Myths and Misconceptions of Indexing With Exchange Traded Funds (ETF) S

Myths and misconceptions
of indexing with Exchange

Traded Funds (ETF)s
Todd Schlanger, CFA
Investment Strategy Group
Vanguard Asset Management, Limited
This document is directed at investment professionals and should not be distributed to, or relied
upon by retail investors. The value of investments, and the income from them, may fall or rise and
investors may get back less than they invested.

Traded Funds (ETF)s
Todd Schlanger, CFA
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Vanguard becomes largest mutual fund family
(Globally)
Passive is gaining traction in the UK

Funds under management (FUM) in passively-managed funds (GBP millions, %)
100,000
10.5%
90,000
9.0%
80,000
70,000
60,000
7.0%
6.0%
6.1%
6.2%
6.3%
6.6%
6.7%
7.0%
7.2%
7.2%
7.2%
7.4%
7.6%
7.7%
9.1%
9.4%
9.6%
9.8%
10.9%
11.2%
9.8%
7.8%
12%
10%
8%
6%
Funds under
50,000management (GBP millions)
4%
40,000
30,000
2%
20,000
0%
10,000
0
-2%
Total FUM in onshore passive funds
Proportion of total industry FUM in onshore passive funds
Source: Investment Association, data as at 31 December 2014. UK-domiciled funds under management. Market data includes money invested in the underlying funds in
which funds of funds invest, but excludes money invested in fund of funds themselves (other than funds of overseas funds) to avoid double-counting.
Active tends to underperform on average

Percentage of active equity managers underperforming their benchmark,
2000 to 2014
Equities
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Surviving +
Fixed income
Surviving funds
Past performance is not a reliable indicator of future results.

Sources: Vanguard calculations, using data from Morningstar, Inc.
Notes: Fund universe includes funds available for sale in the UK, filtered according to the description above, from the following Morningstar categories: UK equity flex cap, largecap blend, large-cap growth, large-cap value, mid-cap, small-cap; Europe equity Europe OE: flex-cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap;
Euro zone equity flex-cap, large-cap, mid-cap, small-cap; Global flex-cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap; US equity flex-cap, largecap blend, large-cap growth, large-cap value, mid-cap, small-cap; Emerging markets equity emerging markets; Europe bond EUR diversified; US bond USD diversified;
Global bond global un-hedged bond; UK bonds UK diversified, UK government. Performance is for periods ending on 31 December 2014. Performance is calculated relative to
prospectus benchmark. Fund performance is shown in GBP terms, net of fees, gross of withholding tax, with income reinvested, based on closing NAV prices.
Investing as a zero-sum game

Costs
Probability
Median post-cost
return
Benchmark return
Return
Underperforming benchmark
Outperforming benchmark
After costs, more than half of all assets underperform
Source: The Vanguard Group Inc.
Myths and misconceptions of indexing
Active works best in inefficient markets

Active can outperform in bull/bear markets
Returns matter more than costs
I dont invest in average funds
Active managers can better manage risks in a portfolio
Indexing only works in efficient markets?

Percentage of active equity managers underperforming their benchmark,
2005 to 2014
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
High Yield
Surviving +
Emerging
Small-Cap
Surviving funds

Source: Vanguard calculations, using data from Morningstar, Inc.
Notes: Fund universe includes funds available for sale in the UK, filtered according to the description above, from the following Morningstar categories: High yield; Smallcap; Emerging markets. Performance is for periods ending on 31 December 2014. Performance is calculated relative to prospectus benchmark. Fund performance is shown
in GBP terms, net of fees, gross of withholding tax, with income reinvested, based on closing NAV prices.
Debunking the market cycle myth

Percentage of active equity funds underperforming prospectus benchmark
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Source: Vanguard calculations, based on data from Morningstar, Inc to 31 December 2014
Notes: Displays the percentage of surviving funds that underperform their prospectus benchmark over the time period shown. Bull and bear markets are the local peak or trough in
the global equity market, defined as the MSCI All Country World IMI. The fund universe and categories are as defined slide 4. Returns are calculated in GBP net of fees, gross of
tax, with income reinvested. Past performance is not a reliable indicator of future results.
Low cost investments tend to outperform higher

cost investments
Average annual returns over the ten years to 31 December 2014
Average annualised return (%)
12
10
8
6
4
2
0
Low cost median
High cost median

Source: Vanguard calculations, using data from calculations using Morningstar, Inc.
Notes: All mutual funds in each Morningstar category were ranked by their expense ratios as of 31 December 2014. They were then divided into four equal groups, from
the lowest-cost to the highest-cost funds. The chart shows the ten-year annualised returns for the median funds in the lowest cost and highest cost quartiles. Returns are
in sterling terms with income reinvested, net of expenses, excluding loads and taxes. Both actively managed and indexed funds are included. For funds with both income
and accumulation share classes, we use only accumulation share classes to avoid double counting.
10
Fund leadership is quick to change

Rank persistence of UK active equity funds
30%
27.1%
25%
20% of funds
Percentage
17.6%
18.8%
16.5%
15%
12.9%
10%
7.1%
5%
0%
Highest quintile
2nd quintile
3rd quintile
4th quintile
Lowest quintile

Source: Vanguard calculations, using data from Morningstar, Inc.
Performance is relative to prospectus benchmark. The first period was the 5-years ending 2009 and the second period was the 5-years ending 2014. The
fund universe includes all UK active equity funds available for sale in the UK. Returns are in GBP, net of fees, gross of tax, with income reinvested.
Merged/ liquidated
11
Actively managed portfolios tend to increase volatility
7
6
5
Annual return (%)
4
3
2
1
0
0
10
12
14
16
18
20
Annual volatility (%)

Past performance is no guarantee of future results.
Source: Vanguard calculations, using data from Morningstar, Inc. Data to 31 December, 2014.
Notes: The fund universe includes all active equity funds available for sale in the UK, investing in the equity classes as defined from the following Morningstar categories: UK
equity flex cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap; Global flex-cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap;
Global bond global un-hedged bond; GBP diversified UK diversified, Returns are in GBP terms, calculated net of fees, gross of tax withholding, with income reinvested.
12
Myths and misconceptions of indexing

