may 2014 wealth management australia eltham rotary global perspective confidential amy lawrance...

May 2014

WEALTH MANAGEMENT AUSTRALIA

Eltham Rotary

Global perspective

Confidential

Amy LawranceDirector Client Advisor

This material is prepared and distributed by UBS Wealth Management Australia Ltd, ABN 50 005 311 937, and holder of AFSL 231127.Distributed subject to the Important Information set out in 28

How are Markets tracking…..

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Source: I/B/E/S

Australian Equities UpdateEquities are fairly valued and requires earnings growth to advance furtherTrading just off its recent highs Figure1: Australian Market P/E (12 Month Forward) Multiple

Australian market valuation looks fair at 14.3x 1-year forward expected

Retain the December year-end target of 5700 for the ASX200

– Assumes the current multiple holds and minor downgrades to FY14/FY15 earnings

– Market estimates for FY14 earnings growth of 13.5% (8.5% ex-resources)

Interest rates should remain in hold this year as a result of the Federal budget

– Supportive for equities

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Source: I/B/E/S

Australian Equities Update

However, there are headwinds

Potential concerns Figure 2: Australian Market Performance versus Earnings Performance

Tighter federal budget– Fiscal cuts are contractionary

– Confidence will take a hit

Renewed China/Iron ore concerns– UBS has downgraded China's

GDP growth forecast due to property sector risks

– risk of further falls in the iron ore price

Profit taking in banks– valuations hitting the

traditional ceiling of 14x expected earnings

– ex-dividend cycle

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Australian Equities UpdateResource Sector Update

How much bad news is already in the price The mining sector (overweight) has been lackluster year to date, though the

energy sector (overweight) has outperformed

Mining continues to be plagued by China concerns and the associated softness in commodity prices - most notably iron ore

– Major resource stocks look to be already pricing in lower commodity assumptions

UBS has downgraded its China GDP growth forecast due to a 15% probability of a "hard landing" in construction

– this "hard landing risk scenario" has likely already being priced somewhat

Favor BHP Billiton Limited, Rio Tinto Limited, Origin Energy

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Australian Equities UpdateFinancial Sector Update

At the top of their range and ex-dividend

The US bond market may well be the culprit for a near term correction

– somewhat wary of the complacency in US bonds this year with economic data now beginning to improve

– Similar to the decline experienced in Q2 last year

Hitting the traditional ceiling of 14x expected earnings

Banks are now ex-dividend

Moderately trim bank exposure

ANZ is the only UBS 'buy' rated banking stock. Lend Lease Corp and Stockland are preferred holdings

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• We remain sceptical about the recent rise of the AUD

• Recommend to reduce exposure on any rally

The Australian dollar has risen some 3.6 percent against the greenback this year

Is it upwards from now on? Probably not, says CIO

UBS CIO Cautious Aussie DollarFact: Weak A$ benefits miners

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Why International?

• Asset Allocation is the key

• Diversification is one of the most efficient tools in risk mitigation

• Australia 2% MSCI World Index

• S&P/ASX 200 concentrated market weighting 30% Banks (CBA, NAB, ANZ, WBC), 20% Resources (BHP/RIO)

• Sector representation not adequately represented in the Australian Market

Information Technology, Healthcare, Pharmaceutical, Global Industrials

• Currency Risk: 60-90c Long term forecast $A/$US 0.85

• Franking credits +1%

• SMSFs typically <10% in global equities*

Source: Russell

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The importance of a diversified portfolio

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45%

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-3%20%

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12%

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11%

9% 9%29%

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25%

7% 8%13%

5% 5%20%

8%

9%23%

7%24%

-5%16%

13%

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4%11%

9% 5% 8%18%

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4%-18%

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3% 4%16%

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7%20%

5%17%

-6%13%

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12%

10%

-1% 6% 5% 4% 5% 9% 6% 6% 4%-39%

4% 2% 3% 8% 3%

-18%

11%

-2% 5% -9% 8% 8% 6% 5% -5% 5% 5% -9% 3% 6% 6% 3% -9%-52%

2% -1%-11%

4% 2%

Best perf

Worst

perf

Cash – UBS Australian Bank Bill Index Fixed Interest - UBS Australian Composite Bond Index Property – S&P/ASX 300 Property Accumulation Index Equities – S&P/ASX 300 Accumulation Index Diversified Portfolio – Naive Diversification

There is no consistent best performing asset class. The best this year might be the worst next year. Consistently selecting "the" best performing asset is very difficult.

Strategic Asset Allocation will improve your long term average return and lower your volatility

Source: UBS AG, Investment Solutions Past performance or historic results provide no guarantee of future returns.

