Global Securities Portfolio Strategy


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Global Securities Portfolio Strategy

  1. 1. Global Securities Portfolio Strategy A globally diversified core portfolio with active asset allocation and risk management processes Investment Strategy
  2. 2. UBS Global Asset Management Our focus At UBS Global Asset Management, we are driven by a single-minded focus on our clients. This focus requires us to develop investment solutions that aim to consistently generate competitive risk-adjusted returns over full market cycles. It compels us to maintain a long-term global perspective and produce original, fundamental research to generate insights that can add value in our clients’ portfolios. It also requires us to place an emphasis on risk management, because understanding and managing risk is critical to our clients’ investment success. We firmly believe that successful asset management rests not on one’s ability to excel solely through any one of these elements, but through their combined strength. A delicate balance of dynamic forces shapes our natural world. At UBS Global Asset Management, we understand that in the world of investing, as in nature, a careful balance of elements is required to achieve meaningful growth. The Tabacon River in Costa Rica begins inside the Arenal Volcano, where magma heats the water to 101 degrees. The water then flows through the base of the volcano down to Tabacon Hot Springs. From here, the river splits into several smaller rivers, joining with cool water from a different river to make dozens of pools of varying temperatures, shapes and sizes.
  3. 3. Global Securities Portfolio Strategy The Global Securities Portfolio Strategy is designed ½ Leading-edge risk management and strong to offer investors a diversified source of growth across knowledge of clients are crucial to optimal port- global markets and asset classes in a single investment folio construction. Risk management takes a central vehicle, while managing risk. Our time-tested strategy role as we build and manage our clients’ portfolios. seeks to outperform the Global Securities Markets Index (GSMI), with greater consistency and stability Pioneers in asset allocation, we were among of returns than the Index. the first to recommend that our clients allocate Investment philosophy their assets globally. We have established a At UBS Global Asset Management, our investment philosophy is based on our belief that: competitive track record in building multi- ½ A truly integrated global approach produces asset, global portfolios that spans more than superior research. We believe that failure to place two decades. a security within a global context can result in an incomplete picture of its future prospects. ½ Teams of investment specialists focused on original, fundamental research are likely to ½ Adherence to our price to intrinsic value reveal investment opportunities and deliver approach provides opportunities to outperform consistent results. Our global network of analysts and achieve consistency of performance. We conducts rigorous research to uncover unique identify discrepancies between the price at which information and to project future cash flows for an asset trades and what we believe is its intrinsic the companies they follow. Their goal: to identify value—that is, the present value of its future potential opportunities that are not yet recognized cash flows. by the investment community. 1
  4. 4. Investment process At UBS Global Asset Management, we employ a Determine market strategy ½ Incorporate proprietary perspective. systematic process to build our portfolios within the Consistent with our investment philosophy, in-depth A committee of our senior investment professionals, context of the integrated global capital markets. research and a focus on risk management form known as the Strategic Issues Management System, the underpinnings of the Global Securities Portfolio meets regularly to identify and evaluate materially The Global Securities Portfolio Strategy’s investment process. important strategic investment developments. The committee analyzes and prioritizes the issues, creating Strategy employs active currency ½ Determine the intrinsic value of an asset. valuable perspectives for the portfolio managers. management, independent of asset We believe that the price of any asset should eventu- ally reflect the present value of its future cash flows. Implement currency strategy allocation decisions, as both a risk It is our belief that discounted cash flow analysis is The Global Securities Portfolio Strategy employs active management tool and to profit from the superior method for valuing a security, currency or market. Our Team maintains discounted cash flow currency management, independent of asset allocation decisions, as both a risk management tool and to profit perceived valuation inefficiencies. models for all markets under consideration. Team from perceived valuation inefficiencies. The currency members estimate the intrinsic value of an asset team analyzes currency fundamentals to identify when Determine allocation of assets class, and then compare it with the current price to actual exchange rates—or prices—diverge significantly The Global Securities Portfolio Strategy’s assets are determine the extent of under- or overvaluation. from sustainable equilibrium—or value. A currency’s allocated across seven components—US equities and intrinsic value is expressed relative to other currencies, bonds, international equities and bonds, emerging ½ Conduct market behavior analysis. and is determined by its current and prospective real markets equities and bonds, and high yield bonds— The asset allocation decision also incorporates relative purchasing power. This anchors our currency as well as cash. Our Asset Allocation, Currency and market behavior analysis, which takes into account strategy setting. Risk Management Team relies on information derived the impact that investor behavior can have on driving through a three-part process to arrive at its asset price away from intrinsic value. During market We manage currency exposures relative to the Global allocation decisions: market strategy, currency strategy bubbles and troughs, investors often react emotionally, Securities Markets Index in order to achieve a favorable and risk positioning. abandoning a consistent investment process. Even balance between added value and relative risk. though we remain grounded in our price to intrinsic value philosophy at all times, we incorporate market behavior analysis as a tool to help us determine the size of our active positions, and when we need to make changes to our asset class weightings. 2