Active works best in inefficient markets
- Relative performance often weaker as a result of higher costs
Active can outperform in bull/bear markets
- Timing market cycles is difficult and no evidence to support
Returns matter more than costs
- Costs reduce returns pound for pound
I dont invest in average funds
- Little performance persistence makes selection difficult
Active managers can better manage risks in a portfolio
- Active funds tend to have higher volatility
13
Key takeaways
Investing as a zero sum game
Relevance to mutual fund investors
Inefficient markets
The record of active management
Bull/bear market
Performance
Returns over costs
Cyclicality
Average fund
Survivorship bias
Active is less risky
Persistence
Other benefits of indexing
Comparing active to passive
More control over risks
The role of cost
Greater diversification
Relative performance
Portfolio consistency
14
Appendix
15
Active performance can be cyclical

Percentage of UK active equity managers underperforming their benchmarks
5-year periods
10-year periods
100%
100%
90%
90%
80%
80%
70%
70%
60%
60%
50%
50%
40%
40%
30%
30%
20%
20%
10%
10%
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
0%
2010
2011
2012
2013
2014
Percent underperforming
Percent underperforming, including

Sources: Vanguard calculations, using data from Morningstar, Inc. Data to 31 December 2014.
Notes: Fund universe includes funds available for sale in the UK, filtered according to the description above, from the following
Morningstar categories: UK equity flex cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap.
16
Survivorship bias can impact results

Excess return of dead funds over broad market benchmark
From January 2000 to fund closure date
2%
Annualised
1%excess return prior to being
mergeed or liquidated
0%
-1%
-2%
-3%
-4%
-5%
-6%
Middle 50% of funds
Median

Source: Vanguard calculations, using data from Morningstar, Inc., FTSE and Barclays. Displays the cumulative annualised performance of those equity funds that were merged or
liquidated within our sample, relative to the prospectus benchmark most commonly used within that funds Morningstar Category. We measure performance from 1 January 2000
or the funds inception, whichever is later, and continue each funds measurement period up until the month-end prior to it being merged or liquidated. Fund universe is as
described in slide 4, limited to those funds that were merged or liquidated from January 2000 to December 2014. Figure displays the middle 50% distribution of these funds
returns prior to dying. Performance is measured in sterling terms, net of fees, gross of tax withholding, with income reinvested.
17
The role of costs

Ongoing charges by fund category
Category
Active
Index
Difference
Global equity
1.31
0.23
1.08
U.K. equity
0.97
0.51
0.45
European equity
1.69
0.29
1.40
Eurozone equity
1.35
0.32
1.03
U.S. equity
1.31
0.21
1.10
Emerging market equity
1.34
0.26
1.07
Global bonds
0.86
0.19
0.66
GBP Diversified bonds
0.63
--
n/a
GBP Government bonds
0.56
0.31
0.25
EUR Diversified bonds
0.80
0.65
0.15
USD Diversified bonds
0.90
0.65
0.25
Notes: The average expense ratio quoted for each category of funds represents the asset-weighted average expense ratio based on information in latest available
annual report at 31 December 2014. Fund expenses are weighted by the share-class AUM, reflecting the typical investors experience in that fund. Fund universe
includes funds available for sale in the UK, filtered according to the description above, from the following Morningstar categories: UK equity flex cap, large-cap
blend, large-cap growth, large-cap value, mid-cap, small-cap; Europe equity Europe OE: flex-cap, large-cap blend, large-cap growth, large-cap value, mid-cap,
small-cap; Euro zone equity flex-cap, large-cap, mid-cap, small-cap; Global flex-cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap;
US equity flex-cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap; Emerging markets equity emerging markets; Europe bond EUR
diversified; US bond USD diversified; Global bond global un-hedged bond; UK bonds UK diversified, UK government. Performance is for periods ending on
31 December 2014. Performance is calculated relative to prospectus benchmark. Source: Vanguard calculations, based on data from Morningstar, Inc. Data as of
31 December 2014. Past performance is not a reliable indicator of future results.
18
Lower costs tend to equate to higher returns

Performance of UK active equity funds relative to ongoing charges
10 year annualised excess returns (%)
10
Global equity
10
UK equity
10
-5
-5
-5
-10
0
10
Euro zone equity
-10
0
US equity
10
-10
0
10
-5
-5
-5
-10
0
-10
0
-10
0
European equity
Emerging market equity
Expense ratio (%)

Source: Vanguard calculations , using data from Thompson Reuters Datastream and Morningstar, Inc.
Returns on the vertical axis are the 10-year annualised excess return over each funds prospectus benchmark, through December 31 2014. Total expense ratio on the horizontal
axis is from the latest available annual report as at 31 December 2012. Fund universe and categories as defined in earlier charts. Performance is shown in sterling, net of fees
gross of tax, with income reinvested.
19
Distribution of equity fund performance

500
Prospectus benchmark
120
450
400
Number
350of funds
300
250
100
80
60
200
40
150
100
20
50
0
Merged/Liquidated
Excess return
Index funds
Active funds
Outperforming / outperforming adjusted for survivorship bias

Sources: Vanguard calculations, using data from Morningstar, Inc. Displays the distribution of fund excess returns, relative to their prospectus
benchmark, for the 15 year period ending 31 December 2014. Fund universe is as defined on page 13. Performance is shown in GBP, net of
fees, gross of tax, with income reinvested.
20
Distribution of bond fund performance

Prospectus benchmark
90
80
70
60
Number of funds
50
40
30
20
10
0
Excess return
Index funds
Active funds
Outperforming / outperforming adjusted for survivorship bias

Sources: Vanguard calculations, using data from Morningstar, Inc. Displays the distribution of fund excess returns, relative to their
prospectus benchmark, for the 15 year period ending 31 December 2014. Fund universe is as defined on slide 13. Performance is shown in
GBP, net of fees, gross of tax, with income reinvested. Past performance is not a reliable indicator of future results.
21
Adding passive can help reduce client risk

Client asks questions
Client pulls some assets
Client pulls most assets
Active
portfolio
Client pulls all assets
Risk of losing clients
Market
return
Portfolios periodic return
Client asks questions
Client pulls some assets
Client pulls most assets
Adding
passive
Client pulls all assets
Risk of losing clients
Market
return
Portfolios periodic return

