ubs global income equity fund june-2014 fr14-093 · pdf filefor professional investors only...

For professional investors only

June 2014

High income from a defensive equity portfolioUBS Global Income Equity Fund

Asset management

Why invest in a high income, defensive equity strategy?

Section 1

2

The appeal of high equity income in a defensive make-up

• For investors seeking equity income but remain concerned about equity market risk

• Defensive equity strategies have historically delivered attractive risk-adjusted returns

The combination of two investor needs: Equity Income and Defensiveness.

• The defensive characteristics of the strategy means that it's expected to give up some upside during strongly rising equity markets and aims to provide some downside cushion during market corrections

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Defensive equity investing has added value in the US …

Source: Baker, M., Bradley, B. and Wurgler, J (2011) Benchmarks as Limits to Arbitrage: Understanding the Low-Volatility Anomaly. Financial Analysts Journal 67 (1), p. 48.Note: Each month Baker, M sorted all publicly traded US stocks tracked by the Center for Research on Security Prices (CRSP) with at least 24 months of return history into five equal quintiles (each representing 20%) according to trailing volatility (standard deviation) or beta. Volatility and beta are estimated using up to 60 months of trailing returns. In January 1968, $1 is invested, according to capitalization weights. At the end of each month, each portfolio is rebalanced, with no transaction costs included. Low Beta & Volatility Stocks' refer to the lowest Beta and Volatility quintile respectively. High Beta & Volatility Stocks' refer to the highest Beta and Volatility quintile respectively.Past Performance is not indicative of future returns.

Low beta and volatility outperformed high beta and volatility stocks

Annual outperformance of low beta and low volatility stocks vs. high beta and high volatility stocks(1 January1968 to 31 December 2008)

• Low beta and low volatility stocks historically performed better than high beta and high volatility stocks

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… and also globally

Source: MSCI BARRA, Historical GEM3L Risk Indices Factor Returns. Data from 31-Dec-1996 to 30-Nov-2013. Past performance is not indicative of future results. Notes: 'All Markets' is equal to all monthly returns (up & down markets) for the MSCI All Country World (USD).'Down Markets' implies falling (<0%) monthly return in the MSCI All Country World (USD). 'Up Markets' implies rising or flat (≥ 0%) monthly return in the MSCI All Country World (USD).

Low volatility and high dividend yield consistently added value

Monthly out-/underperformance of defensive equity(31 December 1996 to 30 November 2013)

• Historically low beta and low volatility stocks generated more outperformance in falling markets than they gave up in rising markets

• High dividend yielding stocks added value in both environments

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Why choose the UBS Global Income Equity Fund?

Section 2

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The optimal combination of Equity Income and Defensiveness

• An Equity Strategy based on a quantitative model, investing in stocks that deliver high & stable dividend yields

• The strategy writes call options to increase the dividend yield generated income.

• Stocks need to fulfill solid balance sheet and other high quality criteria

• Stringent focus on diversification

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Attractive Equity Income from dividends and call overwriting

* For illustrative purposes only; number subject to change at the investment manager’s discretion

Equity yield from dividends

Equity yield from call overwriting

Indicative current

equity yield

7.6%*

3.77%*

3.87%*

Indicative current equity yield1 =

dividend yield + call overwriting yield

1Indicative current equity yield as of end of June 2014: This figure is indicative and gross of flat fee. The indicative current equity yield is the sum of two yield sources: I) dividends paid by the companies the Fund currently holds. II) premiums received from selling call options on the stocks held in the Fund. The dividend yield portion is based on the dividends of the previous year paid by the companies held in the Fund (irrespective of whether the stock was held at the date the dividend was paid). Withholding taxes paid by the Fund are already deducted from this figure. The portion of yield derived from option premiums is based on the annualized sum of option premiums collected over the past 12 months. The final equity yield can deviate significantly from the indicative current equity yield due to changes in company earnings, dividends, stock prices, option premiums etc.