  5. 5. Our analysts back up their views of the securities they cover by managing global model sector and industry portfolios, which form the foundation for our clients’ portfolios. Manage risk factors ½ Equities We use our proprietary valuation model, the Leading-edge risk analysis is a key element in portfolio As we do at the asset class level, we conduct Global Equity Valuation System, to rank each management at UBS Global Asset Management. rigorous research in order to determine the intrinsic stock by its price to intrinsic value discrepancy. This Constellation, our proprietary risk management system, value of a stock. Our team of nearly 110 global equity model helps to ensure consistency in how we value enables our portfolio managers to test proposed analysts—in all major financial markets around the companies around the globe. For example, we use changes to our clients’ portfolios to determine in world—develops proprietary, independent fundamen- the same oil price input in the model whether we advance how a potential purchase or sale may affect tal assessments of each company’s future profitability, are considering a US- or UK-based company. the absolute or relative risk exposures of the total long-term return on equity and growth potential to portfolio. These “what if” scenarios are an example of build comprehensive, forward-looking projections of Our analyst teams disseminate their research how we integrate risk management into our portfolio cash flows for every company we cover. findings through Pedestal, our proprietary Web- construction process, thus enabling us to maintain based research network. Pedestal enables our network portfolios within our clients’ desired risk parameters, Next, we compare our estimate of a stock’s of more than 800 global investment professionals yet positioned to potentially add value relative to the intrinsic value with its current market price to to compile current and robust global views of the Global Securities Markets Index. ascertain the size of any valuation anomaly. If we companies we are covering, and share insights with determine the existence of a gap—expressed in each other and the portfolio management teams, Select securities to build the Global terms of a three-year “expected return”—we view 24 hours a day, seven days a week. Securities portfolios the asset as an investment opportunity. We seek to Our asset allocation team makes top-down asset take advantage of these opportunities, believing that Our analysts also must write a detailed invest- allocation decisions for the Global Securities Portfolio many are created by human behavioral tendencies ment thesis for each stock they cover. The thesis Strategy, while, simultaneously, dedicated investment to overreact to both good and bad news. articulates the key assumptions that drive the inputs teams, with long track records of competitive perform- to the valuation model. It defines the milestones ance, manage each of the seven asset classes in the or accomplishments—such as improving margins or Strategy. On average, the portfolios include approximately launching new products—that a company must 850 securities spread across more than 60 countries.1 attain to fulfill an analyst’s estimates. Our research 1 The number of securities in the portfolios differs by investment vehicle. 3
  6. 6. Global Securities Portfolio construction process Equities ½ Factor exposures ½ Industry weightings ½ Equity selection Global Securities Asset allocation Portfolio ½ Market strategy Security selection ½ Exposure to 7 asset ½ Currency strategy classes, plus cash ½ Risk positioning ½ About 850 securities Fixed income ½ Duration ½ Yield curve ½ Sector exposures ½ Bond selection teams monitor each company’s development relative The team constructs the fixed income portion Reduce or divest positions as needed to its investment thesis, as they seek to confirm of the Global Securities Portfolio Strategy The investment management teams employ a clearly these assumptions or identify violations to the thesis. by utilizing top-down and bottom-up analysis. defined sell discipline at both the asset class and The team makes top-down decisions about the port- the security levels. This ensures that any sell decision ½ Fixed income folio’s duration and yield curve strategies. Individual is well-informed. Our actively managed fixed income strategy seeks region and sector allocation decisions come next, and to achieve a broadly diversified “core” fixed reflect areas the analysts have identified as relatively The sale or reduction of a security holding can be income portfolio of securities from US, international undervalued. triggered when the security appears to be priced and emerging markets issuers. Within Global Securities appropriately in the market, or if a security we own Portfolios, we gain exposure to non-US fixed income The fixed income managers then make bottom- violates an investment thesis. We also may reduce by investing in sovereign instruments only. up security selection decisions based on insights a holding if the portfolio team identifies a more provided by the team of global security analysts. attractive opportunity in a similar investment. To construct the US fixed income portion of the The analysts first conduct fundamental research, Global Securities Portfolio Strategy, we employ rigorously analyzing individual issues in order to a global team of 130 fixed income analysts, includ- identify fair value. Portfolio managers then compare ing 27 global credit analysts. These analysts manage relative values, seeking to determine the appropriate proprietary Analyst Industry Portfolios, a framework level of yield spread to compensate an investor for that allows them to effectively communicate credit assuming a particular level of security-specific risk. risk to the portfolio management team. 4
