 -3.48 3Q04 1.56 1.37 -0.13 -1.50 2Q04 1.48 -0.59 -1.47 -4.29 1Q04 0.98 0.80 -1.82 -3.26Source: Standard & Poor’s, Compustat, Thomson Financial, FactSet and UBS UBS 30
    • US Equity Strategy 6 September 2011Earnings Analysis2Q11 Serial Correlation of Revenue Surprises Revenue Surprise Rptd Total Pct (% ) Beat Miss Revenue surprises are serially correlated 1Q11 High Rev. Surprise 207 209 3.9 158 33 1Q11 Low Rev. Surprise 207 209 1.8 109 57Difference 2.1 49 -24Source: S&P, Compustat, Thomson Financial, FactSet and UBSSerial Correlation of EPS/Rev Surprises % of Prior Sales % of Overall Quarter & EPS Beats S&P 500 Difference 1Q11 62% 52% 10% Companies beating on both 4Q10 63% 50% 13% top- and bottom-lines tend to 3Q10 56% 48% 8% repeat 2Q10 66% 53% 13% 1Q10 69% 60% 9% 4Q09 73% 59% 14% 3Q09 68% 50% 18% 2Q09 54% 37% 17% 1Q09 41% 28% 13% 4Q08 31% 30% 1% 3Q08 46% 39% 7% 2Q08 68% 59% 9% 1Q08 61% 52% 9% 4Q07 67% 57% 10% 3Q07 62% 49% 13% 2Q07 58% 54% 4% 1Q07 64% 54% 10% 4Q06 55% 49% 6% 3Q06 61% 52% 9% 2Q06 60% 49% 11% 1Q06 56% 48% 8% 4Q05 55% 49% 6% 3Q05 47% 43% 4% 2Q05 71% 60% 11% 1Q05 55% 51% 4% 4Q04 64% 58% 6% 3Q04 60% 53% 7% 2Q04 63% 58% 5% 1Q04 76% 69% 7%Source: Standard & Poor’s, Compustat, Thomson Financial, FactSet and UBS UBS 31
    • US Equity Strategy 6 September 2011Sector ReturnsS&P 500 SectorsIndex Aug-11 QTD YTD 1 Yr 3 Yr 5 Yr 7 Yr 10 Yr Technology (6.0) (4.5) (2.5) 20.5 4.0 4.9 5.7 2.6 Financials (9.6) (12.8) (15.5) 0.0 (12.7) (14.7) (8.2) (4.3) Energy (9.7) (9.1) 1.3 34.4 (1.0) 5.6 12.3 11.0 Health Care (2.1) (5.9) 7.3 21.2 2.9 2.4 3.7 2.0 Consumer Staples 0.6 (0.9) 6.9 20.1 6.5 7.0 7.7 6.4 Consumer Discret. (5.3) (6.6) 1.2 26.6 9.1 4.4 4.6 3.7 Industrials (6.5) (13.0) (6.0) 17.1 (1.2) 1.3 3.4 2.8 Utilities 2.3 1.4 10.5 15.0 1.0 3.5 8.5 3.9 Materials (6.7) (9.8) (6.5) 19.9 (0.8) 4.7 6.7 7.5 Telecom Svcs. (1.4) (7.0) (0.4) 15.6 3.6 2.6 5.2 0.4S&P 500 (5.4) (7.4) (1.8) 18.5 0.5 0.8 3.5 2.7Index Weight 2010 2009 2008 2007 2006 2005 2004 Technology 18.6 10.2 61.7 (43.1) 16.3 8.4 1.0 2.6 Financials 14.2 12.1 17.2 (55.3) (18.6) 19.2 6.5 10.9 Energy 12.4 20.5 13.8 (34.9) 34.4 24.2 31.4 31.5 Health Care 11.8 2.9 19.7 (22.8) 7.2 7.5 6.5 1.7 Consumer Staples 11.3 14.1 14.9 (15.4) 14.2 14.4 3.6 8.2 Consumer Discret. 10.7 27.7 41.3 (33.5) (13.2) 18.6 (6.4) 13.2 Industrials 10.5 26.7 20.9 (39.9) 12.0 13.3 2.3 18.0 Utilities 3.7 5.5 11.9 (29.0) 19.4 21.0 16.8 24.3 Materials 3.6 22.2 48.6 (45.7) 22.5 18.6 4.4 13.2 Telecom Svcs. 3.1 19.0 8.9 (30.5) 11.9 36.8 (5.6) 19.9S&P 500 100.0 15.1 26.5 (37.0) 5.5 15.8 4.9 10.9Source: Standard & Poor’s, FactSet and UBS Note: All returns include dividends. UBS 32
    • US Equity Strategy 6 September 2011US Equity ReturnsUS Equity IndicesIndex Aug-11 QTD YTD 1 Yr 3 Yr 5 Yr 7 Yr 10 Yr Dow (4.4) (6.5) 0.3 16.0 0.2 0.4 1.9 1.6 S&P 500 (5.4) (7.4) (1.8) 18.5 0.5 0.8 3.5 2.7 S&P 100 (OEX) (5.2) (6.3) (1.7) 17.7 (0.1) 0.5 2.6 1.6 Nasdaq (6.4) (7.0) (2.8) 22.0 2.9 3.4 5.0 3.6 R. 1000 (5.8) (7.8) (1.9) 19.1 0.8 1.1 4.0 3.2 R. 1000 Value (6.2) (9.4) (4.0) 14.4 (1.4) 0.0 3.0 3.4 R. 1000 Growth (5.3) (6.2) 0.2 24.0 3.1 3.7 4.9 2.7 R. Mid-Cap (6.9) (10.3) (3.0) 21.3 2.9 3.0 7.0 7.2 R. Mid-Cap Value (6.9) (10.2) (4.2) 17.5 2.0 1.4 6.4 7.5 R. Mid-Cap Growth (6.8) (10.3) (1.7) 25.6 3.8 4.3 7.4 5.9 R. 2000 (8.7) (12.0) (6.5) 22.2 0.8 1.5 5.5 5.8 R. 2000 Value (8.8) (11.8) (8.5) 16.9 (0.6) (0.6) 4.3 6.5 R. 2000 Growth (8.6) (12.1) (4.6) 27.5 2.1 3.6 6.6 4.9Index Value 2010 2009 2008 2007 2006 2005 2004 Dow 11,614 11.0 18.8 (33.8) 6.4 16.3 (0.6) 3.1 S&P 500 1,219 15.1 26.5 (37.0) 5.5 15.8 4.9 10.9 S&P 100 (OEX) 12.5 22.3 (35.3) 6.1 18.5 1.2 6.4 Nasdaq 2,579 16.9 43.9 (40.5) 9.8 9.5 1.4 8.6 R. 1000 16.1 28.4 (37.6) 5.8 15.5 6.3 11.4 R. 1000 Value 15.5 19.7 (36.8) (0.2) 22.2 7.1 16.5 R. 1000 Growth 16.7 37.2 (38.4) 11.8 9.1 5.3 6.3 R. Mid-Cap 25.5 40.5 (41.5) 5.6 15.3 12.7 20.2 R. Mid-Cap Value 24.8 34.2 (38.4) (1.4) 20.2 12.6 23.7 R. Mid-Cap Growth 26.4 46.3 (44.3) 11.4 10.7 12.1 15.5 R. 2000 26.9 27.2 (33.8) (1.6) 18.4 4.6 18.3 R. 2000 Value 24.5 20.6 (28.9) (9.8) 23.5 4.7 22.2 R. 2000 Growth 29.1 34.5 (38.5) 7.0 13.3 4.2 14.3Source: Dow Jones, NASDAQ, Standard & Poor’s, Russell, FactSet and UBS Note: All returns include dividends except the Dow and NASDAQ. UBS 33
    • US Equity Strategy 6 September 2011Global Equity ReturnsGlobal Equity IndicesCountry Curr. Aug-11 QTD YTD 1 Yr 3 Yr 5 Yr 7 Yr 10 Yr EAFE US$ (9.0) (10.4) (5.7) 10.5 (2.5) (1.0) 5.7 5.4 local (8.7) (11.9) (11.4) (1.5) (5.7) (4.5) 2.6 1.0 Euro x-UK US$ (11.4) (15.8) (6.0) 9.3 (4.8) (1.0) 6.5 5.8 local (11.0) (16.0) (13.6) (5.6) (6.2) (4.5) 3.1 0.5 UK US$ (7.3) (7.2) (2.1) 13.2 (1.4) (1.2) 4.9 4.8 local (6.5) (8.5) (5.8) 6.8 2.4 1.9 6.4 3.6 Pac x-Japan US$ (5.4) (5.8) (3.3) 18.3 6.9 8.5 13.5 13.7 local (4.0) (6.1) (7.0) 2.8 1.2 3.0 8.4 8.0 Japan US$ (8.1) (4.9) (9.3) 6.4 (3.4) (4.8) 1.6 2.1 local (9.0) (9.9) (14.5) (3.1) (14.0) (12.6) (3.5) (2.4) EME US$ (8.9) (9.2) (8.3) 9.4 5.4 8.7 16.0 16.3 local (7.3) (8.1) (9.9) 2.7 4.7 7.2 13.6 14.2S&P 500 (5.4) (7.4) (1.8) 18.5 0.5 0.8 3.5 2.7Country Curr. 2010 2009 2008 2007 2006 2005 2004 EAFE US$ 8.2 32.5 (43.1) 11.6 26.9 14.0 20.7 local 5.3 25.4 (39.9) 4.0 16.9 29.5 13.1 Euro x-UK US$ 2.4 33.9 (45.0) 17.5 36.4 11.3 22.4 local 5.1 29.0 (42.7) 6.6 22.5 28.6 13.3 UK US$ 8.8 43.4 (48.3) 8.4 30.7 7.4 19.6 local 12.2 27.7 (28.5) 6.6 14.6 20.1 11.5 Pac x-Japan US$ 17.1 73.0 (50.0) 31.7 33.2 14.8 29.6 local 6.1 45.8 (41.6) 21.6 25.9 20.3 25.3 Japan US$ 15.6 6.4 (29.1) (4.1) 6.3 25.6 16.0 local 0.7 9.3 (42.5) (10.1) 7.3 44.7 10.9 EME US$ 19.2 79.0 (53.2) 39.8 32.6 34.5 26.0 local 14.4 62.8 (45.7) 33.5 28.9 35.8 16.4S&P 500 15.1 26.5 (37.0) 5.5 15.8 4.9 10.9Source: Standard & Poor’s, MSCI, FactSet and UBS Note: All returns include dividends. UBS 34
    • US Equity Strategy 6 September 2011Correlations of Stocks and Economic IndicatorsCorrelations with Major Economic Indicators Indl ISM UBS Econ Nonfarm S&P 500 Prod. ISM Non-Mfg Surp Payrolls Index UBS’s proprietary Economic Surprise Index and the ISMIndustrial Production 1.00 Non-Mfg have the highestISM 0.11 1.00 correlations with stocks of any of the economicISM Non-Mfg 0.02 0.27 1.00 indicatorsUBS Econ Surprise 0.18 0.25 0.16 1.00Nonfarm Payrolls 0.52 -0.06 0.03 0.21 1.00S&P 500 Index 0.08 0.25 0.28 0.47 0.20 1.00Source: ISM, Federal Reserve, US Dept of Labor, OECD, FactSet and UBSS&P 500 vs. Economic Surprise Index & ISM Non-Mfg 30% 30% 20% 20% ◄ S&P 500 10% 10% 0% 0% -10% US Econ ▲ -10% Surprise & Non-Mfg ISM -20% -20% -30% -30% 99 00 01 02 03 04 05 06 07 08 09 10 11Source: Standard & Poor’s, FactSet and UBS. Note: Rolling 3-month changes UBS 35