Source: Vanguard .
22
Indexing offers additional benefits in portfolio construction

Indexing can permit greater control of asset class risks in a portfolio
Using a concentrated active fund can lead to a portfolio with risk and return characteristics
differing from the equity market
Greater diversification
Actively managed funds tend to hold fewer securities with varying degrees of return correlation
Portfolio consistency
An index fund should maintain its style consistency by closely tracking the characteristics of
the index and market
23
Important information
This document is directed at professional investors and should not be distributed to, or relied upon by retail investors.
This document is designed for use by, and is directed only at persons resident in the UK.
The material contained in this document is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any
jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the
person making the offer or solicitation is not qualified to do so.
The information on this document does not constitute
legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions.
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. Past performance is not
a reliable indicator of future results.
The opinions expressed in this presentation are those of individual speakers and may not be representative of Vanguard Asset Management,
Limited
Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority.
2015 Vanguard Asset Management, Limited. All rights reserved.
VAM-2015-09-25-2923
24

Traded Funds (ETF)s
Todd Schlanger, CFA
Asset management
UBS ETFs
UK edition
For professional investors only
The case for currency hedged ETFs

UBS ETFs ETFs how you want them
Andrew Walsh, Head of UBS ETF Sales UK & Ireland
November, 2015
Contents
Section 1
UBS ETFs A leading provider in Europe
Section 2
Background and impact of currency movements
Section 3
Currency hedging in fixed income
Section 4
Comparison of Hedging options
Section 5
UBS ETFs currency hedged ETFs
Section 6
UBS ETFs currency hedging methodology
Section 7
Conclusion
Section 8
Appendix
27
Section 1
UBS ETFs A leading provider in Europe
UBS Global Asset Management At a Glance

UBS Global Asset Management offers a variety of investment styles and
strategies backed by our global resources and know-how.
Our investment capabilities cover equities, fxed income, global investment

solutions, fund services, alternative and quantitative investments, global real
estate, as well as infrastructure and private equity.
For over 30 years, the management of index-linked portfolios has been one of the
core competencies of UBS Global Asset Management.
With assets under management of approximately GBP 458 billion and

3,900 employees in 24 countries, we rank as one of the leading fund providers. 1
A leadingfund house in Europe, the largest mutual fund manager in Switzerland 2

andone of the largest fund of hedge funds and real estate investment managers
in the world.
1
2
Source: UBS, 31 March 2015

Source: Morningstar/Swiss Fund Data Swiss Promoters report (as of 31 March 2015)
29
UBS Global Asset Management Passive Assets

Passively managed assets: 148bn1
Total index AuM by asset class
3%
Global Equities
27%
Fixed Income
2%
4%
North American
5%
Equities
9%
Pan-European Equities
14%
Swiss Equities
15%
Asia Pacifc Equities
20%
UK Equities
Total index AuM growth (CHF bn)

240
200
160
120
Total index AuM by vehicle

6%1%
80
11%
40
28%
53%
Segregated
Mandates
UBS Pooled Index
Funds
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 42156
Source: UBS Global Asset Management. Data as at 30 June 2015.

1 AuM reported in official UBS fnancial statements CHF 206bn. Difference to above quoted AuM largely due to exclusion of index element in multiassets.
Above quoted AuM includes CHF 0.8bn of basket strategies.
30
UBS ETFs A Leading Provider in Europe

ETFs the way you want them
14 years of ETF experience
In 2001 UBS Global Asset Management launched the frst four

ETFs (EURO STOXX 50, FTSE, USA, Japan)
UBS ETF benefts from the expertise of UBS Global Asset
Management (team with over 30 years of experience in indexed
portfolio management)
#4 in Europe1
5 Core markets / exchanges
UBS ETF has 17.1bn in ETFs under management1

Net inflows of 4.2bn in 20151
One of Europe's leading providers of physically replicated ETFs1
UBS offers GBP-hedged ETFs and is the largest provider of
currency hedged ETFs (>50 ETFs) in Europe1
A suite of seven SRI ETFs tracking a selection of MSCI indices
UK
CH
DE
IT
JP
London Stock Exchange (LSE) (84 listings)2

SIX Swiss Exchange (229 listings)2
Deutsche Brse AG (Xetra) (73 listings)2
Borsa Italiana (69 listings)2

Tokyo Stock Exchange (TSE) (10 listings)2
Overall 179 ETFs are offered: equities, fxed income,

commodities, precious metals, hedge funds, real estate and
multi asset portfolio
Broad range of physically (88%) and synthetically (12%)
Source: ETFGI, 28 August 2015.
replicated ETFs (accumulating and distributing share classes)
Source: UBS Global Asset Management, September 2015. Listings include share classes in various currencies
Broad selection
1
2
31
UBS ETFs European ETF Market

UBS ETFs One of Europe's leading providers of physically replicated
ETFs
As of end August 2015, the European ETF

industry had 1,516 ETFs from 45
providers on 25 exchanges.
Inflows in August 2015 amounted to
7,132m. Assets under management
increased to 309.2bn.
UBS ETFs ranks fourth in Europe, with
17.1bn in assets under management.
UBS ETFs had inflows in 2015 until end
August of 4.2bn.
From all providers, 75% of European ETF
assets under management were invested
in physically replicated ETFs, and 25% in
synthetically replicated ETFs.
UBS ETFs is the third-biggest provider
of physically replicated ETFs in
Europe, and the seventh-largest provider
of synthetically replicated ETFs (relating
to UCITS conform ETFs).
Source: UBS Global Asset Management, ETFGI, 28 August 2015
32
Section 2
Background and impact of Currency movements
Global equity portfolios example of foreign currency

holdings
Typical globally diversified equity portfolios
Global equities
Foreign currency
risk
100%
CAD
4%
CHF AUD Rest

4% 3% 4%
USD
53%
JPY
9%
GBP
9%
50%
0%
96.17%
90.85%
90.80%
87.57%
46.54%
EUR
12%
* SEK 1.37%, HKD 1.25%, SGD 0.64%, DKK 0.47%, NOK 0.34%, ILS 0.19%, NZD
0.34%
MSCI World Index
Portfolios with global equities are exposed to several currency risks at the same time.
Exchange rate fluctuations primarily have a major impact on the investment returns of GBP, EUR,
CHF, and JPY investors.
GBP investors are exposed to foreign currency risks of 90.80%.
For USD investors, almost half of the portfolio is exposed to foreign currencies.
Source: UBS Global Asset Management
34
Past trends in currency markets