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Defensiveness is an integral part of the investment process

Source: UBS Global Asset Management

• Low beta constraint (maximal beta of 0.75): stocks that are less volatile than the market are expected to experience less significant drawdowns in down markets

• The income from call options: premiums from call options are typically higher in volatile markets and can therefore provide a downside cushion

• The use of a mean variance approach: the model only adds more risk if this is compensated by a higher expected return given the risk-aversion parameters

• Focus on quality criteria in the stock ranking: choosing companies with stable balance sheet and sustainable dividends typically results in a less volatile portfolio

• Diversification by having a large number of stocks (between 60-100), typically stock weights smaller than 3% and a broad country and sector allocation. This is another step taken to reduce downside risk.

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Call premiums expected to provide cushion in falling markets

Indicative current equity yield from dividends and call overwriting is 7.6% *

* as of end of June 2014

Equity yield from call overwriting

Equity yield from dividends

Average call premiums: 5.5%

Average dividend yield = 4.0%Subprime crisis

Higher expected call premiums in volatile markets

Total equity yield (rolling last 12 months)

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A solid and proven Investment Process

Section 3

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Our investment objectiveCreating a defensive portfolio that combines dividend yield & call premiums

Capture high dividend opportunities and additional yield from the option strategy

Focus on the companies’ stability and sustainability of dividends

Beta below 0.75

Between 60-100 stocks across regions and sectors, with stock weights typically smaller than 3%

High yields

High quality & defensive nature

Highly diversified


The result: a defensive, diversified portfolio which strives to deliver high income

Underlying equity portfolio

+

Call overlay for additional income

Premium generated by selling stock call options provides additional income at the expense of capped upside potential

Stock

Stock + Call Option

Premium

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The high quality focus is key for the investment process

Quality:Criteria 55%

Dividend Yield: Criteria 45%

Current Dividend Yield


High quality is of utmost importance and even weighted slightly higher than the dividend yield criteria

Investment criteria for underlying equity portfolio

Price Stability

Sustainabilityof Dividends

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Transparent equity investment process

MSCI AC World ~2,400 stocks

Ranking from 1 – 2,400

High Yield High Quality screenHigh Yield and High Quality criteria are weighted and applied to the full universe.

‘Knock out’ criteria is further applied.

Portfolio construction underlying equitiesTakes into account ranking, risk, transaction costs and constraints for optimal results

Covered call overwritingSells stock call options to generate additional income

Defensive income-generating portfolio– 60 to 100 stocks with stock weights typically smaller than 3%– diversified across countries and sectors– stock option overlay generating additional income


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The mechanics of call overwriting

Seller of the call option(UBS Global Income Equity Fund)

Buyer of the call option

Fund sells a call option on each stock in the portfolio, giving up upside on stock performance above cap

level

Fund receives premium income from selling the

call option

* For illustrative purposes only; number subject to change at the investment manager’s discretion

The fund targets ca. 4-6% income* from call option premiums

Selling stock call options generates income at the expense of reduced upside

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Overwriting methodology

• Benefits of monthly expiries and rolling

– Short term options typically collect more premium than longer dated options (on annual basis)

– Re-striking every month allows for higher participation in a steadily positive market

• Benefits of overwriting on single stocks

– Minimizes tracking error versus underlying

– Strikes set on a stock by stock basis

– Ensures that call options are fully 'covered'

• Rationale to impose a minimum strike constraint of 105%– Aims to generate additional yield while retaining upside potential

– Provides a reasonable balance between upside cap versus premium raised

– Expected to be favorable due to typically negative relationship between volatility and market return

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Positioning

Section 4

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Country Weight (%) Deviation form index (%)

UK 15.55

Hong Kong 5.03

Switzerland 5.95

China 7.03

Singapore 3.40

Sweden 0.00

Spain 0.00

Germany 0.52

France 0.00

US 40.30

Relative country exposures

Source: UBS Global Asset Management, Data as of 30 June 2014The fund is actively managed, thus allocations can be changed any time at UBS’s discretion. Current portfolio structures may be found at www.ubs.com/fundgate.