Naive portfolio = equal distribution between asset classes

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Asset Allocation Review

Conservative Moderate Aggressive Your

BM BM BMConsolidated

Position

Liquidity / Cash 5.0% 5.0% 2.5% o/w ?

Fixed Interest 45.0% 20.0% 10.0% u/w

Domestic 39.0% 16.0% 10.0%

Global 6.0% 4.0%

Equities 25.0% 50.0% 70.0% o/w ?

Domestic 15.0% 30.0% 42.0%

Global 10.0% 20.0% 28.0% u/w ?

Real Estate 10.0% 10.0% 7.5%

Alternative Assets 15.0% 15.0% 10.0%

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Technology

In 2000, there were less than 10 million fixed line

phones in Africa

Today, there are more than 700 million mobile

subscribers in Africa

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Trillions of Economic Value to Be Added Over the Next Ten Years

As an increased number of devices become connected over the next several years, Cisco believes $14.4 trillion of economic value will be created through increased revenues and lower costs between 2013 and 2022. Gartner expects the Internet of Things will add $1.9 trillion of economic value in 2020 alone.

Number of Connected Devices (bn)

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Who are the Enablers of “The Internet of Things”?

The Internet of Things (IoT) will change the way people interact with, manage, and monitor the world in which they live.

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Magellan Global Fund – (Performance @ 31 March 2014)

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Financial market volatility declined sharplyUS bond (in bps) and equity (in %) market implied volatility indices

Source: Bloomberg, UBS CIO WM Global Investment Office, as of 19.02.2014

Please see important disclaimer and disclosures at the end of the document.

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May.09 May.10 May.11 May.12 May.13

Equity Volatility (VIX Index) Bond Volatility (MOVE Index, rhs)

China: Retail sales slowingChina Retail Sales, constant prices (2004=100), yoy, in %

Source: Thomson Reuters, UBS CIO WM Global Investment Office as of May 2014


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-10%-8%-6%-4%-2%0%2%4%6%8%

Q12006

Q12007

Q12008

Q12009

Q12010

Q12011

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Q12014

Consumption Commercial real estate investmentCapital expenditures IPP expendituresResidential investment InventoriesNet Exports GovernmentReal GDP (q/q annualized)

US: Growth to accelerate in 2014 US real GDP and its components, quarter-on-quarter annualized in %

Source: Thomson Datastream, UBS, as of February 2014


Note: Shaded area indicates UBS CIO forecast

Fore

cast

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US: Job growth on a stable trend

Source: Thomson Reuters, UBS CIO WM Global Investment Office, as of February 2014

Non-farm payrolls (m/m, in '000)


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Non-farm payrolls (mom) 6 month moving average

US: Unemployment rate declining

Source: Thomson Reuters, UB CIO WM Global Investment Office as of May 2014

Unemployment rate, in %


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US: House prices are recovering strongly

Source: Thomson Reuters, UBS CIO WM Global Investment Office, as of February 2014

S&P/Case-Shiller 20 City Home Price Index (yoy change, in %)


-25

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S&P/Case-Shiller Composite-20 City Home Price Index

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AUD: Australian business confidence recovered somewhatIn %

Source: Bloomberg, UBS, as of February 2014


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CIO preferred investment themes (1/2)

US high-yield corporate bondsUS high-yield corporate bonds are well supported in terms of fundamentals. The default rate is very low, and rising corporate earnings, robust balance-sheets, and low refinancing needs are likely to limit actual defaults. Against this backdrop, current yield spreads of about 400 basis points compensate well for the risks, and we expect total returns of 3–4% over the next six months. As an alternative, senior loans are exposed to similar positive fundamentals and offer floating rates.

Yield pickup with corporate hybridsThe corporate hybrid segment is a niche of the investment-grade corporate bond asset class. At current spread levels, investors are well compensated for assuming the risks associated with these instruments. As a consequence, we see attractive opportunities for investors with a suitable risk tolerance. We expect mid-single-digit returns on selected instruments over a 12-month period.

Rising StarsWhen an issuer is upgraded from high yield to investment grade, its bonds' spreads usually tighten materially – often beyond the level implied by their higher rating – as a result of strong technical pressure. To investors who can hold individual, weaker-quality bonds, we recommend investing in bonds of issuers whom we see as potential rising stars over the next 18 months. In the event they are upgraded to investment-grade, we expect these issuers to outperform both the 'BB' and the 'BBB' rating category. In the absence of an upgrade, we still expect these issuers to outperform investment-grade corporates.