Exchange-rate developments against the GBP
Currency trends versus the GBP
(Sep.'10 Sep.'15; 28 Sep. 2010 = 100)
CHF floor
removal
US Hike?
Total
Return
JPY/GBP: -28 %
EUR/GBP :
-14%
USD/GBP: +4%
CHF/GBP: +3%
ECB QE
Abeonomic
s
The key currencies, Japanese yen (JPY) and Euro (EUR), have significantly fallen in value
against the British pound (GBP) over the last 5 years. Only the Swiss Franc (CHF) and the US
dollar yielded marginally positive performances against the GBP over this period.
Clients with home currency GBP and foreign equity, benefit from currency hedging when
foreign currencies are getting weaker.
Source: Bloomberg, data as of 25/09/2015
35
Numerical example Eurozone equities

Impact of currency hedging on portfolio returns: MSCI EMU (Sep. '10
Sep. '15)
Performance of MSCI EMU Indices and the EURGBP
exchange rate
Estimated index annualized return
currency
hedged
return
Currency fluctuations have a major impact on the investment returns, due to currency volatility (weakening
EUR due to ECB monetary stimulus - > asset purchase program running over Mar. '15 to Sep. 16')
The MSCI EMU unhedged GBP has delivered an annualized return of 3.45% compared to an annual return of
6.38% for the MSCI EMU in its base currency (EUR).
If the MSCI EMU GBP hedged exposure had been chosen the annual return would have been 6.72%.
The hedge ratio (kept constant intra-month) of the currency hedge as well as interest rate differential (cost of
currency hedge) can have a negative or positive impact on the performance -> positive in case of EURGBP in the
last few years
Source: Bloomberg, data as of 25/09/2015. Performance based on the period: 28/09/2010 25/09/2015
36
Section 3
Currency hedging in fixed income
Return components the role of exchange rate

Local Currency Fixed Income
Foreign Fixed Income
(Valuation Change + Accrued Interest)
(Valuation Change + Accrued Interest +

Currency P&L)
Source: Barclays POINT, UBS Global Asset Management. Data as of 31 August 2015.
38
Foreign investment performance vs. currency

"wars"
Currency movements now more important than ever before
- one exposure, different funding currencies "Global" monetary easing programs
(Fed, BoE, BoJ, ECB,)
39
Foreign investment the latest example (QE ECB)

The ECB QE results in weaker EUR (unhedged GBP investor has FX
loss)
Unhedged GBP investor
Hedged GBP investor
40
Tracking quality example (live track since May

30, 2014)
Local Currency
Benchmark:
4.82%
Currency Hedged
Benchmark:
4.78%
ETF: 4.78%
ETF: 4.78%
Average TE =
0.15%
Source: Barclays POINT, UBS Global Asset Management. Data from 30 May 2014 to 31 March 2015.
Average TE =
0.16%
41
Operational framework monthly hedging process

Hedge frequency driven by trade-off between tracking error and trading
costs
Annualized Tracking Error

Currency hedging accuracy is defined
by.
i. the frequency a proft or loss resulted of a currency hedge
transaction is rolled and,
ii.
the ratio between the Hedge Nominal on t-1 and the

Total Net Assets of the foreign currency portfolio on t
Avg. spread
between Libor
USD 12m and
Libor EUR 12m
36bps
Hedge Ratiot:
proportion of Hedge Nominal on t-1 and the Total Net Assets on
t
Hedge Nominal fc,t-1:
the amount in foreign currency sold forward on t-1
Total Net Assetsfc,t:
the total net assets in foreign currency on t
t:
the current business day
t-1:
last business day of the previous month (hedge frequency = monthly),
previous business day ( hedge frequency = daily)
fc:
foreign currency is the local currency of the portfolio
Trade-off between Hedge Frequency and

Tracking Error / Trading Costs
The Hedge Ratio is defned as the nominal amount

to be hedged relative to the ETF's asset under
management
Predefined (by index provider) hedging
methodology decides about the ETFs' hedging
quality
The higher the hedge frequency and the closer the
hedge ratio to 100%, the lower the Tracking Error
Source: Barclays POINT, UBS Global Asset Management. Data from 08 April 2014 to 31 March 2015.
Past performance is not a reliable indicator of future results. For illustrative purpose only.
The higher the hedge frequency, the higher the

turnover and hence the higher portfolio trading
costs
42
Section 4
Comparison of hedging options
Comparison of hedging options

Currency exposure can be hedged in a number of ways
Hedging on portfolio level
UBS currency hedged ETFs
Benefits
Disadvantages
Reduced foreign currency

risk
Simple access and
transparency
One-time transaction
Currency hedging in fund
format
Can positively impact
performance compared to
unhedged ETF
Higher fees than for nonhedged index
Can negatively impact
unhedged ETF
Unhedged
Can positively influence

performance
Lower fees
Can positively impact
a hedge portfolio/product
Forwards
Additional foreign currency

risk
Can negatively impact

a hedge portfolio/product
Currencies
Transaction costs
TER
Certificates
Various hedging methods

possible, e.g. daily hedge
Quicker trading
Possibly lower costs
Exact hedge only through

short intervals
High minimum investment
Greater risk due to use of
OTC derivatives
Counterparty and
operational risk
Less transparency
Only suitable for
professional investors
Portfolio management
resources required
Various hedging methods

and products available on
the market
Quicker trading
Issuer risk
Less transparency
Only suitable for
professional investor
Portfolio management
resources required
E.g. CHF, EUR, GBP, USD
Various currencies
Various currencies
One-time
One-time
Multiple
Multiple
0.3 - 0.45% p.a.
from 0.15% p.a.
n.a.
n.a.
Certifcates included: currency certifcates, warrants and mini-futures. One-off transaction cost for the product, the monthly transaction cost (spread ) for the hedge impacts fund
performance.
44
Section 5
UBS ETFs currency hedged equity ETFs