  7. 7. Distinctive characteristics Accessing the UBS Global Securities Portfolio Strategy Because we understand the differing needs of our clients, we offer the Global Securities Portfolio Strategy through the following investment vehicles:2 Better information. Our Global Securities Portfolios A team-oriented approach. Every UBS Global Asset ½ Commingled Funds provide access to the opportunities identified through Management portfolio is managed by a team of ½ Registered Private Placements the deep and unique insights offered by our team of highly experienced investment professionals. This ½ Separately Managed Accounts nearly 110 global equity analysts and 130 global fixed team-oriented culture provides a forum that stimulates ½ Mutual Funds income analysts. Our long-term financial models and vigorous intellectual debate and the exploration of all global research platform help us craft the original, fun- ramifications of any investment decision. This approach Investment strategies at UBS Global Asset damental research for which UBS Global Asset takes full advantage of the collective experience of Management by category Management is known—and which has enriched our the portfolio managers. Asset Allocation Fixed Income clients since our founding. Dynamic Alpha Strategy Absolute Return Bond The engine driving the Global Securities Portfolio Global Securities Portfolio Emerging Markets Debt Global diversification. Many investors’ portfolios Strategy is the 79-member Asset Allocation, Currency Multi-Asset Portfolio Enhanced Cash Management lack sufficient exposure to global securities. Through and Risk Management Team. This integrated, global US Balanced Portfolio Global Bond a single investment vehicle, our Global Securities team is responsible for asset allocation, currency analy- Equity Global (Ex-US) Bond Portfolios can offer investors the potential to invest sis and risk management across the firm. The group— Emerging Markets Equity Municipal Fixed Income in what UBS Global Asset Management has identified made up of local teams in Chicago, London, Zurich and Global Equity Sector-specialized portfolios (including Mortgage and as being the most attractive stock and bond invest- Tokyo—meets weekly to determine the broad strategy Global (Ex-US) Equity Corporate only) ments globally. that the Global Securities Portfolios will follow. Seven US Equity 130/30 Strategy Short Duration autonomous investment management teams—one for US Mid Cap Growth Equity US Bond Risk-managed growth. In managing the Global each asset class in the Strategy—then implement the US Large Cap Equity US Core Plus Securities Portfolio Strategy, we seek to ensure that asset allocation decisions through security selection. US Large Cap Growth Equity US High Yield US Large Cap Value Equity competitive results are not produced at the cost of US Small Cap Equity significantly higher fluctuations or increased risk relative US Small Cap Growth Equity to our benchmark. Our investment philosophy remains the same, regardless of which asset class, region or sector is in favor at the moment. This provides our investors with the confidence that the asset allocations supporting their long-term objectives remain intact. 2 Performance is historical and does not represent future per- formance. Performance of different types of investment vehicles, including mutual funds and separately managed accounts, employing the Global Securities Portfolio Strategy may differ as a result of the different fees, expenses, charges and regulatory requirements and/or restrictions applicable to the vehicles. The number of securities may also differ by investment vehicle. 5
  8. 8. What sets UBS Global Asset Management apart We have a global perspective. Because capital We are a leading institutional asset manager. UBS markets are global and interrelated, even investing in Global Asset Management, a business group of UBS, is securities from a single country requires a broad and one of the world’s largest asset managers, with $614 comprehensive understanding of companies, industries, billion under management worldwide.3 Our financial economies and markets around the world. At UBS strength, the stability of our organization and the talent Global Asset Management, we take a global view of of our people provide us with the depth of resources everything we do. to craft intelligent investment solutions that can help our clients preserve and build their wealth. We adhere to a time-tested philosophy. Our invest- ment philosophy has proven its value through vastly 3 As of March 31, 2006. different market environments. For more than 24 years, For more information we have employed the same rigorous, disciplined Contact your Financial Advisor, or process to manage our clients’ assets. This has led to UBS Global Asset Management at consistent and explainable results, which we believe 888-793 8637. is in the best interests of our clients. On the cover: The Jade Dragon River runs through the city of Lijiang in the Guangxi Province of China. The river flows from Black Dragon Pool and splits into three branches before forming the dozens of interweaving channels that dissect the town. The river is famous for its many bridges, which have become cultural symbols, rather than just architectural expressions. UBS Global Asset Management, a business group of UBS AG, provides investment management services for private clients, financial intermediaries and institutional investors around the globe. UBS Global Asset Management (Americas) Inc. and UBS Global Asset Management (US) Inc. are registered investment advisers and members of the UBS Global Asset Management business group, with $72.5 billion and $50.9 billion, respectively, in assets under management as of December 31, 2005. Unless otherwise noted, the information provided in this document is representative of the UBS Global Asset Management business group. ©2006 UBS Global Asset Management (Americas) Inc. All rights reserved. Copying any part of this publication without the written permission of UBS Global Asset Management is prohibited. UBS Global Asset Management (US) Inc. and its affiliate UBS Global Asset Management (Americas) Inc. are both subsidiaries of UBS AG. IS604.204C S337 06-0346 5/06