    • US Equity Strategy 6 September 2011Sector RecommendationsOverweight Technology Tech appears attractive for a host of reasons. With a multiple of 11.3x the group trades inline with the market — highly unusual Tech looks cheap and we for the sector. Additionally, 2Q earnings beats were the largest expect strong buyback of any group and Tech has become the most defensive cyclical activity sector with 29% of its total assets in cash. This excess capital is driving rapid growth in dividends and buybacks. Industrials Industrials have swung from expensive to cheap as prices have dropped 13% since the end of June while forward NTM earnings estimates have continued to rise. Many Capital Goods companies are benefiting from strong spending on agriculture and mining equipment, and Transports, particularly Rails, have solid pricing power. We believe this sector has the most margin upside from current levels due to the group’s later-stage nature. Financials Financials underperformed in August due, in part, to investor Despite year-to-date concerns about the impact of falling asset prices on balance underperformance, sheets. However, there are a number of tailwinds that should Financials stand to benefit support the group’s performance, including (1) improving loss from a variety of tailwinds trends; (2) a turn in C&I and consumer loan volumes; (3) a more favorable backdrop for investment banking activity; (4) increased regulatory clarity; and (5) attractive valuations.Market Weight Health Care Health Care remains our favorite non-cyclical sector due to its Health Care remains our solid earnings trends and strong balance sheets. With cash favorite non-cyclical equal to 17% of assets, this group has large reserves that should help drive EPS gains through M&A activity and buybacks. However, we are concerned about high valuations, uncertainty surrounding ‘ObamaCare’, and patent expirations. Consumer Discretionary Compared to other economically sensitive areas of the market, Discretionary is expensive and has less potential for dividend and buyback growth due to a high total payout ratio. The group’s relative earnings strength tends to fade as the cycle advances from its early stage. UBS 36
    • US Equity Strategy 6 September 2011Sector RecommendationsMarket Weight (continued) Energy Falling 10%, Energy was the worst performing sector in August. Since its peak in April, the price of WTI has fallen Upward estimate revisions 22%, and so far in 3Q the average price of oil is 11% below the have stalled in the Energy 2Q level. This decline has curtailed estimate revisions. During sector 2Q reporting season, Energy companies surpassed top-line expectations by 6% but beat on the bottom-line by just 2% due to margin pressures. Materials We expect Materials’ performance to remain closely tied to the outlook for commodity prices, which could continue to be volatile given significant global macro risks. However, the group is currently the cheapest sector based on our valuation work.Underweight Consumer Staples Consumer Staples has outperformed during the current soft We expect Staples to patch. However, we expect the sector to struggle versus the struggle as investors rotate broader market as investors rotate toward more cyclical names. to more cyclical names From a longer-term perspective, Staples’ secular growth prospects remain solid and much of the group should benefit from significant overseas exposure. High total (dividends and buybacks) payout ratios could constrain the return of capital to shareholders in the future. Telecom Telecom is expensive and valuations could be at risk if the economy avoids recession as we expect. Additionally, short term earnings and revenue trends, as measured by surprises and revisions, are weak and longer term the group faces a challenging competitive environment. Utilities Up 2%, Utilities was the best performing sector in August. However, it is the most expensive group and analysts expect it Earnings growth and re- to post the lowest earnings growth of any sector over the next investment needs are two years. Merchant utilities face a challenging pricing headwinds for Utilities environment and environmental costs could have an outsized impact on the industry. Additionally, due to high re-investment needs, the sector has been a net issuer of equity. UBS 37
    • US Equity Strategy 6 September 2011Balance Sheet StrengthCash as a % of Total Assets 16% Post Cash Recession Draw-down 13.5% Cash balances remain 14% extremely high levels Build-up Small Cap 12% ▼ (S&P 600) 11.0% 10% 8% 6% ▲ Large Cap (S&P 500) 4% 2% 99 00 01 02 03 04 05 06 07 08 09 10 11Source: S&P, Compustat, FactSet and UBS Note: Universe excludes Financials. Data as of 2Q11Net Debt to Equity Balance sheets continue to 95% strengthen 85% 75% 65% 55% 45% 35% 99 00 01 02 03 04 05 06 07 08 09 10 11Source: S&P, Compustat, FactSet and UBS Note: Universe excludes Financials. Data as of 2Q11 UBS 38
    • US Equity Strategy 6 September 2011M&A and CapexNumber of Deals Above $1 Billion 268 Deal activity has increased 255 244 meaningfully off a low base 233 and should continue to rise 195 180 176 165 151 157 143 120 96 98 101 87 90 67 95 97 99 01 03 05 07 09 11 Ann.Source: MergerStat, FactSet and UBSNote: 2011 is estimated based on a run rate of 117 deals as of August 30, 2011Capex and R&D 8.3% 9.0% Capex spending has picked up while R&D spending remains subdued 7.5% 8.5% R&D / Sales (Rolling 12M) ► Energy and Tech account for 6.8% 8.0% the a large part of this rise 6.3% ◄ Capex/Sales 6.0% 7.5% (Rolling 12M) ► cost cutting 7.1% 5.3% 7.0% 00 01 02 03 04 05 06 07 08 09 10 11Source: Standard & Poor’s, CompuStat, FactSet and UBS. Note: Universe excludes Financials. Data as of 2Q11 UBS 39