Suite of sterling-hedged equity ETFs listed on the LSE
The most recent trends on the international currency markets, brought about in
no small part by the massive central bank intervention, represent major
challenges for investors, in particular as regards currency management.
UBS Global Asset Management now offers currency hedged share classes on a
selection of its physically replicated ETFs on equity indices. With this
transparent currency hedging strategy, it is possible to reduce currency
risk and optimize portfolio returns.
Currency hedged UBS ETFs
GBP
EUR
MSCI Japan
MSCI Japan
MSCI Canada
MSCI Canada
n/a
USD
CHF
SGD
MSCI Japan
MSCI Japan
MSCI Japan
MSCI Canada
MSCI Canada
MSCI Canada
MSCI United Kingdom MSCI United Kingdom MSCI United Kingdom MSCI United Kingdom
MSCI EMU
n/a
MSCI EMU
MSCI EMU
MSCI EMU
MSCI USA
MSCI USA
n/a
MSCI USA
MSCI USA
MSCI Switzerland
MSCI Switzerland
MSCI Switzerland
n/a
MSCI Switzerland
MSCI Australia
MSCI Australia
MSCI Australia
MSCI Australia
n/a
46

ETFs hedged to the GBP
Fund name
Distributio
TER
n1
ISIN
Trading
LSE
Bloomberg
currency
code
ticker
UBS ETF (LU) MSCI Canada hedged GBP UCITS ETF
dis
0.43
LU0937838836
%
GBp
UC57
UC57 LN
UBS ETF (LU) MSCI Canada hedged GBP UCITS ETF
acc
0.43% LU0950673797
GBp
UC58
UC58 LN
UBS ETF (LU) MSCI EMU hedged GBP UCITS ETF
dis
0.33% LU0937835733
GBp
UC59
UC59 LN
UBS ETF (LU) MSCI EMU hedged GBP UCITS ETF
acc
0.33% LU0950669688
GBp
UC60
UC60 LN
UBS ETF (LU) MSCI Japan hedged GBP UCITS ETF
dis
0.45% LU0969638401
GBp
UC61
UC61 LN
UBS ETF (LU) MSCI Japan hedged GBP UCITS ETF
acc
0.45% LU0969638583
GBp
UC62
UC62 LN
UBS ETF (LU) MSCI Switzerland hedged GBP UCITS ETF
dis
0.30% LU0977261246
GBp
UC70
UC70 LN
UBS ETF (LU) MSCI Switzerland hedged GBP UCITS ETF
acc
0.30% LU0977261162
GBp
UC69
UC69 LN
UBS ETF (IE) MSCI Australia hedged GBP UCITS ETF
dis
0.50% IE00BD4TY907
GBp
UC71
UC71 LN
UBS ETF (IE) MSCI Australia hedged GBP UCITS ETF
acc
0.50% IE00BD4TYB29
GBp
UC72
UC72 LN
UBS ETF (IE) MSCI USA hedged GBP UCITS ETF
dis
0.30% IE00BD4TYH80
GBp
UC73
UC73 LN
UBS ETF (IE) MSCI USA hedged GBP UCITS ETF
acc
0.30% IE00BD4TYJ05
GBp
UC74
UC74 LN
dis=distributing, acc = accumulating

Source: UBS Global Asset Management, 2014
47
UBS Fixed Income ETFs sovereign and corporate

range
The benchmark indices include Barclays, Markit and SBI and UBS ETFs
trade on the key European exchanges
Fund
currency
UBS ETF Barclays share classes

UBS ETF (LU) Barclays Capital US Treasury 1-3 UCITS ETF (USD) A-dis
UBS ETF (LU)
UBS ETF (LU)

UBS ETF (LU)
CHF) A-acc
UBS ETF (LU)
USD) A-acc
Barclays Capital US Treasury 7-10 UCITS ETF (USD) A-dis

Barclays Euro Area Liquid Corporates 1-5 UCITS ETF (EUR) A-dis
Barclays Euro Area Liquid Corporates 1-5 UCITS ETF (hedged to
Barclays Euro Area Liquid Corporates 1-5 UCITS ETF (hedged to
USD
USD
USD
USD
EUR
CHF
UCITS ETF (USD) A-dis

UCITS ETF (hedged to CHF) AUCITS ETF (hedged to EUR) AUCITS ETF (hedged to GBP) A-
TER
Inception
date
91
0.21%
02.02.2012
13
0.22%
26.01.2012
12
0.21%
26.01.2012
18
0.22%
0.18%
02.02.2012
30.05.2014
87
USD
UBS ETF (LU) Barclays US Liquid Corporates 1-5

acc
acc
dis
UBS
ETF Markit share classes
AuM in GBP
Mn
0.23%
0.23%
USD
0.18%
CHF
0.23%
198
EUR
GBP
Fund
currency
0.23%
AuM in GBP
Mn
0.23%
TER
USD
EUR
21
CHF
EUR
EUR
GBP
EUR
190
3
8
0.17%
0.18%
0.23%
0.17%
0.23%
0.23%
0.17%
UBS ETF (LU) Markit iBoxx Germany 7-10 UCITS ETF (EUR) A-dis
EUR
0.17%
UBS ETF (LU) Markit iBoxx Liquid Corporate UCITS ETF (EUR) A-dis
EUR
57
0.22%
UBS
UBS
UBS
UBS
UBS
UBS
UBS
ETF
ETF (LU)
(LU)
ETF (LU)
ETF
ETF (LU)
(LU)
ETF (LU)
ETF (LU)
Markit
iBoxx
Germany
1-3 UCITS
ETF
(EUR)
A-dis
Barclays
US Liquid
Corporates
UCITS
ETF
(USD)
A-dis
Barclays US Liquid Corporates UCITS ETF (hedged to CHF) A-acc
Markit
iBoxx
Germany
3-5 UCITS
ETF
(EUR)
A-disto EUR) A-acc
Barclays
US Liquid
Corporates
UCITS
ETF
(hedged
Barclays US Liquid Corporates UCITS ETF (hedged to GBP) A-dis
Markit iBoxx Germany 5-10 UCITS ETF (EUR) A-dis
Governments
Corporates
Replicati
on
ISIN
Physical
LU0721552544
Physical
LU0721552627
Physical
LU0721552890
Physical
Physical
LU0721552973
LU1048314196
31/03/2015 SIX
Physical
LU1048314865
30.01.2015 SIX
BI, XETRA, LSE,

