Professional Documents
Culture Documents
US Edition
CIO Wealth Management Research
CONTENTS
TACTICAL PREFERENCES
FEATURE
Shifting gears
by Mike Ryan
PREFERRED INVESTMENT VIEWS
MONTH IN REVIEW
AT A GLANCE
10
12
Equities
Fixed income
Commodities
Foreign exchange
IN FOCUS
18
20
Eurozone comeback
Liability optimization
North American energy independence:
Reenergized
KEY FORECASTS
22
23
PERFORMANCE MEASUREMENT
31
APPENDIX
34
PUBLICATION DETAILS
38
Dear reader,
With news services breathlessly reporting on each and every utterance
from the lips of Fed Chairman Janet Yellen and Mario Draghi alternately
deified and demonized for the extraordinary and unprecedented actions
taken by the ECB its pretty clear that central bank policy still matters
a great deal for both the real economy and financial markets. So in this
months Feature article, we debate the next steps to be taken by central
banks, and the implications these will have for investors. We argue that
while the path is narrowing and policy choices from here are not without
risks, the just-right goldilocks economic recovery provides central bankers ample latitude to retain an accommodative policy mix overall.
Against this backdrop we remain overweight risk assets, with preferences
for both Eurozone equities and high yield credit.
We recognize, however, that some adjustments to our tactical market positioning are required amid changes in the economic backdrop, shifts in policy
outlook, and/or re-pricing within and across asset classes. So this months
In Context section outlines a shifting of gears, specifically: upgrading
REITS; downgrading retailers; extending out on the corporate credit curve;
and recommitting to our North American energy independence theme.
One of the developments that has likely added to the uncertainty around
the Feds decision-making process has been the recent economic soft
patch including some disappointing housing data. We argue in the
In Focus article this month that the weakness in housing has largely been
weather related and that the overall backdrop for housing activity remains
constructive (pun intended). In fact, we look for housing starts to eventually reach the 1.31.4 million units per year level.
One thing is for sure, as policy makers continue to sort through the mixed
signals on the economy and plot out the proper policy path, this summer
is likely to be anything but boring
Regards,
Tactical preferences
We favor stocks over bonds. Eurozone equities are more attractive than US markets.
Within fixed income, we prefer US corporate bonds.
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THIS
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1) Equities
The Eurozone is
our favorite market. In the US we
favor small-caps
over large-caps.
2) Fixed income
We favor US
corporate bonds
over government
bonds.
3) Foreign
exchange
We add a new
preference for
the British pound
over the Australian dollar.
LEGEND
Overweight: Tactical recommendation to hold more of the asset class than specified in the moderate risk strategic asset allocation (see page 23)
Underweight: Tactical recommendation to hold less of the asset class than specified in the moderate risk strategic asset allocation (see page 23)
Neutral: Tactical recommendation to hold the asset class in line with its weight in the moderate risk strategic asset allocation (see page 23)
Each bar represents a +/- 2% tactical tilt or part thereof (i.e., one bar = 0.5% to 2%, 2 bars = 2.5% to 4%, 3 bars = over 4%).
NOTE: TACTICAL TIME HORIZON IS APPROXIMATELY SIX MONTHS
that the path is narrowing and that the policy is not without risks.
Mark Haefele
Global Chief Investment Officer
Wealth Management
allow central bankers to retain loose policy before steadily pulling back.
But investors will need to remain conscious of alternative scenarios, includ-
yield credit, and initiate an overweight position in the British pound relative
to the Australian dollar.
Since the financial crisis, the US Federal Reserve, the Bank of England, the Bank of
Japan (BoJ), and the European Central Bank (ECB), have printed a combined USD
5.7trn. Thats enough to build a six-lane freeway out of USD 100 bills that circles the
globe twice.
Perhaps unsurprisingly, given the extent of the easing, global central bank policy has
been the key factor in determining investment performance in that period.
Again this year, the general idea that investors should follow the lead of central banks
has worked. The Eurozone and Japan, both running aggressive quantitative easing
(QE) schemes, have been the best-performing developed markets. Chinese equities
have also responded very well to easing from the Peoples Bank of China (PBoC).
The fix has been in for risky assets and investors expect it to remain in place. At our
recent Davos investor forum, investors overseeing a combined USD 11trn unanimously
agreed that policy would continue to support risky assets this year. Still, nothing lasts
forever.
More than six years into QE, central bankers are warning that the path is narrowing
and it is not without risks. ECB President Mario Draghi and Fed Chair Janet Yellen
have both recently warned that the possible threats arising from QE need to be carefully monitored. So while policy is likely to remain stimulative through 2015, we need
to examine how this outlook might alter based on changes in such variables as
growth, inflation, employment, wages, asset prices, and inequality.
I see three paths central banks can take in the near term. The most comfortable path,
and our base case, is one in which just-right Goldilocks economic recoveries with
low inflation, gradually improving growth, and modest wage increases allow central
bankers to retain accomodative policy before steadily pulling back. This environment
2
FEATURE
should prove supportive of risky assets like equities and high yield credit. But on either
side of our base case are the more troubling paths of a tightening tantrum and QE
infinity.
Lets look at some of the signposts that might indicate which path we are heading
down.
to support growth
we see a pickup in
inflation
need to be closely
monitored
3.0
2.5
2.0
1.5
1.0
2007
2008
2009
2010
2011
2012
2013
2014
2015
FEATURE
generate an economic
lift-off
I dont think developed market central banks are poised to start pricking bubbles, real
or imagined. Major equity markets are not cheap for sure, but neither are they dramatically overpriced. The MSCI All Country World Index currently trades on 16.9x
price-to-forward-earnings, relative to a 15-year average of 14.8x. We also currently
see few signs of overheating in wages, growth, or consumer spending.
QE infinity: An endless road
Another concern is that stimulus fails to generate sufficient growth. Even in the flexible US economy, there is a non-negligible chance that policymakers could be forced
to resume easing. The US has, for the third time in succession, appeared to stall
shortly after the end of a QE program. In structurally weaker economies like the Eurozone, there is an even greater danger that QE will not stimulate enough growth, leading to monetary easing stretching out into infinity. Japan provides a cautionary tale on
how this can happen (see Fig. 2).
Ultra-low bond yields, a weak euro, and low oil prices have given the Eurozone a temporary boost. But convincing evidence of a self-sustaining recovery is still missing, and
recent market moves have shown how quickly such temporary effects can swing into
reverse. Lifting growth on a lasting basis will require measures such as liberalizing labor markets and opening up industries to competition. Unfortunately, the pace of
productivity-enhancing structural reform in the Eurozone continues to disappoint
notably in Italy and France.
Without a sustained pickup in growth, the ECB could be forced into further bouts of
QE. This need not be bad for equities in the near term: the QE fix has helped to fuel
these markets the past six years and will remain a powerful force. But the longer QE
8
7
6
5
4
3
2
1
0
1990
1995
2000
2005
2010
2015
FEATURE
drags out, the greater are the chances that some of its adverse side effects, such as
speculation, over-leveraging, and excessive inequality, will materialize.
Asset allocation
So where does this leave us? We will remain vigilant for any signs that central banks
will be forced away from their preferred path of pro-growth policies. But over our
tactical six-month investment horizon, we do not currently see economic pressures
US
Eurozone
Japan
FEATURE
emerging that will cause central bankers to deviate. While the threat of deflation has
abated, there are no immediate indications that inflation is accelerating too fast. The
growth trajectory looks relatively promising in the US, Europe, and Japan, without any
immediate signs of overheating.
We therefore remain overweight risky assets, both equities and high yield credit, with
our largest overweight position in Eurozone equities. They should continue to benefit
from policies of the ECB, which seems to be the central bank most committed to staying the course with its QE program.
To become incrementally more positive on risky assets, we would like to see greater
low-inflation growth in the major economies ideally including some combination of
a pickup in US consumer spending, a sustained improvement in Eurozone domestic
demand, greater global earnings momentum, and a rise in business confidence that
translates into stronger capital spending.
overweight position in
the British pound relative
to the Australian dollar
In our tactical asset allocation this month, we are initiating an overweight position in
the British pound relative to the Australian dollar. We believe the recent strengthening
of the British economy and the weakening of commodity-reliant Australia will lead to
a divergence in monetary policy. An unwinding of existing carry trades in the AUD has
yet to be fully priced into the market. AUDGBP is currently overvalued by 18%, in our
view. We also look to take advantage of the most recent backup in rates and pick up
some incremental yield by extending out the credit curve and shifting from shorter- to
longer duration investment grade corporate bonds.
Elsewhere, we maintain our overweight positions in equities and high yield credit.
Global economic growth should remain underpinned by central bank policies that
support near-term growth. Eurozone companies in particular are well placed to
benefit from a weak euro, low debt-refinancing costs and the regions accelerating economy. Eurozone equities are our most preferred asset class over our sixmonth investment horizon.
Mark Haefele
Global Chief Investment Officer
Wealth Management
Shifting gears
Anyone who has driven a car with a stick shift on the north shore of Long Island understands that
careful attention and frequent action are required to deal with the varying weather conditions
and topography. Downshifting is necessary to save the brakes on a steep decline, while lower
gear operations help navigate snow drifts or Noreasters.
Mike Ryan
Regional Chief Investment Officer
Wealth Management US
As investors, we are periodically required to do a bit of gear-shifting of our own amid changes
across the investment landscape. This month is a good example as we opt to make a number of
adjustments to our tactical positioning in light of the following environmental shifts:
While much of the economic drag during the first quarter was due to temporary factors, the
economy has still failed to meaningfully break out of the slow-growth channel that has
persisted since the recovery began.
The minutes from the last FOMC meeting suggest that while the Fed is edging ever closer to
normalization, the path will be a deliberate and cautious one. So although we still view September as the most likely date for a rate hike, the Fed could well opt to defer such action until
December or even later.