    • US Equity Strategy 6 September 2011Cash RepatriationTotal Payout Ratio 110 The total payout ratio is 91.6 rising but well off the prior peak 90 70 61.2 ◄ Dividends + Buybacks 50 45.6 30 ▲ Dividends 27.7 10 00 01 02 03 04 05 06 07 08 09 10 11Source: S&P, Compustat, FactSet and UBS Note: Universe excludes Financials. Data as of 2Q11Total Payout Potential 2011 Current 10-yr Avg Difference Cash Earnings Payout Payout b/w Avg and % of Growth (% ) Ratio (% ) Ratio (% ) Current Assets With more cash, better earnings, and lower payoutCyclicals 23.6 56.5 63.1 6.6 12.8 ratios, cyclicals have better Technology 16.7 48.9 66.6 17.7 28.0 prospects for payout growth Energy 37.7 45.0 51.1 6.1 6.1 Materials 40.0 36.4 47.5 11.1 5.9 Cons Disc 17.3 91.7 82.0 -9.7 9.7 Industrials 19.9 61.1 61.6 0.5 9.2Non-Cyclicals 5.9 71.3 67.1 -4.2 8.0 Utilities -1.7 46.1 39.7 -6.4 2.2 Health Care 7.1 60.4 61.6 1.2 16.9 Cons Staples 8.7 88.6 80.6 -8.0 6.3 Telecom Svcs 0.9 93.1 74.6 -18.5 3.1S&P 500 ex-Fin 17.2 61.7 64.7 3.0 11.0Source: S&P, Compustat, FactSet and UBS Note: Universe excludes Financials UBS 40
    • US Equity Strategy 6 September 2011Cash RepatriationDividends & Buybacks ($B) 150 $B Buybacks ► Buybacks have risen sharply 120 but remain far from peak levels 90 60 30 ▲ Dividends 0 99 00 01 02 03 04 05 06 07 08 09 10 11Source: Standard & Poor’s, Compustat, FactSet and UBS Note: Universe excludes FinancialsBuybacks vs. Debt Payments 72 61 61 Debt is another source of Debt Repayments 56 58 cash that can be directed to Buybacks buybacks and investment 38 34 33 31 25 22 14 -19 -14 -18 -27 Debt Payments > Debt Payments < Buybacks Buybacks Net Debt Issuance 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11ESource: Standard & Poor’s, Compustat, FactSet and UBS Note: Universe excludes Financials UBS 41
    • US Equity Strategy 6 September 2011ISMISM Manufacturing & Non-Manufacturing >50 is Expansionary 54.6 ◄ ISM Non-Mfg ISM Manufacturing is 60 consistent with annual GDP growth of 2.8% 55 50 50.6 45 ◄ ISM Mfg 40 35 <50 is Contractionary 98 00 02 04 06 08 10Source: Institute of Supply Chain Management, FactSet and UBS Note: ISM Mfg represents Aug. 2011ISM Manufacturing Survey 10 Yr Aug-11 Jun-11 Jun-11 May-11 AveragePurchasing Managers Index 50.6 50.9 55.3 53.5 52.2 Production 48.6 52.3 54.5 54.0 55.5 New Orders 49.6 49.2 51.6 51.0 55.3 Backlog of Orders 46.0 45.0 49.0 50.5 49.8 Supplier Deliveries 50.6 50.4 56.3 55.7 54.4 Inventories 52.3 49.3 54.1 48.7 46.0 Customers Inventories 46.5 44.0 47.0 39.5 44.6 Employment 51.8 53.5 59.9 58.2 49.8 Prices Paid 55.5 59.0 68.0 76.5 63.7 New Export Orders 50.5 54.0 53.5 55.0 54.4 Imports 55.5 53.5 51.0 54.5 53.4Source: ISM, FactSet and UBS UBS 42
    • US Equity Strategy 6 September 2011InflationCPI – Core vs. Headline 6% Broad inflation measures are beginning to pick up 5% ◄ Core 4% 3.6% 3% 2% 1% 1.8% 0% -1% Headline ► -2% 90 92 94 96 98 00 02 04 06 08 10Source: Department of Labor, FactSet and UBSUS Raw Food Costs vs. Consumer Food Costs 30 27.3% In the developed world, PPI Raw Foods ► intermediate costs limit the impact of commodity 20 inflation on consumer prices 10 ▼ CPI - Food 0 4.2% -10 -20 90 92 94 96 98 00 02 04 06 08 10Source: U.S. Department of Labor, FactSet and UBS UBS 43
    • US Equity Strategy 6 September 2011InflationWTI 100 Energy prices have recently 80 70 fallen on weaker economic 60 88.8 data 50 40 30 20 10 8 7 6 5 4 3 70 75 80 85 90 95 00 05 10Source: Wall Street Journal, FactSet and UBSGold & Copper $/troy ounce 5-day average $/lb 4.6 1,800 4.5 Precious metal prices have increased while industrial 1,700 4.4 commodity prices remain more subdued 4.3 1,600 4.2 1,500 4.1 1,400 Copper ► ◄ Gold 4.0 1,300 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11Source: Wall Street Journal, FactSet and UBS Note: Rolling 5-day average prices UBS 44
    • US Equity Strategy 6 September 2011Inflation & Currencies5-Year/5-Year Forward Breakeven Inflation Rate 3.5 Long-term inflation expectations — as implied by the TIPS market — remain in check 3.0 2.8 2.5 2.3 2.0 1.5 99 00 01 02 03 04 05 06 07 08 09 10 11Source: Bloomberg and UBSUSD/EUR 1.6 1.5 The US$ is currently in the middle of its 5-year range 1.4 1.44 1.3 1.2 1.1 1.0 0.9 90 92 94 96 98 00 02 04 06 08 10Source: Wall Street Journal, Bloomberg, FactSet and UBS UBS 45
    • US Equity Strategy 6 September 2011EmploymentWeekly Unemployment Claims 650 Weekly claims have 600 stagnated at current levels 550 for the past several months 500 450 400 4-week 350 avg. 410k 300 250 90 92 94 96 98 00 02 04 06 08 10Source: US Department of Labor, FactSet and UBSUnemployment Rate 11 The unemployment rate rises 10 precipitously during 9 recessions 9.1% 8 7 6 5 4 3 50 55 60 65 70 75 80 85 90 95 00 05 10Source: US Department of Labor, FactSet and UBS Note: Updated for August data. UBS 46
    • US Equity Strategy 6 September 2011Retail Sales, Savings & WealthRetail Sales ex-Autos 8.6 Retail sales data remains 8 strong 6 4 2 0 -2 -4 -6 -8 94 96 98 00 02 04 06 08 10Source: US Census Bureau, FactSet and UBSSavings Rate & Total Household Net Worth ◄ Savings Rate 20 7 30 6 Total Household 5 ▼ Net Worth (Inverted) 5.3%40 4 50 3 58.1 60 2 1 90 92 94 96 98 00 02 04 06 08 10Source: Federal Reserve, BEA, FactSet and UBS Note: Household Net Worth is through 1Q11 UBS 47
    • US Equity Strategy 6 September 2011HousingCase Shiller (20 Market) Home Values Index 200 Home values remain stagnant 180 160 141.3 140 120 100 00 01 02 03 04 05 06 07 08 09 10 11Source: Standard & Poor’s, FactSet and UBS Note: Data through June 2011Housing Permits 2,500 2,000 Construction activity remains at multi-generational lows 1,500 1,000 601k 500 60 65 70 75 80 85 90 95 00 05 10Source: US Census Bureau, FactSet and UBS UBS 48
    • US Equity Strategy 6 September 2011Loan Volumes & DelinquenciesC&I Loan Volumes 40 30 Increasing loan volumes are supportive of further hiring 20 10 0 -10 -20 -30 73 77 81 85 89 93 97 01 05 09Source: Mortgage Bankers Association, FactSet and UBSLoan Delinquency (Residential and C&I) 12 As of 2Q11 10 10.5 8 Residential  6  C&I 4 2 2.2 90 92 94 96 98 00 02 04 06 08 10Source: Federal Reserve, FactSet and UBS UBS 49
    • US Equity Strategy 6 September 2011US Fiscal ImbalancesFederal Budget Deficit (US$ Trillions) 1.4 1.4 $8 Trillion in projected 1.3 deficits over the next 10 years 1.1 0.7 0.7 0.7 0.6 0.7 0.6 0.6 0.5 0.5 0.5 08 09 10 11 12 13 14 15 16 17 18 19 20 21Source: CBO, Haver and UBSFederal Budget Breakdown $5.9 Trillion OMB projects that interest and entitlements will go from 5% Interest 16% 45% of the budget to 62% … almost 80% of tax receipts 18% Mandatory 13% $3.5 Trillion 40% Entitlements 46% 14% Discretionary 9% 23% Security 17% 2011 2021Source: Office of Management & Budget and UBS UBS 50