01.12.2014 SIX
Physical
LU1048314436
Physical
LU1048314949
30.01.2015 SIX
Physical
LU1048315755
31/03/2015 XETRA, SIX
Physical
LU1048315243
Inception LSE, SIX

01.12.2014
date
Exchange
BI,XETRA,
XETRA,LSE,
LSE,
BI,
24.01.2012 SIX
SIX
30.05.2014
BI, XETRA, LSE,
30.09.2014 SIX
24.01.2012 BI,
SIX
30.05.2014
XETRA
BI, XETRA,
LSE,
31.10.2014 LSE,
SIX
24.01.2012 SIX
BI, XETRA, LSE,
24.01.2012 SIX
BI, XETRA, LSE,

24.01.2012 SIX
Replicati
Physical LU1048315326
on
ISIN
Exchange
BI, XETRA, LSE,
SIX
BI, XETRA, LSE,
SIX
BI, XETRA, LSE,
SIX
BI, XETRA, LSE,
SIX
BI, XETRA
Physical
Physical
Physical
Physical
Physical
Physical
Physical
LU0721553351
LU1048316647
LU1048317538
LU0721553435
LU1048317025
LU1048317298
LU0721553518
Physical
LU0721553609
Physical
LU0721553864
BI - Borsa Italiana; DB Deutsche Brse XETRA; LSE London Stock Exchange; SIX - SIX Swiss
Exchange
Source: UBS Global Asset Management. Data as of 31 March 2015.

48
Section 6

Currency hedging methodology of UBS ETF
Hedging of foreign currency in the desired home currency
UBS ETF hedge the foreign currencies of the standard indices in the selected home currency by selling each foreign
currency forward at the one-month forward rate. The sum of the sold forwards as at the last trading day of the month
corresponds to the market capitalization weighting of the securities contained in the standard index.
These are valued in both of the respective currencies two trading days before the frst calendar day of the following
month. The hedged value remains constant over the entire month.
The two components of currency-hedged index returns

1. The return of the non-currency hedged indices in the selected home currency.
2. The profit or loss arising from the forward contract in the selected home currency.
Month 1
Month 2
2 2 3
1 2 3 4 5 6 7 8 9 0
2 2 3 3
1 2 3 4 5 6 7 8 9 0 1
1 The securities contained in the
index are valued.
2 Foreign currency forwards are sold
Sale of foreign currency forward at one-month forward

rate
1 Valuation of securities contained in index
2
at
the one-month forward rate.
Hedged amount remains constant

over the entire month.
50
Impact on currency hedged ETF performance

Performance is impacted by direct and indirect costs
Direct costs
Description
Performance impact
Higher TER due to currency

hedging management
(physical replication)
Spread on currency forwards
These costs deteriorate

the performance
Potential inaccuracy of the

Positive or negative
currency hedge, due to intraeffect on performance
monthly changes of the
(example of a positive
underlying (e.g. unhedged
effect: The underlying
equity index)
index is decreasing while
gaining a positive return
Over- / underinvestment in
out of the currency
equities
hedge at the same time)
Over- / underhedge, due to
volatility
A reliable estimate of market
cost in advance
for the currency hedge is almost impossible .
Indirect costs
Higher drag-level for swap based ETFs (synthetic replication). Currency hedging management costs and spread for currency forwards are included in the drag-level.
51
Section 7
Currency hedged UBS ETFs conclusion
Currency hedged UBS ETFs conclusion

Why buy UBS currency hedged ETFs?
Mitigate foreign currency risk.
Currency hedging in a single transaction.
Transparent currency hedging methodology.
No use of futures or other derivative instruments.
Simple access and transparency.
Products replicated physically.
53
UBS ETFs Further Information

Website
www.ubs.com/etf
Factsheets
www.ubs.com/etf
Brochures
www.ubs.com/etf
For illustration purpose only
Market data:
Bloomberg: UETF <GO>
Reuters: ETFV
54
UBS ETFs Awards
Past performance is not a reliable indicator for future performance.

55
Contact Information
UBS ETF Sales Team UK & Ireland
Andrew Walsh
UBS Global Asset Management (UK)
Ltd.
Global Asset Management
Florian Cisana
UBS Global Asset Management (UK)
Ltd.
UBS Exchange Traded Funds

Executive Director
Head UBS ETF Sales UK & Ireland
UBS Exchange Traded Funds

Director
UBS ETF Sales UK & Ireland
21 Lombard Street
EC3V 9AH London
United Kingdom
21 Lombard Street
EC3V 9AH London
United Kingdom
Tel. +44 20790 15901

Mobile +44 78180 47240
andrew.walsh@ubs.com
Tel. +44 20790 15398

Mobile +44 78800 96848
florian.cisana@ubs.com
UBS Global Asset Management (UK) Ltd.

21 Lombard Street
London EC3V 9AH
Internet
www.ubs.com/etf
ubs-etf-uk@ubs.com
Market data
Reuters, Bloomberg (UETF)
56
Section 8
Appendix
UBS ETFs Product Range (1/7)

Equities
Data Source: UBS Global Asset Management as of 28 August 2015.