Despite the economic soft patch and temporary earnings stall in 1Q, equity markets have
continued to grind higher. While valuations are by no means overextended, the prospects for
further re-ratings of equities are now more limited in our view. Further market gains will
therefore require a reacceleration in earnings.
After having fallen sharply through the end of the first quarter, crude prices have since rebounded by nearly 25% thus far in 2Q. We look for energy prices to stabilize further going
forward.
Although the recent backup in US rates has been more modest than the abrupt rise in global
bond yields, 10-year Treasury rates have still risen by 50 basis points just since the end of
January. We now look for yields to remain more range bound for the balance of the year.
Against this backdrop, we recommend that investors make the following tactical shifts to position portfolios for the second half of the year:
We are reducing our exposure to the consumer discretionary sector, by downgrading the retailers to neutral. After having outperformed the S&P 500 by nearly 1,400 basis points since
October 2014 due in part to falling gas prices and improving consumer fundamentals
performance prospects will likely be more modest since positive earnings revision momentum
has stalled and valuations appear stretched.
We are increasing the financial sector to an overweight, by closing our underweight position
in real estate investment trusts (REITs) and retaining our overweight to the banks. A more favorable earnings outlook, coupled with the backup in yields, deliberate pace to Fed rate hikes,
and recent underperformance of REITs, suggests that the downside risks for this industry
group are more limited and a neutral stance is now warranted. With bonds expected to remain within narrower trading ranges for the rest of the year, we look to take advantage of
the recent backup in rates and pick up some incremental yield by extending out the credit
curve and shifting from shorter- to longer-duration investment grade corporate bonds.
Finally, we have upgraded our North American energy independence theme to preferred
status amid the recent stabilization of energy prices.
Mike Ryan, CFA
JUNE 2015 UBS HOUSE VIEW
Asset Class
Most preferred
Least preferred
Equities
US small caps
Eurozone
The rising Millennials
North American energy independence ()
US capex
Cancer therapeutics
Emerging markets
UK
Bonds
US high yield
US investment grade
Mortgage interest-only
US senior loans
Beyond benchmark fixed income
investing
Government bonds
Foreign
exchange*
GBP ()
AUD ()
Alternative
investments
Cash
Recent upgrades Recent downgrades
*For more information on recent changes, see CIO Note: EURUSD risks now more balanced, 5 May 2015
MONTH IN
REVIEW
Nonfarm payrolls grew by 223,000
in April, broadly in line with consensus and an improvement over
the weak data from March. Unemployment claims over the past four
weeks were recorded at a 15-year
low. Other US data were mixed,
with the April ISM non-manufacturing index rising to 57.8 and
housing starts hitting their highest
level since the financial crisis, while
retail sales were disappointing. US
Treasury bond yields moved higher,
although minutes from the latest
FOMC meeting suggest that a
June rate hike is unlikely. Fed Chair
Janet Yellens remarks on high
stock valuations sent some waves
through the market, but the S&P
500 still reached a record high.
Across the Atlantic, recoveries in
the euro and oil prices have caused
Eurozone equities to decline from
a mid-April peak; however, the
earnings outlook remains positive
and the ECBs announcement that
it would front-load some of its QE
bond purchases provided a boost.
On 12 May, Greece avoided a default by completing a EUR 750m
repayment to the IMF.
Brent crude recently climbed to
its highest level of 2015, ending
a yearlong price slump, as US rig
counts declined further.
Emerging markets continued to
generate gain, led by Chinese equities, which have been among the
best-performing in the world yearto-date. Emerging bond markets
have also performed well despite
higher volatility.
At a glance
Economy
Recent data suggest that US economic growth fell into negative territory in the
first quarter. While industrial production and retail sales continued to disappoint in
April, the crucial labor market remained on an improving path. The Fed is still expected to hike its policy rate toward the end of the year, but the path will likely be
less steep than in past cycles. Meanwhile, ECB President Mario Draghi reiterated his
commitment to pursue quantitative easing as long as there is no material pickup in
investment, consumption and inflation in the Eurozone. In China, the government
is pursuing large multi-year infrastructure projects and easing monetary policy in an
attempt to stabilize economic growth.
Equities
The Eurozone is our most preferred equity market for the next six months.
Eurozone companies benefit from a weak euro and low debt refinancing costs.
The ECBs large bond-buying program will likely keep both factors in place.
Furthermore, domestic earnings are supported by the acceleration of the
Eurozones economy. On the other hand, we are holding underweight positions in
emerging market and UK equities. In both regions, earnings are still suffering. A
relatively strong pound as well as low commodity prices weigh on large parts of
the UK stock market. Emerging market companies are still faced with a challenging fundamental backdrop, as growth is decelerating in many emerging
economies.
Fixed income
The surprisingly strong rise in government bond yields over the past month especially for German Bunds has been supported by technical factors, such as overextended investor positioning and thin market liquidity. Total returns turned
sharply negative, in particular for bonds with long maturities. While we do not expect the sell-off in government bonds to continue at the same pace over the next
six months, we are maintaining our preference for corporate bonds. In particular,
high yield bonds both in USD and EUR held up well during the recent episode,
as falling spreads compensated for part of the rise in government yields. Within investment grade corporate bonds, we recommend avoiding bonds with very long
maturities of 15 years or more.
Foreign exchange
While we still expect fundamental factors to support the US dollar and weigh on
the euro in the medium term, rising short-term risks made us close our USD overweight position on 5 May. A remarkable rise in German Bund yields has made the
euro slightly more attractive, and a rise in oil prices weighs on the USD at the margin. We are opening an overweight in the British pound against the Australian dollar. The GBP should ultimately benefit from rising policy rates. The outcome of
Mays general elections has reduced political uncertainty in the UK. The AUD is still
overvalue in our view and the Australian economy is facing headwinds from low
commodity prices.
JUNE 2015
Global growth has been somewhat disappointing so far in 2015 despite support from extremely loose monetary policy. In the US, a steep decline in energy-related investment and the
stronger USD have weighed on growth. Consumer spending has also fallen short of our expectations. However, the labor market continues to improve and we still believe that the Fed
will start raising rates before the end of the year. Among the other big economies, China has
been struggling to maintain growth despite fiscal and monetary stimulus, while the
Eurozone finally appears to have achieved escape velocity. Inflation remains subdued in
most countries. Global growth in 2015 will likely be similar to 2014.
Robust expansion
We expect robust US growth for the rest of 2015 after
temporary weakness early in the year. Core inflation will
likely stay well below the Feds target of 2% over the next
six months. We expect the first Fed rate hike later this year
and the pace of tightening to be gradual.
POSITIVE SCENARIO
Strong expansion
Oil prices and the euro decline more than expected, with
loan demand and the economy recovering faster than envisaged. France and Italy follow a credible reform path and
speed up fiscal consolidation. Political risks fade further.
10
NEGATIVE SCENARIO
Probability: 20%
Probability: 10%
Deflation spiral
US
Canada
Brazil
Japan
Australia
China
India
Eurozone
UK
Switzerland
Russia
World
3.3%
Inflation in %
2014
2015F
1.6
0.0
2.1
2.2
6.4
7.9
2.8
0.8
2.5
1.7
2.0
1.2
5.9
5.3
0.4
0.1
1.5
0.2
0.0
-1.0
7.8
15.4
3.3
3.0
2016F
2.5
2.0
5.2
0.9
2.8
1.6
5.0
1.5
1.7
0.2
5.6
3.3
Moderating Chinese
growth
CIO VIEW Probability: 65%
Moderating Chinese growth
The growth momentum has been weak in recent months
and the government will likely step up its efforts to support growth. Export growth is expected to improve in the
coming quarters, helped by the recovery in the Eurozone
and reacceleration of US growth. Intensifying policy support will likely lead to a temporary improvement in economic growth in 2Q15.
Probability: 10%
Growth acceleration
>
1 JUNE 2015
>
5 JUNE 2015
>
11 JUNE 2015
Gary Tsang
POSITIVE SCENARIO
KEY DATES
Probability: 25%
>
16 JUNE 2015
>
18 JUNE 2015
11
Equities
Jeremy Zirin, CFA; Brian Nick, CAIA; David Lefkowitz, CFA; Manish Bangard, CFA; Markus Irngartinger, PhD, CFA
The Eurozone is our most preferred equity market for the next six months. Eurozone companies benefit from a weak euro and
low debt refinancing costs. The ECBs large bond-buying program will likely keep both factors in place. Furthermore, domestic
earnings are supported by the acceleration of the Eurozones economy. On the other hand, we are holding underweight positions in emerging market and UK equities. In both regions, earnings are still suffering. A relatively strong pound as well as low
commodity prices weigh on large parts of the UK stock market. Emerging market companies are still faced with a challenging
fundamental backdrop, as growth is decelerating in many emerging economies.
Global equities
Emerging Markets
Eurozone
We are overweight Eurozone equities. Corporate earnings growth has
started to improve, supported by solidly advancing revenues. Positive
economic momentum differentiates the Eurozone from other developed
as well as emerging markets and should help accelerate earnings growth.
In the unlikely event of Greece exiting the euro, we do not anticipate a
permanent or a significant drawdown in Eurozone equities. Our most
preferred sectors are financials, consumer discretionary and consumer
staples.
EURO STOXX (index points, current: 380)
six-month target
House view
397
Positive scenario
430
Negative scenario
300
We are underweight emerging market (EM) equities. The consensus expectation is for EM earnings to grow around 9% over the next 12 months.
We are more cautious, however, and expect around 57% growth. We
forecast the trailing price-to-earnings (P/E) to will move slightly below
its current level of 13.3x. We prefer India, the Philippines and Taiwan to
South Korea, Malaysia and Thailand.