    • US Equity Strategy 6 September 2011US Fiscal ImbalancesTreasuries Outstanding (By Maturity) Treasuries Outstanding 27% of US Treasury debt is $8.7 Trillion 5-10 Years up for refinancing in the next (Bills, Notes, Avg Cpn: 3.5 12 months and Bonds) 23% > 10 Years Avg Cpn: 5.2 Is the US Government any 9% different than a sub-prime 1-5 Years ARM borrower? Avg Cpn: 2.1 41% < 1 Year Avg Cpn: 08 27%Source: US Treasury and UBS Note: Data updated through July 2011Foreign Ownership of Treasuries (US$ Trillions) Foreign Ow nership 10 China 26% Japan 20% Offshore Havens 12% 8 Commodity Exporters 13% Rest of World 29% 4.5 3.7 6 3.1 4 1.8 2.0 2.1 2.4 1.3 1.3 1.2 1.5 6.4 1.0 1.0 4.6 2 3.9 2.3 2.4 2.3 2.3 2.4 2.4 2.6 2.7 2.7 2.7 0 99 00 01 02 03 04 05 06 07 08 09 10 11E 11Source: US Treasury and UBSNote: Offshore Havens include UK, Luxemburg and Caribbean Banking Centers. Data updated through June 2011 UBS 51
    • US Equity Strategy 6 September 2011Yield CurvesUS Yield Curves 5 4 3  2011 ▲ 2010 2 ▲ 2008 2009 ► 1 0 3-Mo 2-Yr 5-Yr 10-Yr 30-Yr 08/31/2011 0.01 0.20 0.96 2.22 3.60 12/31/2010 0.12 0.59 2.01 3.29 4.33 12/31/2009 0.05 1.14 2.68 3.84 4.64 12/31/2008 0.08 0.76 1.55 2.21 2.68Source: Bloomberg, Federal Reserve and UBS2 – 10 Year Spread 3 2 While the yield curve has 2.02 flattened in recent months, it remains reasonably steep Avg: 1.06 1 0 85 90 95 00 05 10Source: Federal Reserve, Bloomberg, FactSet and UBS UBS 52
    • US Equity Strategy 6 September 2011Central Bank PolicyImplied Fed Funds Rates (based on Futures) 0.60 The Fed is now focused on 0.50 unconventional measures to Feb 28, 2011 ► provide stimulus 0.40 0.30 0.20 0.10 ▲ Aug 31, 2011 0.00 9/20/11 11/2/11 12/13/11 1/25/12 3/13/12 4/25/12 6/20/12Source: Bloomberg and UBSReal Fed Funds 4 Real rates are now 3 substantially negative 2 Avg: 1.20 1 0 -1 -1.64 -2 90 92 94 96 98 00 02 04 06 08 10Source: Federal Reserve, Department of Labor, FactSet and UBS UBS 53
    • US Equity Strategy 6 September 2011Treasuries10-Year Treasury Yields 16 Treasury yields remain 14 subdued on growth concerns 12 10 8 6 2.22 4 2 65 70 75 80 85 90 95 00 05 10Source: Federal Reserve, Bloomberg, FactSet and UBSMunicipal Bond Spreads 2.0 Yield (%) 10-year US Treasury 2.2 Typically, municipal bonds 1.5 GO Bonds carry lower yields due to National Avg 2.6 their tax-exempt status 1.0 NY 2.9 IL 4.1 0.5 CA 3.6 0.0 -0.5 -1.0 -1.5 -2.0 97 99 01 03 05 07 09 11Source: Federal Reserve, Wall Street Journal, Haver and UBS UBS 54
    • US Equity Strategy 6 September 2011Bond SpreadsMortgage Spread Mortgage spreads remain narrow 2.0 Avg 1.49 1.5 1.31 1.0 90 92 94 96 98 00 02 04 06 08 10Source: Freddie Mac, Bloomberg, FactSet and UBSCorporate (Baa) Spread 6 Corporate spreads have widened recently as a result of falling treasury yields 5 4 3.12 3 Avg: 2.3 2 1 90 92 94 96 98 00 02 04 06 08 10Source: Moody’s, Bloomberg, FactSet and UBS UBS 55
    • US Equity Strategy 6 September 2011Appendix: S&P 500 ValuationOur S&P 500 valuation framework is based upon a traditional discounted cash flow methodology, illustrated in theexhibit below. What differentiates our approach is how we apply it in practice. Gordon Growth Model P0 = current price E1 = next year’s EPS P0 PR1 PR1 PR = payout ratio = = E1 k − g (I + RRF + ERP) − g k = discount rate or cost of capital I = inflation rate RRF = real risk free rate ERP = equity risk premium g = long-term growth rateSource: UBSImportantly, while our P/E formula remains constant over time, our work suggests that equity markets experienceextended stretches over which only one or two key variables dominate overall stock market valuations. We call theseprolonged periods “investment regimes” and believe that they hold the key to understanding stock prices. Investment RegimesPeriod Key Factor Valuation Metric Valuation Formula P 11970 - 1980 Inflation Expectation CPI + 2% E = I + 2% P 11980 - 1999 Risk Free Rate 10 year treasury E = I + RRF P 12004 - 2008 Cost of Capital Baa Yield E = Baa Yield P 12009 - Present Slower Growth Baa Yield - (Δ Growth) E = Baa Yield - (Δ Growth)Source: UBSNotably, over the past couple of years, the market has been discounting slower long-term growth rate. The currentrelationship between the S&P 500’s 12.4x P/E, the Baa’s 6.0% bond yield, and growth expectations is shown below. 2009 – Present Regime P 1 = E Baa Yield - (Δ Growth) 1 11.3 = 8.9% 8.9% = 5.5% - (-3.4%) Baa Yield Δ Growth Market implied EPS growth slowing by 3.4%Source: UBS UBS 56
    • US Equity Strategy 6 September 2011Appendix: Inter-Sector ValuationThe goal of our inter-sector valuation work is to gauge whether each S&P 500 sector is undervalued orovervalued relative to the overall market. Our analysis is based upon the historical valuationrelationships between sectors. Importantly, we normalize sector valuations for three dynamics thatcould potentially provide spurious results, if not accounted for correctly: Some sectors tend to be more expensive than others on a systematic basis (e.g., Tech consistently trades at a higher P/E than Financials). The valuation dispersion between sectors is wide in some environments (e.g., the late-90s) and tight in others (e.g., 2008-09). In other words, a multiple point today is not necessarily the same as a multiple point yesterday. Sector dynamics change over time. For example, Health Care carried a premium multiple throughout the 90’s, but has traded at a discount over the past decade. Our inter-sector valuation work suggests that relative sector valuations are mean-reverting overmedium-term time frames. As such, we view our inter-sector valuation rankings as a good starting pointin determining sector recommendations. However, we note that sectors can stay cheap or expensive formulti-year time periods.Ranking OverviewIn order to properly normalize inter-sector valuations over time, our analysis focuses on how manystandard deviations away each sector’s P/E is from the market’s P/E. (For our fellow math geeks, this isknown as cross-sectional standard deviation analysis.) We then put this calculation into a historicalcontext on a sector-by-sector basis.Step-by-Step Calculations(1) Aggregate P/Es and Standard Deviations. First, we calculate a forward P/E for the S&P 500 and all ten of its sectors, using consensus EPS estimates over the next twelve months. We also calculate the weighted average standard deviation of the market’s forward P/E.