+7,7

+4,0

+4,0

+3,7

+2,9

-1,1

-1,3

-2,9

-3,7

-8,5

UBS (LUX) Equity SICAV – Global Income (USD)

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Sector Weight (%) Deviation form index (%)

Utilities 8.5

Telecommunication Services 8.9

Energy 14.0

Health Care 14.0

Consumer Staples 11.1

Financials 19.9

Materials 3.1

Information Technology 8.1

Industrials 5.8

Consumer Discretionay 6.5

+5,0

+4,9

+3,7

+3,3

+1,4

-1,6

-3,1

-4,9

-5,0

-5,2

Relative sector exposures


UBS (LUX) Equity SICAV – Global Income (USD)

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-1,00

-0,50

0,00

0,50

1,00Beta

Momentum

Size

Earnings Yield

Residual Volatility

GrowthDividend Yield

Price to Book

Leverage

Liquidity

Non-linear Size

Risk characteristics

Dividend Yield

Residual Volatility

Beta

Source: MSCI Barra® GEM3L and UBS Global Asset Management. As of 30 June 2014 (active exposure). Past performance is not indicative of future results

Relative risk indices exposure of Global Income underlying equity portfolio

Lower Beta and Volatility than benchmark, but higher dividend yield

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Performance and attribution

Section 5

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Performance versus benchmarkUBS Equity Global Income, as of 30 June 2014 (Net of fees)

Past performance is not indicative of future results. All-in fee of P-acc share classSource: UBS Global Asset Management & Morningstar. Fund inception date: 25 February 2014.As a proxy of the risk-free rate we use the 3y annualised return of the Barclays US Treasury 1-3 years.

Total Return since Fund inception (%)Since Inception Sharpe Ratio

UBS Global Income 7.28% 4.51

MSCI AC World Index 5.06% 1.98

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UBS Equity Global Income, as of 30 June, 2014 (Net of fees)

Performance versus peers

Past performance is not indicative of future results. Source: UBS Global Asset Management & Lipper. Fund inception date: Feb 25, 2014.Peer Group Average: Lipper – Equity income universe

Month-by-month return since Fund inception

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Dividend Yield, Beta and Volatility are performance drivers

Source: MSCI Barra® GEM3L and UBS Global Asset Management, As of 30 June 2014 - (Since Inception). Past performance is not indicative of future results

Positive performance since inception has been mainly driven by our positive exposure to dividend yield,

coupled with negative exposure to residual volatility

…and added performance

Source of Return Average active Exposure Contribution (% return)

Beta -0.67 0.10

Momentum -0.13 0.16

Size 0.03 -0.08

Earnings Yield 0.17 0.29

Residual Volatility -0.27 0.46

Growth -0.56 0.18

Dividend Yield 1.12 1.28

Book to Price -0.06 -0.03

Leverage -0.11 -0.01

Liquidity -0.06 0.06

Non-linear Size -0.02 0.00

Total 2.42

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Strength of the investment team

Section 6

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Investment Management team

Source: UBS Global Asset Management. 1Data as of 30 April 2014

Global Income Equity Strategy

Equity Portfolio Manager (Applied Research) Options Portfolio Manager (Structured Solutions) Equity Strategist

Zurich

Daniel Hammar

Zurich

Patrick Zimmermann

Zurich

Douglas Hayley-Barker

• Transparent and repeatable research and investment processes

• Experienced team that constantly challenge each other in a dynamic environment

• Rigorous and disciplined portfolio construction and risk management

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Applied Research Group16 Investment professionals positioned in offices across the globe