MSCI EM (index points, current: 1,036)
six-month target
House view
1,060
Positive scenario
1,165
Negative scenario
800
UK
Japan
We are neutral on Japanese equities. We forecast earnings growth of
15% in FY2015 and 4% in FY2016. A lower oil price and corporate tax
cut in 2015 should help domestic consumer companies earnings to recover as well. The state pension funds increased equity purchases and
the BoJs potential further monetary easing should limit the downside
risk on Japanese equities. Companies recent move to buy back more
shares to increase return on equity should also limit the downside. The
Tokyo Stock Exchange plans to implement Japans corporate governance
code in June, and we believe this will result in higher share buybacks and
ROE. However, the Topix trailing P/E is likely to re-rate from 18.1x currently
to 17.2x in the next six months, despite the solid earnings growth in
FY2015. Overall, we think the Topix is fairly valued and will move in line
with global equity markets over the next six months.
TOPIX (index points, current: 1,643)
House view
six-month target
1,675
Positive scenario
1,850
Negative scenario
1,300
12
We have an underweight stance on UK equities. Earnings dynamics remain weaker in the UK than in other countries. Lower commodity prices
weigh on trailing company earnings and the currency is not a tailwind like
in other regions. In the UK market, the energy sector has a 15% weighting and the materials sector 8%. Due to its defensive sector stance, the
market will likely benefit less from an improving economic outlook in
developed markets. Within the UK, our preferred investment strategy
is UK value, which tends to outperform in periods of strong economic
performance ahead of interest rate rises.
FTSE 100 (index points, current: 7,007)
House view
six-month target
7,125
Positive scenario
7,650
Negative scenario
5,700
US equities
US stocks are poised for further gains over the next six months, but upside potential appears greater in European equities.
US economic indicators have downshifted somewhat recently, likely due to temporary factors such as weaker exports due to
a strong dollar, and lower oil and gas drilling activity. These economic headwinds should abate in the second half of the year.
Corporate profit growth, excluding the severe slump in the energy sector, has remained resilient and provided market support.
Market valuation is fair to somewhat elevated, but stocks remain attractively valued relative to low-yielding bonds. We continue
to favor technology stocks, but we trim our overweight in the consumer discretionary sector and upgrade financials to overweight. Small-caps remain most preferred among US size segments.
US Equities overview
US stocks continued to reach new all-time highs, but do not confuse
record highs with market peaks. S&P 500 earnings per share (EPS)
are also at all-time highs and continued profit growth can justify further
share price gains. While first quarter profit growth was flattish for US
large-caps in aggregate, S&P 500 EPS, excluding the energy sector, rose
nearly 10% year-on-year. There is no evidence of a broad-based profit
slowdown. Small- and mid-cap earnings growth was even stronger in
the first quarter. We expect that the drag from lower energy profits and
the strong dollar will fade as the year progresses. We forecast 2015 and
2016 S&P 500 EPS of USD 124 (+4%) and USD 138 (+11%) respectively.
We roll forward our six month S&P 500 price target to 2,200.
S&P 500 (index points, current: 2,126)
six-month target
House view
2,200
Positive scenario
2,450
Negative scenario
1,825
US Sectors
This month, we upgrade financials to a moderate overweight by raising
the real estate subsector from underweight to neutral. This leaves us
overweight the banks and neutral on each of the other financial subsectors (diversified financials, insurance, real estate). The recent rise in
bond yields, if sustained, should boost bank profitability. And after underperforming the S&P 500 by nearly 15% since late January, we choose
to close our underweight allocation to real estate. We also trim our sector
overweight in the consumer discretionary sector by downgrading retailers
to neutral. Year-to-date, the retail subsector has outperformed the S&P
16
25
14
22
20
12
10
15
10
10
6
4
2
0
6
3
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
0
Large-caps Mid-caps Small-caps
Revenue growth YOY
13
Fixed income
Leslie Falconio; Thomas McLoughlin; Barry McAlinden, CFA; Achim Peijan, PhD, CEFA; Philipp Schoettler; Thomas Wacker, CFA
We prefer developed market investment grade (IG) corporate bonds and high yield (HY) to government bonds, as the yield
pickup allows for carry gains. Moderate economic growth and inflation, as well as expansionary monetary policy in the
Eurozone and the US, support IG corporate bonds, with the ECBs easing measures lending particular support. HY bonds generally have a lower rate-sensitivity and during the recent rise in benchmark rates, HY held up very well. We expect the negative correlation between rates and HY spreads to continuously support HY returns in times of rising rates. Sentiment toward
EM bonds has improved in recent months on the back of a more dovish interpretation of the Fed and stabilizing EM growth
expectations. We recommend a neutral allocation to EM sovereign and EM corporate bonds.
Government Bonds
We expect the 10-year US Treasury yield to trend moderately higher as
the Feds first rate hike in nearly a decade approaches. US rates have
been steadily increasing over the past month despite benign payroll data.
The rising rates in Europe and an increase in government bond supply
have been contributors to the recent yield increases. Rates remain well
above the lows seen in January, and our forecast remains for a gradual
longer-term rise as we see a reacceleration in 2Q15.
US 10-YEAR YIELD (Current: 2.25%)
House view
Six-month target
2.3%
Positive scenario
2.73.1%
Negative scenario
1.62.0%
Six-month target
House view
400bps
Positive scenario
325bps
Negative scenario
900bps
14
Six-month target
115bps
Positive scenario
75bps
Negative scenario
250bps
High yield (HY) bonds held up well against the rise in benchmark rates
over the past month, as tighter spreads compensated for part of the
rate rise. We expect the negative correlation of rates and spreads to
persist as long as rising rates come along with a strengthening global
growth backdrop. We continue to hold a tactical overweight in HY as
we expect spreads to tighten further on the back of low default rates
and investors continued search for yield. We expect defaults of 3% over
the next year, which remains below average. With a total yield-to-worst
of 6%, HY offers attractive risk-return prospects, in our view.
USD HY SPREAD (Current: 499bps)
While credit spreads remained by and large unchanged over the past
month, the sharp rise of benchmark yields weighed on investment grade
(IG) bond total returns. An influx of supply pressured long-dated IG bonds
(30% of the index has a maturity of 10 years or more). We see tightening
potential in the long end as supply pressures fade and the Treasury curve
flattens. However, our preferred maturity segment lies in IG bonds with
medium maturities of 5-10 years. Within financials, we prefer bonds lower
in bank and financial issuer capital structures; in non-financials, we favor
select issuers that are deleveraging.
350bps / 350bps
Positive scenario
260bps / 250bps
Negative scenario
480bps / 470bps
Municipal Bonds
Government bond yields reversed course and moved higher in many countries over the past month. Investors began to question the extremely low
yield levels and market momentum took over, bringing yields back near
where they were at the start of the year. However, the dollar also reversed
course, weakening against many other currencies, which helped to boost
returns on non-US bonds when measured in dollars. As a result, despite
the drop in bond prices, non-US developed fixed income has been one
of the best-performing asset classes in dollar terms over the past month.
We expect non-US bond yields to stay near current levels over the next
six months, but in our view the dollar is likely to strengthen over that time
period, hurting returns in US dollar terms.
spread range has been 90-105bps. Although the carry and liquidity are
attractive, the asset class is not cheap at these levels. Hence, we remain
neutral on MBS. One factor we continue to watch is the Feds commitment to reinvest monthly mortgage payments back into the product.
Reinvestments remain today, but probably not by the next summer.
Current MBS spread of 100bps over the blend of 5-year and 10-year
Treasuries (versus +101bps last month)
Preferred Securities
The TIPS outperformance we witnessed last month has cooled off a bit given
the current fixed income market volatility. With oil and gold showing some
price increases this past month, TIPS are still on investors radar. However,
they have taken a back seat to the next FOMC guidance on the start of the
hiking cycle. We maintain negative on the TIPS index due to its long duration
and would remain in the shorter 2-year and 5-year areas of the curve.
18 May-15
3 months
6 months
USD 3M Libor
0.3
0.7
0.9
12 months
1.5
USD 2Y Treas.
0.6
0.9
1.1
1.6
USD 5Y Treas.
1.5
1.6
1.8
2.0
2.2
2.2
2.3
2.4
3.0
2.9
2.9
2.9
300
275
250
225
200
175
150
125
100
May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15
Spread
Average
Source: Bloomberg, UBS, as of 18 May 2015
15
April saw a reversal of fortunes for commodity prices. Broadly diversified commodity indices rose around 6%, erasing all the
weakness seen in the previous month. However, we believe the price rally is running out of steam, as the strength in energy
and some base metal prices does not fully match the fundamental supply-and-demand backdrop we see. This leaves room for
temporary price setbacks. Considering the roll-yield cost of 2% over the next six months, we expect the asset class to deliver
negative returns in the mid-single digits. As such, we regard broadly diversified commodity investments as unattractive. We see
the most downside risk to commodity exposure in precious metals and energy. While the negative expected performance in
precious metals is spot driven, high single-digit roll-yield costs should weigh on the energy sector. For base metals, the run-up
in prices has reduced the positive expected return to less than 2% over the next six months. The outlook for agricultural prices
remains negative in the mid-single digits, driven by grains, whereas prices for softs should be more stable.
Commodities
Precious metals
The latest US labor data suggest that the Fed is likely to raise policy rates
in September. With the unemployment rate falling toward 5% and the
fixed income market only pricing in a modest increase in short-term interest
rates, we expect the gold price to come under renewed downward pressure once market expectations shift higher. Soft demand from Asia (China
and India) adds to an unfavorable price outlook for gold and silver.