(2) Calculate Z-Scores. Next, we calculate a Z-Score for each sector. This expresses each sector’s P/E as a number of standard deviations away from the market’s P/E. This is calculated by subtracting the market’s P/E from each sector’s P/E and dividing the result by the weighted average standard deviation of the market’s forward P/E.(3) Put Current Valuations in Historical Context. A Net Z-Score is then calculated for each sector by comparing current Z-Scores to average Z-Scores over the prior 36 months. We perform our analysis on a rolling 36-month basis to account for secular changes in sector dynamics (e.g., new governmental regulations).(4) Rank Sectors from Most to Least Expensive. We then rank all ten sectors based upon their Net Z- Scores (i.e., how expensive or cheap each sector’s current Z-Score is in comparison to its historical average). Sectors with negative scores are cheap on a relative basis. Sectors with positive scores are expensive.(5) Convert Net Z-Scores into Current P/E Multiple Points. To make the visual interpretation of our analysis easier to understand, we covert each sector’s historical Net Z-Scores into current P/E multiple points (cheap or expensive). This is done by multiplying the historical Net Z-Scores by the current weighted average standard deviation of the market’s forward P/E. UBS 57
    • US Equity Strategy 6 September 2011Appendix: UBS Return DriversWe define market leadership by specific stock characteristics, such as Size (large vs. small), Valuation(expensive vs. cheap), Growth, Momentum, and Volatility. We track twelve such characteristics, whichwe have dubbed “UBS Return Drivers.” UBS Return Drivers  Size (Capitalization)  Foreign Sales  Valuation (Forward P/E)  Volatility  Earnings Growth  Financial Leverage  Price Momentum  Operating Leverage  Earnings Revisions  Dividend Yield  Short Interest  Return on EquitySource: UBSComputationEach Return Driver is calculated as a hypothetical long/short portfolio built around a single quantitativedecision variable. Our calculations assume monthly rebalancing and no transaction or borrowing costs.For each Return Driver, the computation process has four steps:(6) Break Stocks into Industry Groups. While our Return Drivers are reported at the sector and index level, our process starts by breaking the S&P 500 into its 24 GICS industry groups. S&P 500 GICS Sectors and Industry Groups Sectors Industry Groups Energy Energy Materials Materials Industrials Capital Goods; Commercial & Professional Services; Transportation Consumer Cyclicals Autos; Consumer Durables & Apparel; Consumer Services; Media; Retailing Consumer Staples Food & Staples Retailing; Food Beverage & Tobacco; Household & Personal Products Health Care Health Care Equipment & Services; Pharmaceuticals, Biotech & Life Sciences Financials Banks; Diversified Financials; Insurance; Real Estate Technology Software & Services; Hardware & Equipment; Semiconductors & Equipment Telecom Telecommunication Services Utilities UtilitiesSource: Standard and Poor’s and UBS(7) Rank Based on Return Drivers. Within each industry group, stocks are ranked from top to bottom by the Return Driver in question (e.g., largest to smallest market capitalization). The list is then broken into three groups: top-third, middle-third, and bottom-third. Our calculations assume that the top-third of stocks are bought and the bottom-third of stocks are sold. Ranking and Return Calculation Methodology Buy (Top 1/3). Top 1/3 Stock returns equal-weighted within industry group Middle 1/3 Sell (Bottom 1/3). Bottom 1/3 Stock returns equal-weighted within industry groupSource: UBS UBS 58
    • US Equity Strategy 6 September 2011(8) Calculate Returns. Monthly returns are then calculated by subtracting the returns of the bottom-third (sells) from the top-third (buys). The result is then divided by two to put the outperformance in a long-only context. This analysis is done on an equal-weighted basis within each Industry Group. Return Driver Calculation — Hypothetical Example Foreign Sales Calcualtion — Industry Group Example Long: Highest Foreign Sales Stocks (Top 1/3) 9.8% Short: Lowest Foreign Sales Stocks (Bottom 1/3) 4.6% Difference 5.2% Divide by 2 ÷2 Factor Result 2.6%Source: UBS(9) Aggregate Results. At the sector level, Returns Drivers are calculated as a weighted average of industry group returns based on S&P 500 index weights. S&P 500 index results are a weighted average of sector results. We also index monthly returns as a time series for further analysis. GICS Sectors and Industry Groups — S&P 500 Cap-weighted result S&P 500 of Sector Average Cap-weighted result of Sector Sector Industry Group Average Industry Group Industry GroupSource: Standard and Poor’s and UBS(10) Analytics. There are several ways that UBS Return Drivers can be used in investment decision making. We have listed a few below:  Identify Winning Investment Characteristics. UBS Return Drivers identify which specific equity characteristics have outperformed and underperformed during a specific time period. This data is available at the industry group, sector, and index level. Additionally, investors can get a sense for the magnitude of outperformance or underperformance of Return Drivers relative to one another.  Track Historical Trends. In our analysis, we track the performance of each one of our Return Drivers over time. This allows us to identify the types of market environments in which each Return Driver tends to outperform or underperform.  Avoid Crowded Trades. Our work also helps identify over-loved and under-loved investment themes. For each UBS Return Driver, we track the valuation spread between the top-third of companies and the bottom-third of companies over time. As such, we can help identify points when particular portfolio tilts or trades appear to be “crowded” or “priced in.” Alternatively, we can also identify points when upside opportunities appear outsized. UBS 59