All UBS ETFs mentioned in this product overview are UCITS compliant, have UK Reporting Fund status and are SIPP and ISA eligible.
58

Equities

59

Equities

60

Equities

61

Fixed Income

62

Fixed Income

63

Commodities and Alternatives

64
UBS ETFs Risk Information

UBS ETFs investing in equities
UBS Exchange Traded Funds invest in equities and may therefore be subject to high fluctuations in value. For this reason, an investment horizon of at least fve
years and corresponding risk tolerance and capacity are required. All investments are subject to market fluctuations. Every fund has specifc risks, which can
signifcantly increase under unusual market conditions. The funds assets are passively managed. As a result, the net asset value of the funds assets is directly
dependent on the performance of the underlying equities. Losses that could be avoided via active management will not be offset.
UBS ETFs investing in Real Estate Funds
The funds invest in real estate funds under Swiss law that are denominated in CHF and invest exclusively in Swiss properties. The price of the underlying fund
units is not determined by estimates of market value but by investor supply and demand. All investments are subject to market fluctuations. Every fund has
specifc risks, which may increase considerably in unusual market conditions. Please contact your client advisor if you wish to receive further information on the
investment risks associated with this product.
UBS ETFs investing in Metals
The UBS Exchange Traded Fund investing in metals may be subject to considerable fluctuations in value. Investors therefore require an investment horizon of at
least fve years and corresponding risk tolerance and capacity. All investments are subject to market fluctuations. All funds have specifc risks, which may
signifcantly increase under unusual market conditions. The funds assets are passively managed. As a result, the net asset value of the funds assets is directly
dependent on the performance of the underlying equities. Losses that could be avoided via active management will not be offset.
UBS ETFs investing in Agriculture, Oil and Commodities
The Fund delivers the returns of a broadly diversifed commodity index and may therefore be subject to high fluctuations in value. For this reason, an
investment horizon of at least fve years and corresponding risk tolerance and capacity are required. The returns payable on the Fund are dependant on
payments received by the Fund from the Swap Counterparty under the terms of the Relevant Swap and, therefore, are subject to the credit risk of the Swap
Counterparty. In the event that the Swap Counterparty defaults under the terms of the Relevant Swap, the Fund may suffer a loss. Assets are passively
managed meaning losses that could be avoided via active management will not be offset. The net asset value of the Funds assets are materially dependent on
the performance of the underlying investments. In case the currency of the product is different from your reference currency, the return may increase or
decrease as a result of currency fluctuations. All investments are subject to market fluctuations. Every fund has specifc risks, which can signifcantly increase
under unusual market conditions.
UBS ETFs investing in HFR
The Fund delivers the returns of a broadly diversifed hedge fund index and may therefore be subject to high fluctuations in value. For this reason, an
investment horizon of at least fve years and corresponding risk tolerance and capacity are required. The returns payable on the Fund are dependant on
payments received by the Fund from the Swap Counterparty under the terms of the Relevant Swap and, therefore, are subject to the credit risk of the Swap
Counterparty. In the event that the Swap Counterparty defaults under the terms of the Relevant Swap, the Fund may suffer a loss. Assets are passively
managed meaning losses that could be avoided via active management will not be offset. The net asset value of the Funds assets are directly dependent on
the performance of the underlying investments. In case the currency of the product is different from your reference currency, the return may increase or
decrease as a result of currency fluctuations
UBS ETFs investing in Fixed Income
This UBS Exchange Traded Fund invests in government bonds of a single country and may therefore be subject to fluctuations in value. For this reason, an
investment horizon of at least fve years and corresponding risk tolerance and capacity are required. All investments are subject to market fluctuations. Every
fund has specifc risks, which can signifcantly increase under unusual market conditions. As a result, the net asset value of the funds assets is directly
dependent on the performance of the underlying index. Losses that could be avoided via active management will not be offset.
65
UBS ETFs Disclaimer

UBS Global Asset Management (UK) Ltd is a subsidiary of UBS AG. Registered in England. UBS Global Asset Management (UK) Ltd and UBS Global Asset Management Funds
Ltd are authorised and regulated by the Financial Conduct Authority. UBS Global Asset Management Life Ltd is authorised by the Prudential Regulation Authority and
regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Telephone calls may be recorded.
This document is for Professional Clients only. It is not to be distributed to or relied upon by Retail Clients under any circumstances.
The document has not been prepared in line with the FCA requirements designed to promote the independence of investment research and is not subject
to any prohibition on dealing ahead of the dissemination of investment research.
The Luxembourg and Irish domiciled funds are recognised scheme under section 264 of the Financial Services and Markets Act 2000. They seek UK Reporting Fund Status.
The protections offered by the UKs regulatory system, and compensation under the Financial Services Compensation Scheme, will not be available.
The Switzerland domiciled funds are not recognised under section 264 of the Financial Services and Markets Act and are therefore subject to the restrictions on promotion in
section 238 of the Financial Services and Markets Act.
The returns payable to the fund are dependent on payments received by the fund from the swap counterparty under the terms of the relevant swap and, therefore are
subject to credit risk of the swap counterparty. In the event that the swap counterparty defaults under the terms of the relevant swap, the funds may suffer a loss.
This material supports the presentation(s) given. It is not intended to be read in isolation and may not provide a full explanation of all the topics that were presented and
discussed. Care has been taken to ensure the accuracy of the content, but no responsibility is accepted for any errors or omissions. Please note that past performance is not
a guide to the future. The value of investments and the income from them may go down as well as up, and investors may not get back the original amount invested. This
document is a marketing communication. Any market or investment views expressed are not intended to be investment research.
The document has not been prepared in line with the FCA requirements designed to promote the independence of investment research and is not subject to any prohibition
on dealing ahead of the dissemination of investment research. The information contained in this document should not be considered a recommendation to purchase or sell
any particular security and the opinions expressed are those of UBS Global Asset Management and are subject to change without notice. Furthermore, there can be no
assurance that any trends described in this document will continue or that forecasts will occur because economic and market conditions change frequently. This document
does not create any legal or contractual obligation with UBS Global Asset Management. The recipient agrees that this information shall remain strictly confdential where it
relates to the Investment Manager's business. The prior consent of UBS Global Asset Management (UK) Ltd should be obtained prior to the disclosure of commercially
sensitive information to a third party (excluding the professional advisors of the recipient). Information reasonably deemed to be commercially sensitive and obtained from
UBS Global Asset Management (UK) Ltd should not be disclosed. This information is supplied with a reasonable expectation that it will not be made public. If you receive a
request under the Freedom of Information Act 2000 for information obtained from UBS Global Asset Management (UK) Ltd we ask that you consult with us. We also request
that any information obtained from UBS Global Asset Management (UK) Ltd in your possession is destroyed as soon as it is no longer required. This document may not be
reproduced, redistributed or republished for any purpose without the written permission of UBS AG.
This document is issued by [UBS Global Asset Management (UK) Ltd] and is intended for limited distribution to the clients and associates of UBS Global Asset Management.
Use or distribution by any other person is prohibited. Copying any part of this publication without the written permission of UBS Global Asset Management is prohibited. Care
has been taken to ensure the accuracy of its content, but no responsibility is accepted for any errors or omissions herein.
UBS 2015. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved. E3
66