Local equity trading

Over 20 equity dealers in London, Zurich, Chicago and Singapore

Currency specialists

Six experienced FX traders plus four spot order generators

Independent Risk Management

Specialist team of 12 professionals utilizing proprietary Global Risk System

Supported by global resources of UBS Global Asset Management

Applied Research Group team members

As of 31 March 2014

Name Function Location Years in industry Years in companyArt Gresh, Ph.D. Deputy Global Head of Equities New York 18 10John Cotton, CFA Portfolio Manager London 19 10Jay Eisenhardt Analyst New York 11 9Chris Hughes, Ph.D., CFA Analyst Zurich 8 7Shaheen Iqubal, CFA Analyst Chicago 13 13Adam Jokich Analyst Chicago 2 2Kazuki Kagohashi Analyst Tokyo 6 5Ian McIntosh, CFA Portfolio Manager Chicago 16 10Ian Paczek, Ph.D., CFA Portfolio Manager London 18 10Petula Payne Associate Equity Strategist New York 7 7Scott Payseur, Ph.D. Analyst New York 9 6Jeremy Raccio, CFA Portfolio Manager New York 13 6Urs Raebsamen, CFA Equity Strategist Hong Kong 13 13Masafumi Sasai Portfolio Manager Tokyo 15 8Katsumi Tsuzura Portfolio Manager Tokyo 30 16Patrick Zimmermann, CEFA Portfolio Manager Zurich 17 6

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Structured Solutions Group

OTC derivatives trading

Highly experienced in trading OTC derivatives across asset classes to maximise client value

Systematic investment process

Transparent, rule-based approach to achieve predictable and repeatable results

Ongoing Management

Adapt to changing market conditions and control market and non-market risks

Implementing derivative strategies and overlays

Centre of excellence for derivative strategies

Source: UBS Global Asset Management as of 31 December 20131AuM as of 31 December 2013

• 11 derivatives professionals with over 110 years combined experience

• Hubs in London, Zurich, Chicago and Tokyo

• Assets of approx. USD 7bn

• Manage call overwriting strategies over more than USD 1bn of investments

Experience • Responsible for design and management of call option overlay

• Team led by Richard Lloyd, with 17 years of investment experience including the design and management of the Schroder Maximiser fund range, and Luke Browne

• Part of Global Investment Solutions team which has a long track record in managing innovative derivative strategies

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Conclusion

Section 7

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The optimal combination of Equity Income and Defensiveness

• Equity income from both dividends and call options

• Defensive characteristics a result from investment process

• Stringent focus on Quality and Diversification

• Since Inception 1 as of end June

− +7% net of 180bps p.a. fees 2

− More than USD 200m inflows

− Current yield: 7.6%1 Inception: 25 Feb 20142 All-in fee of P-acc share class

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Additional information

Appendix

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Backtest simulation specification

• Period from November 2005 to November 2013

• Base equity strategy:

– See slide 15 for portfolio construction constraints

– Starting value 31 October 2005 = USD 500m

– Monthly rebalancing

– Excludes estimated annual transaction costs of 0.9%

• Overwriting strategy:

– Each stock is overwritten on a monthly basis in accordance with overall yield targets and strike constraints. As such strikes can vary across the individual stocks.

– Set up parameters to achieve approximately 6% annual premium, resp. 50bp monthly.

– For only very few stocks (average 2%, max. 9%) there was no volatility data available. We did not overwrite them.

– Local currency options

– Option transaction costs included

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Backtest results October 2005 to November 2013

Average call premiums: 5.5%

Average dividend yield = 4.0%

Average total equity yield = 9.5%

Currentequity yield = 8.4%

Source: Global AM; data as of 30 November 2013

MSCI AC WorldDefensive Dividend

Portfolio (w/o call overlay)Global Income (incl. call

overlay)

Annualised Return 6.8% 10.1% 11.0%Volatility 18.0% 13.0% 11.9%Max Drawdown -54.6% -41.4% -35.5% Drawdown Start end of Oct 07 end of Oct 07 end of Oct 07