Fixed Income

The CIO preferred investment themes represent the CIO's highest conviction, thematic investment ideas. We aim to recommend ideas that are attractive on a risk-reward basis and expected to deliver positive absolute returns. It will include the best investment themes for each of our TAA overweights, further aligning the asset allocation and themes recommendations, along with a range of other short-, medium- and long-term, as well as SRI, themes.

Equities


Profit from US share buybacks and dividends US companies generally have healthy balance-sheets, and many are sitting on significant cash reserves. Investors in companies that return capital through dividends and share buybacks have been rewarded by the stock market. They offer attractive yields and, as our data shows, outperform the underlying index. With borrowing costs currently low, companies are incentivized to return cash to shareholders, and the growing free-cash-flow yield is a key factor for the theme. Since share buybacks are at the discretion of individual management teams, we recommend investing in a diversified basket of stocks.

US financials: On the road to recovery US financials are currently under-earning relative to their long-term potential. With the US economy and interest-rate backdrop likely to normalize further, financials' earnings should grow faster than the broad US equity universe. With valuations still attractive, US financials should outperform the overall US equity market.

US technology: Secular growth, on saleSecular growth drivers (mobility, cloud computing, e-commerce, and big data) should power sector earnings growth over the coming years. More cyclically, US technology companies should benefit from a pickup in business spending on technology products and services as the outlook for global corporate profits improves. Sector valuations are near 20-year lows.

Energy efficiency: Brighter prospects for LEDThe LED market, an important part of the energy-efficiency field, is at an inflection point driven by a perfect confluence of both supply and demand factors. After three years of significant overcapacity, we expect supply and demand to balance out this year, creating an attractive investment opportunity. We believe the tight supply should result in a better pricing outlook and a strong rebound in profitability across the supply chain, given the industry's high operating leverage. Based on consensus estimates, we expect industry net profits to increase by 25% in 2014 and 18% in 2015.

= New investment theme

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Your preferences determine your investments

• Investment choice

• Flexibility

• Tax efficiency – “attractive investment vehicle”

• Cost efficiency; and

• Estate planning.

UBS has strong credentials

• Expertise in investment management lies at the core of our organisation

• UBS CIO leverages the expertise of more than 900 investment experts from around the globe, covering all key markets and asset classes.

• Tailored Asset Allocation advice, with direct ownership of listed securities enables flexibility to customise a solution to meet clients investment needs

• Uniquely placed in the market to hold and report on multi asset class investment across multi currencies

• Unparalled access to a broad global universe

SMSF’s offer members control and flexibility with regard to:

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Example DPM Global Moderate Portfolio

Investment Strategies Tyndall Australian Equity Income Model

UBS Global AM International Bond FundReference Currencies

Magellan Global Equity ModelClient Segment

Special Mandate Portfolio

UBS Cash Management TrustProduct Positioning

UBS Global AM Australian Bond FundInvestment orientation

Australian Equities

International Bonds

International Equities

Model components

Cash

Australian Bonds

S&P / ASX 200 Accumulation Index

Barclays Capital Global Aggregate Index (hedged $A)

MSCI World Net Total Return ($A)

Special Mandate Portfolio

UBS Australian Bank Bill Index

UBS Composite Bond Index 0+YR

Benchmark components

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Each client has unique needs. We offer unique solutions.

Cash

International Bonds

Australian Bonds

Australian Equities

International

Equities

Asset Allocation

Asset class SAA TAA Range

Australian Equities

45% 45% 0 - 60%

International Bonds

7% 7% 0 - 15%

Australian Bonds 22% 19% 10 - 50%

Cash 2% 2% 0 - 15%

Portfolio structure

International Equities

24% 27% 0 - 40%

As at January 2014. This information is provided for illustrative purposes only. It has no regard to the specific investment objectives financial situation or particular needs of any recipient. UBS may introduce/ eliminate asset classes and modify the asset allocation ranges at its absolute discretion at any time.

$20,000

$190,000

$70,000

$450,000

$270,000

Note: Assuming $1,000,000 invested

Dom Equities45%

Int Equities27%

Dom Fixed Inc19%

Int Fixed Inc7%

Cash2%

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Australian fixed income

UBS Global AM Australian Bond Fund

Liquidity UBS Cash

Management Trust

Australian equities

ANZ Banking Group

National Australia Bank

BHP Billiton Commonwealth

Bank Telstra DUET Group Woolworths Wesfarmers Insurance

Australia Group Lend Lease Group

Global Aggressive Portfolio

using the following investment strategies:

UBS Global AM AUS Bond Fund

UBS Global AM Int’l Bond Fund

Tyndall Australian Equity Income Model

Magellan Global Equity Model

Source: UBS Wealth Management Australia, January 2014. For illustrative purposes only. Instruments will vary due to active management.