GOLD (Current: USD 1,210/oz)
six-month target
House view
USD 1,100/oz
Positive scenario
USD 1,450/oz
Negative scenario
USD 900/oz
Crude oil
We expected crude oil prices to trough in 2Q15; but so far, it seems Brent
found its low in January and WTI in late March. Strong demand from financial investors via the futures market has played a key role in prices
early recovery. Investor interest has been sparked by expectations of a
peak in US crude production in late March and the first weekly drop in
crude inventories at Cushing/Oklahoma at the end of April. Marginal price
support came from a weaker USD in recent weeks. Fundamentally, the
crude oil market has yet to rebalance. We think it will be oversupplied by
almost 2mbpd in 2Q15, so prices are still vulnerable to setbacks during
this period. However, we do expect the market to rebalance steadily in
2H15, with demand seasonally accelerating and non-OPEC supply growth
stalling versus 1H15. We therefore expect the Brent crude oil price to trade
at USD 65/bbl in six months.
BRENT (Current: USD 65.2/bbl)
House view
six-month target
USD 65/bbl
Positive scenario
USD 8595/bbl
Negative scenario
USD 3040/bbl
Base metals
Base metal prices rallied sharply in April. While we still see further price
upside in copper, aluminum and nickel; zinc and lead prices are likely to
consolidate. Expectations of additional Chinese stimulus via the fiscal
16
and monetary policies fueled the price increase, besides seasonal demand
considerations. We believe Chinas efforts aim to stabilize growth, but
not to accelerate it. As such, demand-driven expectations for base metals
leave room for disappointments at some stage in 3Q15. Our preference
for copper and aluminum is due to supply challenges, and production
cost considerations for the latter.
Agriculture
Northern hemisphere spring conditions improved over April. EU crop reports, the US spring planting pace and US winter wheat crop tours provided plenty of optimism for yields in 2015/16, particularly as wheat prices
fell nearly 9% over April. In addition, price weakness followed Russias
announcement that it intends to lift early the export duty on wheat, which
was introduced in February. While wheat markets look well supplied,
renewed warnings that the El Nio phenomenon could strengthen in
2H15 could add to production risks. However, in the near term, accelerating palm oil production and good US spring weather is negative for vegetable oil and feed grain prices. Soybean plantings in the US are expected
to set a new record and the Brazil harvest has been bumpy; hence we see
further downside as seasonal impacts start to weigh heavily on prices.
six-month target
House view
USD 4,250
Positive scenario
USD 4,500
Negative scenario
USD 4,100
Foreign exchange
Katie Klingensmith; Thomas Flury
The US dollar has come under pressure as a spate of data suggested that the soft patch in the economy in the first
quarter may have been deeper and less ephemeral than expected. However, there are signs of hope, and we expect
that the US recovery will justify a Fed hike this year. Over the next six months, we foresee the large and the rising yield
differential and political uncertainties in the Eurozone pushing the EURUSD somewhat lower. Financial markets seem
increasingly impervious to the ongoing Greek saga, and we expect that even if Greece exits the Eurozone the official
response and market readiness will limit but not eliminate contagion. We add an overweight in the British pound,
as we think the currency will retain its post-election strength. We finance this with an underweight in the Australian
dollar, which is overvalued in our view given a structurally weakening economy.
USD
The US dollar has dropped since March when data started painting an
uglier picture of US economic momentum. Keep in mind that this dollar
softness comes only after a rapid period of appreciation since early 2014;
the USD index (DXY) remains a full 20% stronger than a year ago even
after the dollar has come off recent highs. We think the US expansion
will pick up again going into the second half of the year and expect the
greenback to recover, but not beyond highs seen earlier this year.
EUR
The European economy appears to be picking up steam, with the ECBs
expansive monetary policy at least partly taking credit. Cheap financing
costs and a lower currency have helped European companies. Inflation
seems to have found a bottom. We think the risk that the ECB will limit
its QE program is small, especially in 2015. Markets seem relieved that the
Greek saga is no longer front and center and looks increasingly like a
turbulent sideshow; if anything, the EUR could gain in a relief rally once
the Greek debt issue has been resolved. We look for the EURUSD to
continue to trade in a 1.051.15 range this year.
franc continues to appeal due to its negative correlation to risk events. Should
a disorderly default in Greece or other geopolitical troubles occur, the CHF
could appreciate sharply.
GBP
The GBP has seen a decent rebound thanks to the very clear election
outcome in the UK. The alternative election result could have presented
persistent political uncertainty. We expect the focus to shift back to the
strong UK economic data. Inflation is currently close to zero but is expected
to pick up sharply in th coming months. In addition to further strengthening of the labor market, this should eventually lead to rate hikes, which
should continue to support the GBP.
JPY
The USDJPY has stabilized around 120 in recent months as the Japanese
economy has performed better than initially expected, leading many
market participants to scale back expectations for further QE from the
Bank of Japan. However, as the BoJ is still far away from its 2% inflation
target, we believe it is likely to introduce further expansionary policies
to eventually lift the USDJPY toward 124.
CHF
The Swiss franc seems to have found a new equilibrium against the EUR
around 1.04 after the removal of the 1.20 floor. We expect the EURCHF
exchange rate to remain around the current level for the next few months.
Deeply negative interest rates and lackluster economic activity make
Switzerland a relatively unenticing investment opportunity. However, the
3M
6M
12M
PPP*
EURUSD
1.110
1.05
1.08
1.10
1.28
USDJPY
121.2
124
124
120
76
USDCAD
1.223
1.22
1.18
1.15
1.19
AUDUSD
0.788
0.75
0.70
0.70
0.69
GBPUSD
1.556
1.52
1.56
1.58
1.63
NZDUSD
0.731
0.71
0.70
0.70
0.57
USDCHF
0.939
0.98
0.97
0.95
1.02
EURCHF
1.042
1.03
1.05
1.05
1.30
GBPCHF
1.460
1.49
1.52
1.51
1.66
EURJPY
134.6
130
134
132
97
EURGBP
0.714
0.69
0.69
0.70
0.78
EURSEK
9.279
9.40
9.40
9.20
9.12
EURNOK
8.407
8.30
8.60
8.60
9.68
17
IN FOCUS
From the January 2012 low, existing home prices have staged
a strong recovery, appreciating more than 38% nationally. In
our view, there are two key contributing factors to this
strength. The first is the emergence of the institutional buyer
of single-family homes. We estimate that over the course of
the recovery, institutions purchased more than 550,000
homes, the majority of which were in severely distressed markets. The institutions were instrumental in absorbing distressed inventory and putting price floors in markets that previously were in free fall. This ultimately led to increased
market confidence and rising prices. The second factor is the
supply-constrained market that continues to persist today.
Jan-08
Jan-09
Jan-10
Jan-11
Single family
Multifamily
Source: US Census Bureau, UBS, as of 19 May 2015
Jan-12
Jan-13
Jan-14
Jan-15
IN FOCUS
Nationally, the supply of available inventory is good for approximately 4.5 months, well below the long-term average of
7.5 months and pre-crash levels of nine months. At some
poin, supply will eventually catch up to the rising demand for
housing. However, the slow thaw in available inventory is
likely to help keep prices rising above long-term averages over
the next several years.
Although unemployment is down and jobless claims are at
significantly reduced levels, the housing market is challenged
by relatively stagnant wage growth. Preceding the housing
bubble, there was a strong relationship between home price
and wage growth. This relationship clearly splintered during
the housing boom only to retrace to historical norms post the
bursting of the bubble. However, the solid price recovery beginning in 2012 has once again distorted the relationship between prices and wages (Fig. 2). Unless wages break their
stagnant trend, affordability could become a bigger issue for
housing, particularly if interest rates begin to rise.
Another issue facing housing is the continued decline in
homeownership rates (Fig. 3). After retracing the bubble-era
rise, homeownership rates have continued to decline, breaking below the long-term average of just over 65%. We believe there are a number of factors that explain this decline
including the demographic forces of the Millennials, the
In %
240
70
220
69
68
200
67
180
66
160
65
63
100
62
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
Current
64
120
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Current
140
Homeownership Rates
Average
Source: US Census Bureau, UBS, as of 19 May 2015
19
Top themes
Highlights from our monthly selection of highest conviction investment themes across the asset class spectrum
Eurozone comeback
Liability optimization
Michael Crook
Portfolio context
Non-US equity
u
Economic
rebound
boosting earnings
u
Medium-term:
6 to 12 months
u
Portfolio
integration
report
European equities:
Eurozone comeback
Context planning
u
Utilize
lending
u
Multi-year
decade
theme
u
Portfolio
integration
report
Balance sheet
optimization
We view the current market environment as an opportune time for investors to optimize their liabilities in
order to add potential alpha to their
balance sheets. The main monetary
policy response to the financial crisis
of 20072008 was clear and direct in
its intention to reduce interest rates.
Indeed, the last remaining vestige of
the financial crisis can be seen today
in the low levels of prevailing rates.
Low rates provide an excellent opportunity on the liability side of the balance sheet to lock in low borrowing
costs and express views on interest
rates and inflation.
Additionally, utilizing low-rate debt
while keeping investment assets productive could significantly impact a
households net worth over a longer
time horizon. Looking forward, portfolio returns are likely to outpace the
current cost of debt which, after years
and decades of compounding, could
lead to enhanced investment returns.
Treasury rates, in %
15
10
8
14
13
12
11
10
2
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
9
2012
2013
20
2014
2015
10-year Treasury
10-year TIPS
Source: Bloomberg, UBS, as of 19 May 2015
Top themes
Highlights from our monthly selection of highest conviction investment themes across the asset class spectrum
Portfolio context
US equity
u
Equity
growth and
income
u
Multi-year
decade
theme
u
Portfolio
integration
report
North America continues to make progress in achieving greater energy independence. We expect more self-sufficiency by the end of the decade and
that the US will soon be a net exporter
of natural gas. Trends such as robust
drilling activity for oil and natural gas,
infrastructure build-out, and widespread availability of reliable and affordable energy supplies are driving opportunities for investors.
Technologies for extracting oil and gas
are driving improved well productivity
and reducing costs. We believe the US
competitive landscape favors the stronger operators. A potential shakeout
among US shale operators could enable
the more efficient operators to benefit
from industry consolidation and come
out even better positioned to capture
future growth opportunities.