    • US Equity Strategy 6 September 2011 Analyst CertificationEach research analyst primarily responsible for the content of this researchreport, in whole or in part, certifies that with respect to each security or issuerthat the analyst covered in this report: (1) all of the views expressed accuratelyreflect his or her personal views about those securities or issuers and wereprepared in an independent manner, including with respect to UBS, and (2) nopart of his or her compensation was, is, or will be, directly or indirectly, relatedto the specific recommendations or views expressed by that research analyst inthe research report. UBS 60
    • US Equity Strategy 6 September 2011Required DisclosuresThis report has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches andaffiliates are referred to herein as UBS.For information on the ways in which UBS manages conflicts and maintains independence of its research product;historical performance information; and certain additional disclosures concerning UBS research recommendations,please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance isnot a reliable indicator of future results. Additional information will be made available upon request. UBS Securities Co.Limited is licensed to conduct securities investment consultancy businesses by the China Securities RegulatoryCommission.UBS Investment Research: Global Equity Rating Allocations UBS 12-Month Rating Rating Category Coverage1 IB Services2 Buy Buy 54% 39% Neutral Hold/Neutral 39% 35% Sell Sell 7% 14% 3 UBS Short-Term Rating Rating Category Coverage IB Services4 Buy Buy less than 1% 33% Sell Sell less than 1% 25%1:Percentage of companies under coverage globally within the 12-month rating category.2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided withinthe past 12 months.3:Percentage of companies under coverage globally within the Short-Term rating category.4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were providedwithin the past 12 months.Source: UBS. Rating allocations are as of 30 June 2011.UBS Investment Research: Global Equity Rating Definitions UBS 12-Month Rating Definition Buy FSR is > 6% above the MRA. Neutral FSR is between -6% and 6% of the MRA. Sell FSR is > 6% below the MRA. UBS Short-Term Rating Definition Buy: Stock price expected to rise within three months from the time the rating was assigned Buy because of a specific catalyst or event. Sell: Stock price expected to fall within three months from the time the rating was assigned Sell because of a specific catalyst or event. UBS 61
    • US Equity Strategy 6 September 2011KEY DEFINITIONS Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not aforecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stocks price target and/or rating aresubject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect anychange in the fundamental view or investment case.Equity Price Targets have an investment horizon of 12 months.EXCEPTIONS AND SPECIAL CASESUK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management,performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell:Negative on factors such as structure, management, performance record, discount.Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment ReviewCommittee (IRC). Factors considered by the IRC include the stocks volatility and the credit spread of the respective companysdebt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating.When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece.Research analysts contributing to this report who are employed by any non-US affiliate of UBS Securities LLC are notregistered/qualified as research analysts with the NASD and NYSE and therefore are not subject to the restrictions contained inthe NASD and NYSE rules on communications with a subject company, public appearances, and trading securities held by aresearch analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report, if any,follows.UBS Securities LLC: Jonathan Golub, CFA; Manish Bangard, CFA; Daniel Murphy; Vishal Patel; Thomas M. Doerflinger,Ph.D.; Natalie Garner, CFA. UBS 62
    • US Equity Strategy 6 September 2011Company Disclosures Company Name Reuters 12-mo rating Short-term rating Price Price date Apple Inc.6c, 7, 16, 18a AAPL.O Buy N/A US$374.05 02 Sep 2011 Baker Hughes Inc.2, 4, 5, 6a, 6b, 6c, 7, 13, 16 BHI.N Buy N/A US$58.27 02 Sep 2011 2, 4, 6a, 6c, 7, 16, Cardinal Health, Inc. 18b, 22 CAH.N Buy N/A US$41.41 02 Sep 2011 6c, 7, 16 Celgene Corporation CELG.O Buy N/A US$58.34 02 Sep 2011 2, 4, 5, 6a, 6b, 6c, 7, 16, 22 Citigroup Inc C.N Buy N/A US$28.40 02 Sep 2011 4, 5, 6a, 16 CONSOL Energy, Inc. CNX.N Buy N/A US$44.78 02 Sep 2011 16, 22 Deere & Co. DE.N Buy N/A US$78.03 02 Sep 2011 5, 6a, 6b, 6c, 7, 13, 16, 22 Dow Chemical DOW.N Buy N/A US$26.71 02 Sep 2011 Ford Motor Co.4, 6a, 6b, 6c, 7, 13, 14, 16, 18c F.N Buy N/A US$10.42 02 Sep 2011 4, 5, 6a, 6b, 6c, 7, 16, General Electric Co. 18f, 22 GE.N Buy N/A US$15.76 02 Sep 2011 2, 4, 5, 6a, 6b, 6c, 7, 16, 18d Google Inc. GOOG.O Buy N/A US$524.84 02 Sep 2011 3, 4, 6a, 13, 16, 20 Joy Global Inc. JOYG.O Buy (CBE) N/A US$79.39 02 Sep 2011 2, 4, 5, 6a, 6b, Prudential Financial Inc. 6c, 7, 16, 22 PRU.N Buy N/A US$46.60 02 Sep 2011 16, 18e Qualcomm Inc. QCOM.O Buy N/A US$49.68 02 Sep 2011 13, 16, 20 SanDisk Corp. SNDK.O Buy (CBE) N/A US$34.94 02 Sep 2011Source: UBS. All prices as of local market close.Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricingdate2. UBS AG, its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement of securities of this company/entity or one of its affiliates within the past 12 months.3. UBS Securities LLC is acting as advisor to Joy Global Inc on the announced acquisition of a stake in International Mining Machinery.4. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from this company/entity.5. UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from this company/entity within the next three months.6a. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and investment banking services are being, or have been, provided.6b. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-investment banking securities-related services are being, or have been, provided.6c. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-securities services are being, or have been, provided.7. Within the past 12 months, UBS Securities LLC has received compensation for products and services other than investment banking services from this company/entity.13. UBS AG, its affiliates or subsidiaries beneficially owned 1% or more of a class of this company`s common equity securities as of last month`s end (or the prior month`s end if this report is dated less than 10 days after the most recent month`s end).14. UBS Limited acts as broker to this company.16. UBS Securities LLC makes a market in the securities and/or ADRs of this company.18a. A U.S. based global equity strategist, a member of his team, or one of their household members has a long common stock position in Apple, Inc.18b. A U.S. based global equity strategist, a member of his team, or one of their household members has a long common stock position in Cardinal Health, Inc.18c. A U.S. based global equity strategist, a member of his team, or one of their household members has a long common stock position in Ford Motor, Co.18d. A U.S. based global equity strategist, a member of his team, or one of their household members has a long common stock position in Google, Inc. UBS 63
    • US Equity Strategy 6 September 201118e. A U.S. based global equity strategist, a member of his team, or one of their household members has a long common stock position in Qualcomm Inc.18f. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in General Electric.20. Because UBS believes this security presents significantly higher-than-normal risk, its rating is deemed Buy if the FSR exceeds the MRA by 10% (compared with 6% under the normal rating system).22. UBS AG, its affiliates or subsidiaries held other significant financial interests in this company/entity as of last month`s end (or the prior month`s end if this report is dated less than 10 working days after the most recent month`s end).Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report.For a complete set of disclosure statements associated with the companies discussed in this report, including information onvaluation and risk, please contact UBS Securities LLC, 1285 Avenue of Americas, New York, NY 10019, USA, Attention:Publishing Administration. UBS 64
    • US Equity Strategy 6 September 2011Global DisclaimerThis report has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS. In certain countries, UBS AG isreferred to as UBS SA.This report is for distribution only under such circumstances as may be permitted by applicable law. Nothing in this report constitutes a representation that any investment strategy orrecommendation contained herein is suitable or appropriate to a recipient’s individual circumstances or otherwise constitutes a personal recommendation. It is published solely for informationpurposes, it does not constitute an advertisement and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdiction. Norepresentation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, except with respect to informationconcerning UBS AG, its subsidiaries and affiliates, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the report. UBS does notundertake that investors will obtain profits, nor will it share with investors any investment profits nor accept any liability for any investment losses. Investments involve risks and investors shouldexercise prudence in making their investment decisions. The report should not be regarded by recipients as a substitute for the exercise of their own judgement. Past performance is notnecessarily a guide to future performance. The value of any investment or income may go down as well as up and you may not get back the full amount invested. Any opinions expressed in thisreport are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or groups of UBS as a result of using different assumptions and criteria.Research will initiate, update and cease coverage solely at the discretion of UBS Investment Bank Research Management. The analysis contained herein is based on numerous assumptions.Different assumptions could result in materially different results. The analyst(s) responsible for the preparation of this report may interact with trading desk personnel, sales personnel and otherconstituencies for the purpose of gathering, synthesizing and interpreting market information. UBS is under no obligation to update or keep current the information contained herein. UBS relieson information barriers to control the flow of information contained in one or more areas within UBS, into other areas, units, groups or affiliates of UBS. The compensation of the analyst whoprepared this report is determined exclusively by research management and senior management (not including investment banking). Analyst compensation is not based on investment bankingrevenues, however, compensation may relate to the revenues of UBS Investment Bank as a whole, of which investment banking, sales and trading are a part.The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Options, derivative products and futures are not suitable for all investors, andtrading in these instruments is considered risky. Mortgage and asset-backed securities may involve a high degree of risk and may be highly volatile in response to fluctuations in interest ratesand other market conditions. Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any securityor related instrument mentioned in this report. For investment advice, trade execution or other enquiries, clients should contact their local sales representative. Neither UBS nor any of itsaffiliates, nor any of UBS or any of its affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report. For financialinstruments admitted to trading on an EU regulated market: UBS AG, its affiliates or subsidiaries (excluding UBS Securities LLC and/or UBS Capital Markets LP) acts as a market maker orliquidity provider (in accordance with the interpretation of these terms in the UK) in the financial instruments of the issuer save that where the activity of liquidity provider is carried out inaccordance with the definition given to it by the laws and regulations of any other EU jurisdictions, such information is separately disclosed in this research report. UBS and its affiliates andemployees may have long or short positions, trade as principal and buy and sell in instruments or derivatives identified herein.Any prices stated in this report are for information purposes only and do not represent valuations for individual securities or other instruments. There is no representation that any transactioncan