Global equities Ebay Inc

Oracle Corp

Microsoft Corp

Lowe's Co Inc

Target Corp

Visa Inc

Tesco Plc

Nestle SA

DirecTV

Yum!Brands Inc

Global fixed income UBS Global AM

International Bond Fund

Note:Sample portfolio – only top ten position shown for illustration

100%

110%

120%

130%

140%

150%

160%

170%

180%

190%

200%

Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13

Global Moderate Benchmark

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As per end of December 2013

Source: Tyndall Investment Management Ltd, Magellan Asset Management, UBS Global Asset Management and MorningstarComposite returns are calculated as the asset weighted average of the portfolio returns, gross of fees and gross of taxes.Past performance is not a guarantee of future results.Inception date March 2009The Tyndall Australian Share Concentrated Income Fund, which uses the same process as the Tyndall Australian Equity Income Model and the Magellan Global Equity Fund, which uses the same process as the Magellan Global Equity Model, have been used to provide a longer term performance history.

28


As per end of December 2013

Source: Tyndall Investment Management Ltd, Magellan Asset Management, UBS Global Asset Management and MorningstarComposite returns are calculated as the asset weighted average of the portfolio returns, gross of fees and gross of taxes.Past performance is not a guarantee of future results.Inception date March 2009The Tyndall Australian Share Concentrated Income Fund, which uses the same process as the Tyndall Australian Equity Income Model and the Magellan Global Equity Fund, which uses the same process as the Magellan Global Equity Model, have been used to provide a longer term performance history.

0%

5%

10%

15%

20%

25%

30%

Global Moderate Model Portfolio 1.44% 5.44% 25.81% 25.81% 16.00%

Benchmark 1.49% 4.74% 20.32% 20.32% 10.17%

1 Month 3 Months Ytd 1 Year 3 Years p.a.

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Contact information

Important: This material has been prepared by UBS Wealth Management Australia Ltd ABN 50 005 311 937 holder of AFSL 231127, which is a subsidiary of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS.

It is not intended to be financial product advice or a personal recommendation and is provided solely for information and/or marketing purposes. This document should not be construed as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdiction.

This document contains general information and opinion only and it is not intended to influence any persons in making financial decisions, and should not be taken as such. This information in this document does not take into account all of your personal investment objectives, financial situation, tax position or other personal circumstances. Therefore, you should not rely on the opinions and recommendations set out in this document in making any investment decisions. Prior to any investment decision, you should seek personal investment advice from your financial advisor, based on your personal objectives, financial situations and needs, and consider the relevant offer document (including the product disclosure statement) before acquiring any financial products.

No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in this document. It should not be regarded by recipients as a substitute for the exercise of their own judgement or inquiry. Any opinions expressed in this document are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or divisions of UBS or its affiliates as a result of using different assumptions and criteria. UBS is under no obligation to update or keep current the information contained herein. UBS, its directors, officers and employees', clients or affiliates may have or have had interests or long or short positions in the securities or other financial instruments referred to herein and may at any time make purchases and/or sales in them as principal or agent. UBS may act or have acted as market-maker in the securities or other financial instruments discussed in this material. Furthermore, UBS may have or have had a relationship with or may provide or has provided investment banking, capital markets and/or other financial services to the relevant companies. Neither UBS nor any of its affiliates, nor any of UBS' or any of its affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this document. Past performance is not necessarily indicative of future results. The market prices provided are closing prices on the respective principal stock exchange. This applies to all performance charts and tables in this presentation.

To the extent that UBS has sourced any material in this document from a third party, UBS accepts no liability for the accuracy, currency or completeness of that material. All information is correct at the time of publication only and is subject to change without notice. UBS specifically prohibits the redistribution of this material in whole or in part without the written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect.

UBS Wealth Management Australia Limited, Registered Office: Level 16, Chifley Tower, 2 Chifley Square, Sydney NSW 2000.

© UBS 2014. The key symbol and UBS are among the registered and unregistered trademarks at UBS. All rights reserved.

Amy LawranceDirectorClient AdvisorTel: +61 (03) 9242 6239Fax: +61 (03) 9242 6858Email: [email protected]

may 2014 wealth management australia eltham rotary global perspective confidential amy lawrance...

Documents

equities c

dps newprespptpresprint

australian market performance

energy sector overweight

fy14 earnings growth

china gdp growth

lackluster year

property sector risksrisk