Meanwhile, we expect energy consumers to enjoy the ongoing benefits of
lower-cost energy.
Top themes
Thematic investment ideas from CIO Wealth Management Research
June 2015
ab
Preferred themes
Adding value(s) to investing:
Sustainable investing
Beyond benchmark fixed income investing
Capex rising...finally
Eurozone comeback
Liability optimization
Major advances in cancer therapeutics
In millions of barrels
N
orth American energy independence:
Reenergized
500
475
450
425
400
375
350
325
300
275
250
Jun
2013
2014
Sep
Dec
2015
21
KEY FORECASTS
KEY FORECASTS
Overweight
Neutral
As of 21 May 2015
Asset class
Underweight
TAA1
Change
6-month forecast
Positive
Negative
House View
scenario
scenario
Benchmark
Value
m/m perf.
in %2
2126
2.1%
2200
2450
1825
EQUITIES
USA
S&P 500
Eurozone
Euro Stoxx
380
0.7%
397
430
300
UK
FTSE 100
7007
0.2%
7125
7650
5700
Japan
Topix
1643
3.4%
1675
1850
1300
Switzerland
SMI
9320
0.8%
9500
10170
8000
Emerging Markets
MSCI EM
1036
-0.6%
1060
1165
800
BONDS
US Government bonds
10yr yield
2.25%
-1.8%
2.3%
2.7-3.1%
1.6-2.0%
US Corporate bonds
Spread
128 bps
-2.7%
115 bps
75 bps
250 bps
Spread
449 bps
0.1%
400 bps
325 bps
900 bps
EM Sovereign
Spread
330 bps
0.0%
350 bps
260 bps
480 bps
EM Corporate
Spread
315 bps
-0.6%
350 bps
250 bps
470 bps
Commodities
DJUBS ER Index
103
1.1%
NA
NA
NA
EPRA/NAREIT DTR
4405
-0.4%
4250
4500
4100
NA
NA
NA
NA
NA
CURRENCIES
Currency pair
USD
EUR
EURUSD
1.11
2.7%
1.08
1.00
1.15
GBP
GBPUSD
1.55
3.8%
1.56
NA
NA
JPY
USDJPY
121
2.1%
124
125
110
CHF
USDCHF
0.94
-1.6%
0.97
NA
NA
22
0.0
Current allocation1
0.0 +0.0
0.0
Aggressive
Current allocation1
0.0 +0.0
0.0
Current allocation1
0.0 +0.0
Moderately
aggressive
0.0
Current allocation1
0.0 +0.0
0.0
Moderate
Fixed Income
69.0 -1.5
30.5
US Fixed Income
62.0 +0.5
25.5
US Govt
7.0
-2.5
4.5
5.5
-3.0
2.5
4.0
-4.0
0.0
3.5
-3.5
0.0
2.0
-2.0
0.0
50.0
-1.0
49.0
39.0
-1.0
38.0
30.0
-0.5
29.5
24.0
-1.0
23.0
17.0
-2.5
14.5
US IG total market
5.5
5.0
4.5
4.0
3.5
US IG 15 years
0.0 +1.0
1.0
0.0 +1.0
1.0
0.0 +1.0
1.0
0.0 +1.0
1.0
0.0 +1.0
1.0
US HY Corp
1.0 +1.5
2.5
3.0 +1.5
4.5
3.5 +1.5
5.0
4.0 +1.5
5.5
5.0 +1.5
6.5
7.0 -2.0
5.0
6.0 -2.0
4.0
6.0 -2.0
4.0
7.0 -2.0
5.0
7.0 -2.0
5.0
US Municipal
p
q
0.0 +0.0
Moderately
conservative
Current allocation1
Cash
All figures in %
Conservative
Investor
risk profile
-1.0
-1.0
-1.0
-1.0
-1.0
6.0
-2.0
4.0
4.0
-2.0
2.0
3.0
-2.0
1.0
3.0
-2.0
1.0
2.0
-2.0
0.0
Emerging Markets
1.0 +0.0
1.0
2.0 +0.0
2.0
3.0 +0.0
3.0
4.0 +0.0
4.0
5.0 +0.0
5.0
Equity
US Equity
16.0 +1.5
57.5
9.0 +0.5
31.5
2.5
-0.5
2.0
4.5
-1.0
3.5
6.0
-1.0
5.0
8.0
-1.0
2.5
-0.5
2.0
4.5
-1.0
3.5
6.0
-1.0
5.0
8.0
-1.0
US Mid cap
3.0 +0.0
3.0
4.0 +0.0
4.0
5.0 +0.0
5.0
7.0 +0.0
US Small cap
1.0 +1.5
2.5
2.0 +2.0
4.0
3.0 +2.5
5.5
3.0 +2.5
5.5
International Equity
7.0 +1.0
4.0 +1.5
5.5
7.0 +2.5
9.5
8.5 +3.0
Emerging Markets
3.0
-0.5
2.5
5.0
-0.5
4.5
6.0
4.0 +0.0
4.0
4.0 +0.0
4.0
Commodities
Non-traditional
11.0 +0.0
-1.0
5.0
4.0 +0.0
11.0 +3.0
8.0
7.0
9.5
-1.0
8.5
7.0
9.5
-1.0
8.5
7.0
8.0 +0.0
8.0
4.0 +2.5
6.5
26.0
14.0
-1.0
7.0
4.0
5.0 +0.0
15.0
14.0 +3.0
10.0
17.0
-1.0
9.0
5.0
5.0 +0.0
5.0
9.0 +0.0
9.0
7.0 +0.0
7.0
Hedge Funds
11.0 +0.0
11.0
12.0 +0.0
12.0
10.0 +0.0
10.0
3.0 +0.0
3.0
0.0 +0.0
0.0
Private Equity
0.0 +0.0
0.0
0.0 +0.0
0.0
5.0 +0.0
5.0
6.0 +0.0
6.0
7.0 +0.0
7.0
0.0 +0.0
0.0
0.0 +0.0
0.0
0.0 +0.0
0.0
0.0 +0.0
0.0
0.0 +0.0
0.0
WMR tactical deviation legend: OverweightUnderweightNeutral Change legend: p Upgrade q Downgrade *Refers to moderate-risk profile.
1
The current allocation column is the sum of the strategic asset allocation and the tactical deviation column.
Source: UBS CIO WMR and WMA AAC, 21 May 2015. See appendix for information regarding sources of strategic asset allocations and their suitability, investor risk profiles, and the interpretation of the
suggested tactical deviations from the strategic asset allocations.
23
0.0
Current allocation1
0.0 +0.0
0.0
0.0 +0.0
Aggressive
Current allocation1
0.0
Benchmark allocation
Current allocation1
0.0 +0.0
Moderately
aggressive
0.0
Current allocation1
0.0 +0.0
0.0
Moderate
Fixed Income
80.0 -1.5
30.5
US Fixed Income
72.0 +0.5
25.5
US Govt
US Municipal
p
q
0.0 +0.0
Moderately
conservative
Current allocation1
Cash
All figures in %
Conservative
Investor
risk profile
8.0
5.5
7.0
-3.0
4.0
5.0
-4.0
1.0
3.0
-3.0
0.0
2.0
-2.0
0.0
-1.0
57.0
45.0
35.0
26.0
16.0
-1.0
44.0
-1.0
34.0
-2.0
24.0
-2.5
13.5
US IG total market
4.0
+1.5 +1.0
5.5
5.0
5.0
4.0
2.5
US IG 15 years
0.0
+1.0
1.0
0.0 +1.0
1.0
0.0 +1.0
1.0
0.0 +1.0
1.0
0.0 +1.0
1.0
US HY Corp
2.0
+1.5
3.5
3.0 +1.5
4.5
4.0 +1.5
5.5
5.0 +1.5
6.5
7.0 +1.5
8.5
8.0 -2.0
6.0
8.0 -2.5
5.5
7.5 -2.0
5.5
8.0 -2.0
6.0
7.0 -2.0
5.0
58.0
-2.5
-1.0
-1.0
-1.0
-1.0
-1.0
6.0
-2.0
4.0
5.0
-2.5
2.5
4.0
-2.0
2.0
3.0
-2.0
1.0
2.0
-2.0
0.0
Emerging Markets
2.0
+0.0
2.0
3.0 +0.0
3.0
3.5 +0.0
3.5
5.0 +0.0
5.0
5.0 +0.0
5.0
Equity
US Equity
16.0 +1.5
64.5
9.0 +0.5
36.5
3.0
-0.5
2.5
5.0
-1.0
4.0
7.0
-1.0
6.0
9.0
-1.0
8.0
11.0
-1.0
10.0
3.0
-0.5
2.5
5.0
-1.0
4.0
7.0
-1.0
6.0
9.0
-1.0
8.0
11.0
-1.0
10.0
US Mid cap
2.0
+0.0
2.0
5.0 +0.0
5.0
6.0 +0.0
6.0
7.0 +0.0
7.0
9.0 +0.0
9.0
US Small cap
1.0
+1.5
2.5
3.0 +2.0
5.0
3.0 +2.5
5.5
4.0 +2.5
6.5
5.0 +2.5
7.5
28.0
International Equity
7.0 +1.0
4.0
+1.5
5.5
7.0 +2.5
9.5
Emerging Markets
3.0
-0.5
2.5
5.0
-0.5
4.5
4.0 +0.0
4.0
4.0 +0.0
4.0
Commodities
10.0 +3.0
7.5
-1.0
6.5
5.0 +0.0
5.0
12.5 +3.0
9.5
15.5
-1.0
8.5
5.0 +0.0
5.0
15.0 +3.0
18.0
11.0
-1.0
10.0
5.0 +0.0
5.0
WMR tactical deviation legend: OverweightUnderweightNeutral Change legend: p Upgrade q Downgrade *Refers to moderate-risk profile.