or could have been effected at those prices and any prices do not necessarily reflect UBSs internal books and records or theoretical model-based valuations and may be based on certainassumptions. Different assumptions, by UBS or any other source, may yield substantially different results.United Kingdom and the rest of Europe: Except as otherwise specified herein, this material is communicated by UBS Limited, a subsidiary of UBS AG, to persons who are eligiblecounterparties or professional clients and is only available to such persons. The information contained herein does not apply to, and should not be relied upon by, retail clients. UBS Limited isauthorised and regulated by the Financial Services Authority (FSA). UBS research complies with all the FSA requirements and laws concerning disclosures and these are indicated on theresearch where applicable. France: Prepared by UBS Limited and distributed by UBS Limited and UBS Securities France SA. UBS Securities France S.A. is regulated by the Autorité desMarchés Financiers (AMF). Where an analyst of UBS Securities France S.A. has contributed to this report, the report is also deemed to have been prepared by UBS Securities France S.A.Germany: Prepared by UBS Limited and distributed by UBS Limited and UBS Deutschland AG. UBS Deutschland AG is regulated by the Bundesanstalt fur Finanzdienstleistungsaufsicht(BaFin). Spain: Prepared by UBS Limited and distributed by UBS Limited and UBS Securities España SV, SA. UBS Securities España SV, SA is regulated by the Comisión Nacional delMercado de Valores (CNMV). Turkey: Prepared by UBS Menkul Degerler AS on behalf of and distributed by UBS Limited. Russia: Prepared and distributed by UBS Securities CJSC.Switzerland: Distributed by UBS AG to persons who are institutional investors only. Italy: Prepared by UBS Limited and distributed by UBS Limited and UBS Italia Sim S.p.A.. UBS Italia SimS.p.A. is regulated by the Bank of Italy and by the Commissione Nazionale per le Società e la Borsa (CONSOB). Where an analyst of UBS Italia Sim S.p.A. has contributed to this report, thereport is also deemed to have been prepared by UBS Italia Sim S.p.A.. South Africa: UBS South Africa (Pty) Limited (Registration No. 1995/011140/07) is a member of the JSE Limited, theSouth African Futures Exchange and the Bond Exchange of South Africa. UBS South Africa (Pty) Limited is an authorised Financial Services Provider. Details of its postal and physical addressand a list of its directors are available on request or may be accessed at http:www.ubs.co.za. United States: Distributed to US persons by either UBS Securities LLC or by UBS FinancialServices Inc., subsidiaries of UBS AG; or by a group, subsidiary or affiliate of UBS AG that is not registered as a US broker-dealer (a non-US affiliate), to major US institutional investors only.UBS Securities LLC or UBS Financial Services Inc. accepts responsibility for the content of a report prepared by another non-US affiliate when distributed to US persons by UBS Securities LLCor UBS Financial Services Inc. All transactions by a US person in the securities mentioned in this report must be effected through UBS Securities LLC or UBS Financial Services Inc., and notthrough a non-US affiliate. Canada: Distributed by UBS Securities Canada Inc., a subsidiary of UBS AG and a member of the principal Canadian stock exchanges & CIPF. A statement of itsfinancial condition and a list of its directors and senior officers will be provided upon request. Hong Kong: Distributed by UBS Securities Asia Limited. Singapore: Distributed by UBS SecuritiesPte. Ltd [mica (p) 039/11/2009 and Co. Reg. No.: 198500648C] or UBS AG, Singapore Branch. Please contact UBS Securities Pte Ltd, an exempt financial advisor under the SingaporeFinancial Advisers Act (Cap. 110); or UBS AG Singapore branch, an exempt financial adviser under the Singapore Financial Advisers Act (Cap. 110) and a wholesale bank licensed under theSingapore Banking Act (Cap. 19) regulated by the Monetary Authority of Singapore, in respect of any matters arising from, or in connection with, the analysis or report. The recipient of thisreport represent and warrant that they are accredited and institutional investors as defined in the Securities and Futures Act (Cap. 289). Japan: Distributed by UBS Securities Japan Ltd toinstitutional investors only. Where this report has been prepared by UBS Securities Japan Ltd, UBS Securities Japan Ltd is the author, publisher and distributor of the report. Australia:Distributed by UBS AG (Holder of Australian Financial Services License No. 231087) and UBS Securities Australia Ltd (Holder of Australian Financial Services License No. 231098) only toWholesale clients as defined by s761G of the Corporations Act 2001. New Zealand: Distributed by UBS New Zealand Ltd. An investment adviser and investment broker disclosure statementis available on request and free of charge by writing to PO Box 45, Auckland, NZ. Dubai: The research prepared and distributed by UBS AG Dubai Branch, is intended for Professional Clientsonly and is not for further distribution within the United Arab Emirates. Korea: Distributed in Korea by UBS Securities Pte. Ltd., Seoul Branch. This report may have been edited or contributedto from time to time by affiliates of UBS Securities Pte. Ltd., Seoul Branch. Malaysia: This material is authorized to be distributed in Malaysia by UBS Securities Malaysia Sdn. Bhd (253825-x).India : Prepared by UBS Securities India Private Ltd. 2/F,2 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra (East), Mumbai (India) 400051. Phone: +912261556000 SEBIRegistration Numbers: NSE (Capital Market Segment): INB230951431 , NSE (F&O Segment) INF230951431, BSE (Capital Market Segment) INB010951437.The disclosures contained in research reports produced by UBS Limited shall be governed by and construed in accordance with English law.UBS specifically prohibits the redistribution of this material in whole or in part without the written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in thisrespect. Images may depict objects or elements which are protected by third party copyright, trademarks and other intellectual property rights. © UBS 2011. The key symbol and UBS areamong the registered and unregistered trademarks of UBS. All rights reserved. UBS 65