Traded Funds (ETF)s
Todd Schlanger, CFA
ETFs in Portfolio Construction
Philip Bailey
or,
How to save your clients

money.
whilst charging them more.
Philip Bailey
Who are Assetfirst?
Subsidiary of:Provisio Wealth Management

Adviser Charging adopted in March 2008
Pioneers of a ETF investing in the retail
sector
Founders of assetfirst - a unique
outsourced investment solution for IFAs
Assetfirst
Virtual Investment Committee
Risk tailored portfolios
Disciplined Strategic asset allocation
Active Tactical asset allocation & regular
rebalancing
Enabling bespoke portfolios
Subscription fees paid by the IFA, not
the client.
Assetfirst vs Risk Targeted Multi-Asset

Sectors. Five years to 31st July 2015
11/4/15
72
Risk verses Return Asset Allocation Technique
11/4/15
73
Asset Allocation
How Different Asset Classes perform
11/4/15
74
Rigorous independent research
Bespoke
Detailed asset allocation research
Robust methodology
Stress tested portfolio design
Strategic Asset Allocation
Back tested performance
Expected Risk (Standard Deviation)
Risk Graded Model Portfolios
Expected Annualised Risk and Return
Asset Mix
Geometric
Return
Annual Standard
Deviation
Defensive
6.5%
7.2%
Defensive to Balanced
7.5%
9.2%
Balanced
8.0%
10.7%
Balanced to Aggressive
8.6%
12.7%
Aggressive
9.4%
16.3%
Balanced High Yield
7.0%
9.7%
About Fund Selection
11/4/15
78
10 year: Median Fund vs Benchmark
11/4/15
79
The devils in the fees !
11/4/15
80
ETF Application
11/4/15
81
ETFs Perfect tool for Portfolio Construction
High Liquidity
Low cost Average Equity TER 37bps
Extremely low tracking error
Returns superior to most active
managers
No risk of style drift
No risk of portfolio manager turnover
Ensure accurate asset allocation
Easier control of portfolio risk.
11/4/15
83
11/4/15
84
Pure Asset Allocation
11/4/15
85
Pure Asset Allocation
11/4/15
86
Purer Asset Allocation
11/4/15
87
The 5 Ps - Passive Portfolios Produce Predictable Performance
Expected Annualised Risk and Return
Asset Mix
Geometric
Return
Annual Standard
Deviation
Defensive
6.5%
7.2%
Defensive to Balanced
7.5%
9.2%
Balanced
8.0%
10.7%
Balanced to Aggressive
8.6%
12.7%
Aggressive
9.4%
16.3%
Balanced High Yield
7.0%
9.7%
Balanced Model
Save your clients money whilst charging more.

3rd Party
Costs
Average
underlying
Fund TER
Total Costs
on 10m
total client
portfolio
Regulatory
Risk
500 +
VAT
0.40%
40,000
Low
Pick Funds
nil
1.15% *
115,000
High
Fund of
Funds
nil
1.71% *
171,000
Medium
0.75%
1.15% *
190,000
Low
nil
1.15% *
115,000
Low
Portfolio
Management
Method
assetfirst
Guided
Architecture
Discretionary
Fund
Manager
Model
Portfolios
Dont forget the Adviser Fee (1%) and Wrap Fee (.25%). Total Assetfirst cost 1.65%
..and ETF Trading Costs are significantly lower.
How ETF based portfolios can benefit

your business
Institutional quality investment & cost
Deliver a transparent fee based service
Remain at the centre of the client relationship
Maintain Independence advice & research
Deliver low cost investment solutions
Move your practice from 0.5% to 1% fee
Bullet Proof your future income
Legal disclaimer
This communication is for professional advisers only

and is not intended to be used by retail clients.
No liability is accepted for any loss or damage

occurring as a result of reliance on any statement,
opinion or any error or omission contained in the
preceding presentation.
Any statement or opinion reflects our understanding of

current or proposed legislation and regulation which
may change without notice.
These presentations should not be seen as a

substitute for professional advice.

Traded Funds (ETF)s
Todd Schlanger, CFA

Traded Funds (ETF)s
Todd Schlanger, CFA

Myths and Misconceptions of Indexing With Exchange Traded Funds (ETF) S

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Myths and misconceptions

of indexing with Exchange

Myths and misconceptions

Passive is gaining traction in the UK

Total FUM in onshore passive funds

Proportion of total industry FUM in onshore passive funds

Active tends to underperform on average

Past performance is not a reliable indicator of future results.

Investing as a zero-sum game

After costs, more than half of all assets underperform

Source: The Vanguard Group Inc.

Myths and misconceptions of indexing

Active works best in inefficient markets

Indexing only works in efficient markets?

Past performance is not a reliable indicator of future results.

Debunking the market cycle myth

Past performance is not a reliable indicator of future results.

Low cost investments tend to outperform higher

Low cost median

High cost median

Past performance is not a reliable indicator of future results.

Fund leadership is quick to change

Past performance is not a reliable indicator of future results.

Actively managed portfolios tend to increase volatility

Annual volatility (%)

Myths and misconceptions of indexing

Myths and misconceptions

Relevance to mutual fund investors

The record of active management

Returns over costs

Active is less risky

Other benefits of indexing

Comparing active to passive

More control over risks

The role of cost

Active performance can be cyclical

Past performance is not a reliable indicator of future results.

Survivorship bias can impact results

Middle 50% of funds

Past performance is not a reliable indicator of future results.

The role of costs

Emerging market equity

GBP Diversified bonds

GBP Government bonds

EUR Diversified bonds

USD Diversified bonds

Lower costs tend to equate to higher returns

10 year annualised excess returns (%)

Euro zone equity

Emerging market equity

Expense ratio (%)

Distribution of equity fund performance

Outperforming / outperforming adjusted for survivorship bias

Distribution of bond fund performance

Outperforming / outperforming adjusted for survivorship bias

Adding passive can help reduce client risk

Client pulls some assets

Client pulls most assets

Client pulls all assets

Risk of losing clients

Portfolios periodic return

Client asks questions

Client pulls some assets