1
The current allocation column is the sum of the strategic asset allocation and the tactical deviation column.
Source: UBS CIO WMR and WMA AAC, 21 May 2015. See appendix for information regarding sources of strategic asset allocations and their suitability, investor risk profiles, and the interpretation of the
suggested tactical deviations from the strategic asset allocations.
24
0.0
Current allocation1
0.0 +0.0
0.0
Aggressive
Current allocation1
0.0 +0.0
0.0
Current allocation1
0.0 +0.0
Moderately
aggressive
0.0
Current allocation1
0.0 +0.0
0.0
Moderate
Fixed Income
68.0 -1.5
30.5
US Fixed Income
60.0 +0.5
25.5
US Govt
p
q
0.0 +0.0
Moderately
conservative
Current allocation1
Cash
All figures in %
Conservative
Investor
risk profile
-4.0
43.0
US Municipal
0.0 +0.0
0.0
US IG total market
US IG 15 years
0.0 +1.0
US HY Corp
Intl Fixed Income
Intl Developed Markets
Emerging Markets
47.0
-7.0
21.0
0.0
0.0 +0.0
9.5
1.0
0.0 +1.0
4.0 +1.5
5.5
8.0 -2.0
6.0
6.0
-2.0
2.0 +0.0
-1.0
11.0
36.0
-5.5
30.5
0.0 +0.0
-7.0
12.5
0.0
0.0 +0.0
8.0
1.0
0.0 +1.0
6.0 +2.0
8.0
7.0 -2.0
5.0
4.0
4.0
-2.0
2.0
3.0 +0.0
-1.0
28.0
-7.0
6.0
0.0
0.0 +0.0
0.0
7.0
5.0
1.0
0.0 +1.0
1.0
0.0 +1.0
1.0
7.0 +2.5
9.5
9.0 +2.5
11.5
11.0 +2.5
13.5
6.5 -2.0
4.5
6.5 -2.0
4.5
7.0 -2.0
5.0
2.0
3.5
-2.0
3.0
3.0 +0.0
-1.0
19.5
1.5
2.5
-2.0
3.0
4.0 +0.0
-1.0
13.0
0.5
2.0
4.0
-1.0
-2.0
0.0
5.0 +0.0
5.0
Equity
17.0 +1.5
55.5
US Equity
10.0 +0.5
31.5
3.0
-0.5
2.5
5.0
-1.0
4.0
6.0
-1.0
5.0
7.5
-1.0
6.5
9.5
-1.0
8.5
3.0
-0.5
2.5
5.0
-1.0
4.0
6.0
-1.0
5.0
7.5
-1.0
6.5
9.5
-1.0
8.5
US Mid cap
2.5 +0.0
2.5
4.0 +0.0
4.0
5.5 +0.0
5.5
6.0 +0.0
6.0
8.0 +0.0
8.0
US Small cap
1.5 +1.5
3.0
2.0 +2.0
4.0
3.0 +2.5
5.5
3.0 +2.5
5.5
4.0 +2.5
6.5
24.0
International Equity
7.0 +1.0
4.0 +1.5
5.5
7.0 +3.0
Emerging Markets
3.0
-0.5
2.5
5.0
4.0 +0.0
4.0
Commodities
Non-traditional
11.0 +0.0
-1.0
4.0
4.0 +0.0
4.0
8.0 +3.0
6.0
-1.0
5.0
4.0 +0.0
4.0
10.0 +3.0
8.0
13.0
-1.0
7.0
5.0 +0.0
13.0 +3.0
9.0
16.0
-1.0
8.0
5.0
5.0 +0.0
5.0
14.0
9.0 +0.0
9.0
Hedge Funds
11.0 +0.0
11.0
12.0 +0.0
12.0
10.0 +0.0
10.0
8.0 +0.0
8.0
3.0 +0.0
3.0
Private Equity
0.0 +0.0
0.0
0.0 +0.0
0.0
5.0 +0.0
5.0
6.0 +0.0
6.0
6.0 +0.0
6.0
0.0 +0.0
0.0
0.0 +0.0
0.0
0.0 +0.0
0.0
0.0 +0.0
0.0
0.0 +0.0
0.0
WMR tactical deviation legend: OverweightUnderweightNeutral Change legend: p Upgrade q Downgrade *Refers to moderate-risk profile.
1
The current allocation column is the sum of the strategic asset allocation and the tactical deviation column.
Source: UBS CIO WMR and WMA AAC, 21 May 2015. See appendix for information regarding sources of strategic asset allocations and their suitability, investor risk profiles, and the interpretation of the
suggested tactical deviations from the strategic asset allocations.
25
0.0
78.0 -1.5
33.5
US Fixed Income
69.0 +0.5
28.5
US Municipal
US IG total market
55.0
-4.0
51.0
0.0
+0.0
0.0
10.0
+2.0 +1.0
US IG 15 years
0.0
+1.0
US HY Corp
4.0
-1.0
12.0
42.0
-5.5
36.5
0.0 +0.0
0.0
-7.0
16.0
0.0
0.0 +0.0
9.0
1.0
0.0 +1.0
11.0
32.0
-7.0
25.0
0.0 +0.0
-1.0
23.0
-7.0
6.0
0.0
0.0 +0.0
0.0
7.0
6.0
1.0
0.0 +1.0
1.0
0.0 +1.0
1.0
-1.0
13.0
1.0
0.0 +1.0
-1.0
+1.5
5.5
7.0 +2.0
9.0
9.0 +2.5
11.5
11.0 +2.5
13.5
13.0 +2.5
15.5
9.0 -2.0
7.0
8.0 -2.0
6.0
8.0 -2.0
6.0
8.0 -2.0
6.0
7.0 -2.0
5.0
7.0
-2.0
5.0
5.0
-2.0
3.0
4.0
-2.0
2.0
3.0
-2.0
1.0
2.0
-2.0
0.0
Emerging Markets
2.0
+0.0
2.0
3.0 +0.0
3.0
4.0 +0.0
4.0
5.0 +0.0
5.0
5.0 +0.0
5.0
Equity
18.0 +1.5
61.5
US Equity
10.0 +0.5
33.5
3.0
-0.5
2.5
5.5
-1.0
4.5
7.0
-1.0
6.0
8.5
-1.0
7.5
10.0
-1.0
9.0
3.0
-0.5
2.5
5.5
-1.0
4.5
7.0
-1.0
6.0
8.5
-1.0
7.5
10.0
-1.0
9.0
US Mid cap
3.0
+0.0
3.0
5.0 +0.0
5.0
6.0 +0.0
6.0
7.0 +0.0
7.0
9.0 +0.0
9.0
US Small cap
1.0
+1.5
2.5
2.0 +2.0
4.0
3.0 +2.5
5.5
4.0 +2.5
6.5
4.0 +2.5
6.5
28.0
International Equity
8.0 +1.0
4.0
+1.5
5.5
8.0 +2.5
Emerging Markets
4.0
-0.5
3.5
5.0
4.0 +0.0
4.0
Commodities
-1.0
4.0
4.0 +0.0
4.0
10.0 +3.0
8.0
-1.0
7.0
4.0 +0.0
4.0
12.0 +3.0
10.0
15.0
-1.0
9.0
4.0 +0.0
4.0
14.0 +3.0
17.0
12.0
-1.0
11.0
5.0 +0.0
5.0
WMR tactical deviation legend: OverweightUnderweightNeutral Change legend: p Upgrade q Downgrade *Refers to moderate-risk profile.
1
The current allocation column is the sum of the strategic asset allocation and the tactical deviation column.
Source: UBS CIO WMR and WMA AAC, 21 May 2015. See appendix for information regarding sources of strategic asset allocations and their suitability, investor risk profiles, and the interpretation
of the suggested tactical deviations from the strategic asset allocations.
26
Current allocation1
0.0 +0.0
0.0
0.0 +0.0
Aggressive
Current allocation1
0.0
Benchmark allocation
Current allocation1
0.0 +0.0
Moderately
aggressive
0.0
Current allocation1
0.0 +0.0
0.0
Moderate
Fixed Income
US Govt
p
q
0.0 +0.0
Moderately
conservative
Current allocation1
Cash
All figures in %
Conservative
Investor
risk profile
5.5
94.5
0.0 +0.0
84.0
0.0
9.0
-7.0
2.0
16.0
-3.5
Current allocation1
5.0 +0.5
US Fixed Income
0.0 +0.0
5.0
0.0 +0.0
Fixed Income
Current allocation1
5.0 +0.0
2.5
5.0 -2.5
Cash
Current allocation1
All figures in %
All equity
12.5
0.0 +0.0
0.0
0.0 +0.0
0.0
6.0
-1.5
4.5
0.0 +0.0
0.0
0.0 +0.0
0.0
14.0
-3.0
11.0
0.0 +0.0
0.0
0.0 +0.0
0.0
10.0
-2.0
8.0
US MBS
0.0 +0.0
0.0
0.0 +0.0
0.0
9.0 +0.0
9.0
0.0 +0.0
0.0
28.0 +0.0
28.0
0.0 +0.0
0.0
0.0 +0.0
0.0
11.0 +0.0
11.0
0.0 +0.0
0.0
0.0 +0.0
0.0
22.0 +1.0
23.0
0.0 +0.0
0.0
9.0
10.5 +5.5
2.0
0.0 +2.0
10.0
15.5 +5.5
21.0
10.5
US IG total market
0.0 +0.0
0.0
5.0 +4.0
US IG 1~5 years
0.0 +0.0
0.0
0.0 +2.0
0.0
7.0 +3.0
US High Yield
Intl Fixed Income
Intl Developed Markets
Emerging Markets
0.0 +0.0
0.0 +0.0
0.0 +0.0
0.0
7.0
-3.5
p
q
3.5
7.0
-3.5
p
q
16.0
2.0
3.5
0.0 +0.0
0.0
6.0 +0.5
6.5
7.0 +0.0
7.0
Equity
95.0 +2.5
97.5
0.0 +0.0
0.0
0.0 +0.0
0.0
US Equity
54.0 +0.5
54.5
0.0 +0.0
0.0
0.0 +0.0
0.0
US Large-cap Growth
7.0
-1.0
6.0
0.0 +0.0
0.0
0.0 +0.0
0.0
US Large-cap Value
7.0
-1.0
6.0
0.0 +0.0
0.0
0.0 +0.0
0.0
19.0
-3.0
16.0
0.0 +0.0
0.0
0.0 +0.0
0.0
3.0
0.0 +0.0
0.0
0.0 +0.0
0.0
0.0 +3.0
0.0
0.0 +0.0
0.0
0.0 +0.0
0.0
US Mid-cap Equity
14.0 +0.0
14.0
0.0 +0.0
0.0
0.0 +0.0
0.0
US Small-cap Equity
7.0 +2.5
9.5
0.0 +0.0
0.0
0.0 +0.0
0.0
41.0 +2.0
43.0
0.0 +0.0
0.0
0.0 +0.0
0.0
23.5 +0.0
23.5
0.0 +0.0
0.0
0.0 +0.0
0.0
Consumer discretionary
International Equity
Intl Developed Markets
Eurozone currency hedged
0.0 +0.0
3.0
0.0 +0.0
0.0
0.0 +0.0
0.0
-7.0
10.5
0.0 +0.0
0.0
0.0 +0.0
0.0
India
0.0 +3.0
3.0
0.0 +0.0
0.0
0.0 +0.0
0.0
Taiwan
0.0 +3.0
3.0
0.0 +0.0
0.0
0.0 +0.0
0.0
Global EM Equity
0.0 +3.0
17.5
Publication note
The All Equity and All Fixed Income
portfolios complement our balanced
portfolios and offer more granular implementation of our House View. While
we generally do not recommend that
investors hold portfolios consisting of
only stocks or only bonds, the All Equity
and All Fixed Income portfolios can be
used by investors who want to complement their existing holdings. It is also
possible to combine the All Equity portfolio with one of the All Fixed Income
portfolios to generate a balanced portfolio. The tactical tilts in the portfolios
are based on the corresponding tilts in
our balanced portfolios (moderate risk
profile, without alternative investments).
A special feature of the All Equity portfolio is that it includes carve-outs:
3% allocations to our preferred sectors
within US large-caps as well as our preferred countries within both international developed markets and the
emerging markets. A maximum of two
sectors/countries of each type may be
selected for carve-outs. The amount of
cash in the All Equity portfolio will vary
one-for-one with the overall overweight/underweight on equities in the
balanced portfolio, subject to a 3%
maximum. This allows us to express a
tactical preference between stocks and
bonds.
The All Fixed Income portfolios include
both taxable and non-taxable versions.
These are based on the fixed income
portion of the balanced portfolios, with
the non-taxable version incorporating
an additional allocation to Mortgage
Backed Securities. In addition, the All
Fixed Income portfolios include allocations to government bonds (Munis in
the taxable version, Treasuries in the
non-taxable version) of different maturities, allowing views on duration to
be expressed. Cash is set at 5% of the
portfolios, with small deviations possible due to rounding.
27
Portfolio Analytics
The portfolio analytics shown for each risk profiles benchmark allocations are based on estimated forward-looking
return and standard deviation assumptions (capital market
assumptions), which are based on UBS proprietary research.
The development process includes a review of a variety of
factors, including the return, risk, correlations and historical
performance of various asset classes, inflation and risk premium. These capital market assumptions do not assume any
particular investment time horizon. The process assumes a
situation where the supply and demand for investments is in
balance, and in which expected returns of all asset classes are
a reflection of their expected risk and correlations regardless
of time frame. Please note that these assumptions are not
guarantees and are subject to change. UBS has changed its
risk and return assumptions in the past and may do so in the
future. Neither UBS nor your Financial Advisor is required to
provide you with an updated analysis based upon changes to
these or other underlying assumptions.
Risk
Profile ==>>
Moderately
Moderately
Conservative conservative Moderate aggressive Aggressive
Taxable with
non-traditional assets
Estimated Return
4.4%
5.1%
5.9%
6.4%
7.0%
Estimated Risk
5.6%
7.4%
9.6%
11.5%
13.5%
Taxable without
non-traditional assets
Estimated Return
4.0%
4.8%
5.5%
6.1%
6.8%
Estimated Risk
5.4%
7.5%
9.5%
11.5%
13.5%
Non-taxable with
non-traditional assets
Estimated Return
4.3%
5.0%
5.8%
6.4%
7.0%
Estimated Risk
5.5%
7.4%
9.5%
11.4%
13.4%
Non-taxable without
non-traditional assets
Asset Class
Annual risk
US Cash
2.5%
0.5%
2.2%
4.3%
2.9%
4.7%
3.5%
5.9%
5.6%
11.7%
4.0%
9.0%
4.9%
9.1%
7.5%
16.8%
8.4%
19.6%
8.6%
21.8%
8.5%
19.7%
10.0%
25.5%
Commodities
6.4%
18.9%
Hedge Funds
6.2%
6.7%
Private Equity
11.8%
24.4%
8.5%
11.8%
Estimated Return
4.0%
4.8%
5.5%
6.1%
6.8%
Estimated Risk
5.4%
7.5%
9.5%
11.4%
13.5%
28
Current
allocation3
12.5
+2.0
+1.0
++
13.5
1.1
+0.0
+0.0
1.1
1.4
+1.0
+1.0
2.4
Consumer Services
1.8
+0.0
+0.0
1.8
Media
3.5
+0.0
+0.0
3.5
Retailing
4.7
+1.0
+0.0
4.7
Consumer Staples
9.5
+0.0
+0.0
9.5
5.3
+0.0
+0.0
5.3
2.4
1.0
1.0
1.4
1.9
+1.0
+1.0
2.9
Energy
8.0
+0.0
+0.0
8.0
16.3
+0.0
+1.0
17.3
Banks
6.0
+1.0
+1.0
7.0
Diversified Financials
5.2
+0.0
+0.0
5.2
Insurance
2.7
+0.0
+0.0
2.7
Real Estate
2.5
-1.0
+0.0
2.5
15.0
+0.0
+0.0
15.0
5.1
+0.0
+0.0
5.1
9.9
+0.0
+0.0
9.9
Financials
Healthcare
10.3
+1.0
+1.0
11.3
Capital Goods
Industrials
7.5
+0.0
+0.0
7.5
0.6
+0.0
+0.0
0.6
Transportation
2.1
+1.0
+1.0
Information Technology
20.0
+2.0
+2.0
++
++
22.0
3.1
10.6
+1.0
+1.0
11.6
7.0
+1.0
+1.0
8.0
Semiconductors
2.4
+0.0
+0.0
2.4
Materials
3.2
-1.0
-1.0
2.2
Telecom
2.3
-2.0
-2.0
0.3
Utilities
3.0
-2.0
-2.0
1.0
29
EMU / Eurozone
Benchmark
allocation1
28.0
Current allocation3
58.0
UK
20.0
-15.0
-15.0
5.0
Japan
19.0
-6.0
-6.0
13.0
Australia
7.0
-3.0
-3.0
4.0
Canada
9.0
-3.0
-3.0
6.0
Switzerland
8.0
-3.0
-3.0
5.0
Other
9.0
+0.0
+0.0
9.0
Current allocation3
EMU / Eurozone
UK
Benchmark
allocation1
42.0
9.0
+5.0
+5.0
42.0
14.0
Japan
32.0
+0.0
+0.0
32.0
Other
17.0
+5.0
-5.0
12.0
30
PERFORMANCE MEASUREMENT
the annualized excess return over a given time period and the
annualized standard deviation of daily excess returns over the
same period. Additional background information regarding
the computation of the information ratio figures provided below are available upon request.
The calculations assume that the portfolios are rebalanced
whenever changes are made to tactical deviations, typically
upon publication of the Investment Strategy Guide on a
monthly basis. Occasionally, changes in the tactical deviations
are made intra-month when warranted by market conditions
and communicated through an Investment Strategy Guide
Update. The computations assume portfolio rebalancing
upon such intra-month changes as well. Performance shown
is based on total returns, but does not include transaction
costs, such as commissions, fees, margin interest, and interest
charges. Actual total returns adjusted for such transaction
costs will be reduced. A complete record of all the recommendations upon which this performance report is based is
available from UBS Financial Services Inc. upon written request. Past performance is not an indication of future results.
Table A: Moderate risk profile performance measurement (25 January 2013 to present)
SAA
SAA with
tactical shift
Excess
return
Information
ratio
(annualized)
Russell 3000
stock index
(total return)
Barclays Capital
US Aggregate bond
index (total return)
0.79%
0.83%
0.04%
+0.9
5.59%
0.11%
2Q 2013
-2.18%
-2.14%
0.04%
+0.3
2.69%
-2.33%
3Q 2013
3.60%
3.86%
0.26%
+2.4
6.35%
0.57%
4Q 2013
3.05%
3.23%
0.18%
+2.9
10.10%
-0.14%
1Q 2014
2.56%
2.53%
-0.03%
-0.2
1.97%
1.84%
2Q 2014
3.44%
3.49%
0.05%
+0.3
4.87%
2.04%
3Q 2014
-1.54%
-1.71%
-0.16%
-1.2
0.01%
0.17%
4Q 2014
0.47%
0.73%
0.26%
+1.3
5.24%
1.79%
1Q 2015
1.38%
1.69%
0.31%
+2.1
1.80%
1.61%
2Q 2015 to date
1.32%
1.37%
0.05%
+0.8
2.67%
-1.25%
13.47%
14.57%
1.11%
+0.9
49.36%
4.41%
31
PERFORMANCE MEASUREMENT
7.0
7.0
6.0
3.0
10.0
7.5
5.0
35.0
3.0
4.0
4.0
Emerging Markets Fixed Income (50% BarCap EM Gov and 50% BarCap Global EM (USD))
3.5
5.0
32
PERFORMANCE MEASUREMENT
Benchmark
Allocation (SAA)
with tactical shift
25 Aug 08 to 31 Dec 08
Russell 3000
stock index
(total return)
Barclays Capital
US Aggregate bond
index (total return)
-16.59%
-15.64%
0.96%
+2.0
-29.00%
3.33%
2009 Q1
-5.52%
-5.45%
0.07%
+0.3
-10.80%
0.12%
2009 Q2
11.18%
11.37%
0.18%
+1.0
16.82%
1.78%
2009 Q3
10.44%
11.07%
0.63%
+2.1
16.31%
3.74%
2009 Q4
2.99%
3.30%
0.31%
+1.1
5.90%
0.20%
2010 Q1
2.74%
2.56%
-0.18%
-0.9
5.94%
1.78%
2010 Q2
-4.56%
-4.87%
-0.31%
-1.4
-11.32%
3.49%
2010 Q3
8.34%
7.99%
-0.35%
-2.1
11.53%
2.48%
2010 Q4
5.18%
5.17%
-0.01%
-0.1
11.59%
-1.30%
2011 Q1
3.23%
3.15%
-0.08%
-0.4
6.38%
0.42%
2011 Q2
0.62%
0.47%
-0.16%
-0.9
-0.03%
2.29%
2011 Q3
-7.65%
-8.56%
-0.90%
-2.5
-15.28%
3.82%
2011 Q4
4.66%
4.39%
-0.27%
-0.8
12.12%
1.12%
2012 Q1
5.89%
5.41%
-0.48%
-2.3
12.87%
0.30%
2012 Q2
-1.59%
-1.57%
0.02%
+0.2
-3.15%
2.06%
2012 Q3
4.18%
4.08%
-0.10%
-1.1
6.23%
1.59%
2012 Q4
0.69%
0.65%
-0.04%
-0.7
0.25%
0.21%
01 Jan 13 to 24 Jan 13
2.17%
2.20%
0.03%
+2.5
5.19%
-0.23%
24.86%
24.10%
-0.76%
-0.1
31.81%
30.76%
Since inception
Source: CIO WMR
Table D: SAAs for moderate risk profile investor, and underlying indices (all figures in %)
25 Aug 2008 to 23 Feb 2009
12.5
11.0
12.5
11.0
2.0
5.0
2.0
3.0
1.5
10.5
2.0
10.0
2.0
2.0
30.0
29.0
8.0
2.0
2.0
5.0
5.0
12.0
8.0
12.0
33
APPENDIX
Investment Committee
Global Investment Process and Committee description
The UBS investment process is designed to achieve replicable, high quality results through applying intellectual rigor,
strong process governance, clear responsibility and a culture
of challenge.
Based on the analyses and assessments conducted and vetted throughout the investment process, the Chief Investment
Officer (CIO) formulates the UBS Wealth Management
Investment House View (e.g., overweight, neutral, underweight stance for asset classes and market segments relative to their benchmark allocation) at the Global Investment
Committee (GIC). Senior investment professionals from
across UBS, complemented by selected external experts,
debate and rigorously challenge the investment strategy to
ensure consistency and risk control.
Global Investment Committee composition
The GIC is comprised of 13 members, representing top market and investment expertise from across all divisions of UBS:
Mark Haefele (Chair)
Mark Andersen
Andreas Hoefert
Jorge Mariscal
Mads Pedersen
Mike Ryan
Simon Smiles
Tan Min Lan
Themis Themistocleus
Larry Hatheway (*)
Bruno Marxer (*)
Curt Custard (*)
Andreas Koester (*)
(*) Business areas distinct from Chief Investment Office/
Wealth Management Research
34
APPENDIX
Description/Definition
Symbol
Description/Definition
Symbol
Description/Definition
++
n/a
not applicable
+++
35
APPENDIX
Appendix
Emerging Market Investments
Investors should be aware that Emerging Market assets are subject to,
among others, potential risks linked to currency volatility, abrupt changes
in the cost of capital and the economic growth outlook, as well as regulatory and sociopolitical risk, interest rate risk and higher credit risk. Assets
can sometimes be very illiquid and liquidity conditions can abruptly worsen. WMR generally recommends only those securities it believes have
been registered under Federal US registration rules (Section 12 of the Securities Exchange Act of 1934) and individual State registration rules
(commonly known as Blue Sky laws). Prospective investors should be
aware that to the extent permitted under US law, WMR may from time to
time recommend bonds that are not registered under US or State securities laws. These bonds may be issued in jurisdictions where the level of
required disclosures to be made by issuers is not as frequent or complete
as that required by US laws.
For more background on emerging markets generally, see the WMR Education Notes Investing in Emerging Markets (Part 1): Equities, 27 August 2007, Emerging Market Bonds: Understanding Emerging Market
Bonds, 12 August 2009 and Emerging Markets Bonds: Understanding
Sovereign Risk, 17 December 2009.
Investors interested in holding bonds for a longer period are advised to
select the bonds of those sovereigns with the highest credit ratings (in the
investment grade band). Such an approach should decrease the risk that
an investor could end up holding bonds on which the sovereign has defaulted. Subinvestment grade bonds are recommended only for clients
with a higher risk tolerance and who seek to hold higher-yielding bonds
for shorter periods only.
Nontraditional Assets
Nontraditional asset classes are alternative investments that include hedge funds, private equity, real estate, and managed futures (collectively, alternative investments). Interests of alternative
investment funds are sold only to qualified investors, and only by means
of offering documents that include information about the risks, performance and expenses of alternative investment funds, and which clients
are urged to read carefully before subscribing and retain. An investment
in an alternative investment fund is speculative and involves significant
risks. Specifically, these investments (1) are not mutual funds and are not
subject to the same regulatory requirements as mutual funds; (2) may
have performance that is volatile, and investors may lose all or a substantial amount of their investment; (3) may engage in leverage and other
speculative investment practices that may increase the risk of investment
loss; (4) are long-term, illiquid investments; there is generally no secondary market for the interests of a fund, and none is expected to develop;
(5) interests of alternative investment funds typically will be illiquid and
subject to restrictions on transfer; (6) may not be required to provide periodic pricing or valuation information to investors; (7) generally involve
complex tax strategies and there may be delays in distributing tax information to investors; (8) are subject to high fees, including management
fees and other fees and expenses, all of which will reduce profits.
Interests in alternative investment funds are not deposits or obligations
of, or guaranteed or endorsed by, any bank or other insured depository
institution, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other governmental agency. Prospective investors should understand these risks and have the
36
APPENDIX
Disclaimer
Chief Investment Office (CIO) Wealth Management (WM) Research is
published by UBS Wealth Management and UBS Wealth Management
Americas, Business Divisions of UBS AG (UBS) or an affiliate thereof. CIO
WM Research reports published outside the US are branded as Chief
Investment Office WM. In certain countries UBS AG is referred to as UBS
SA. This publication is for your information only and is not intended as
an offer, or a solicitation of an offer, to buy or sell any investment or
other specific product. The analysis contained herein does not constitute a
personal recommendation or take into account the particular investment
objectives, investment strategies, financial situation and needs of
any specific recipient. It is based on numerous assumptions. Different
assumptions could result in materially different results. We recommend that
you obtain financial and/or tax advice as to the implications (including tax)
of investing in the manner described or in any of the products mentioned
herein. Certain services and products are subject to legal restrictions and
cannot be offered worldwide on an unrestricted basis and/or may not be
eligible for sale to all investors. All information and opinions expressed
in this document were obtained from sources believed to be reliable and
in good faith, but no representation or warranty, express or implied, is
made as to its accuracy or completeness (other than disclosures relating
to UBS and its affiliates). All information and opinions as well as any prices
indicated are current only as of the date of this report, and are subject
to change without notice. Opinions expressed herein may differ or be
contrary to those expressed by other business areas or divisions of UBS
as a result of using different assumptions and/or criteria. At any time,
investment decisions (including whether to buy, sell or hold securities)
made by UBS AG, its affiliates, subsidiaries and employees may differ from
or be contrary to the opinions expressed in UBS research publications.
Some investments may not be readily realizable since the market in the
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the risk to which you are exposed may be difficult to quantify. UBS relies
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one or more areas within UBS, into other areas, units, divisions or affiliates
of UBS. Futures and options trading is considered risky. Past performance
of an investment is no guarantee for its future performance. Some
investments may be subject to sudden and large falls in value and on
realization you may receive back less than you invested or may be required
to pay more. Changes in FX rates may have an adverse effect on the price,
value or income of an investment. This report is for distribution only under
such circumstances as may be permitted by applicable law.
37
Publication details
Publisher
UBS Financial Services Inc.
Wealth Management Research
1285 Avenue of the Americas, 20th Floor
New York, NY 10019
This report was published
on 22 May 2015.
Lead authors
Mark Haefele
Mike Ryan
Authors (in alphabetical order)
Manish Bangard
Michael Crook
Nicole Decker
Leslie Falconio
Thomas Flury
Ricardo Garcia
Markus Irngartinger
Katie Klingensmith
David Lefkowitz
Barry McAlinden
Thomas McLoughlin
Kathleen McNamara
Brian Nick
Brian Rose
Dominic Schnider
Philipp Schoettler
Giovanni Staunovo
Gary Tsang
Thomas Veraguth
Thomas Wacker
Jon Woloshin
Jeremy Zirin
Editors
Abraham De Ramos
Barbara Rounds-Smith
Project Management
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Desktop Publishing
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Cognizant Group Basavaraj Gudihal,
Srinivas Addugula, Pavan Mekala
and Virender Negi
38
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