Drawdown End end of Feb 09 end of Feb 09 end of Feb 09

Overwriting Statistics average minimum maximum

Premium raised (monthly) 0.55% 0.28% 0.82%

ITM option expiries 14.5% 0.0% 51.9%

Average strike % (vs frd) 106.6% 105.1% 119.0%

Minimum strike binding 61.8% 0.5% 93.6%

Non overwritten (liquidity) 1.8% 0.0% 9.5%

Tracking error 1.9%

Source: Global AM; data as of 30 November 2013Current equity yield as of 31 January 2014

Source: Global AM; data as of 30 November 2013

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Proprietary tool to construct optimal portfolios

For illustrative purposes only. This information should not be considered a recommendation to purchase or sell any particular security.

Portfolio Optimisation Platform (POP)

MaximizeAlpha

Manage risk

Allocate to stock specific risk

Minimize trading cost

Scenario and sensitivity analysis

Rebalance analysis

• POP was developed by the Applied Research Group to construct efficient portfolios

• POP trades off risk, return and transaction cost assumptions

• POP is interactive and allows for scenario analysis as well as consideration of client specific objectives and restrictions

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Portfolio construction

Source: UBS Global Asset Management1 IBES Estimates

Stock inclusion

Knock out Criteria

Stocks have to pass several “Knock out criteria” among them:

• Positive outlook on dividend payments by consensus analysts1

Total Risk Quality: 55% Dividend Yield: 45%

• Balance sheet and earnings quality: – Profitability

– Leverage

• Volatility

• Dividend Related ratios

• Dividend Yield (net of WHT)

Quality and Dividend Yield criteria is not sufficient for a final inclusion in the portfolio

Constraint

Country/Region Sector Factor Liquidity

Portfolio Optimisation Process

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Regional and country exposureUBS (LUX) Equity SICAV – Global Income (USD)

Country exposureRegional exposure


North America45%

Europe26%

Asia-Pacific19%

Emerging Markets

10%

US 40%

UK 16%

Japan 8%

Switzerland 7%

China 6%

Hong Kong 5%

Canada 5%

Singapore 3%

Australia 2%Others 8%

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UBS Global Income – Performance attributionCumulative contributions to total return

Source: MSCI Barra® GEM3L and UBS Global Asset Management, As of end of June 2014, since inception. Gross of fees and WHT, TR, Unhedged.Past performance is not indicative of future resultsPerformance attribution is an estimate only. Returns of live hedged portfolio can deviate substantially

Portfolio: UBS Global Income underlying equity portfolio, unhedged

Benchmark: MSCI AC World

Feb 2014 – End of June 2014UBS Global Income

Return (%) Risk (% std dev)

6.31 8.91

2.42 3.11 1.18 1.85 1.05 0.86 -1.05 1.10

-0.04 0.11 0.11 0.66

Active Equity

Risk Indices Asset Selection Sectors Countries

Active Benchmark

Currency SelectionCash Equity

3.67 4.38

3.61 4.06

9.98 6.79

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Fund featuresUBS (Lux) Equity SICAV - Global Income (USD) P-acc

Fund name: UBS (Lux) Equity SICAV – Global Income (USD)

Launch date: 25.02.2014

Close of financial year: May 31

Issue / redemption: Daily/Daily

Swing pricing: Yes

Management fee: 1.44% p.a.

Total expense ratio (TER): 1.85% p.a.

Reference index: MSCI All Country World (hedged in USD)

Assets of the unit class in mn: USD 242.5

EU-Savings tax not affected at distribution, not affected at sales/redemption

Securities No.: 23221984

ISIN: LU1013383713

Bloomberg: UBSGIUP LX

Data as of 30 June 2014

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Fund objectives & characteristics

Source: UBS Global Asset Management. Data as of 30 June 2014Note: Gross of fees and dividend withholding taxes.

Investment parameters

MSCI All Country WorldUniverse

Offshore commingled UCITS III (Luxembourg); segregated mandates, multiple share classesVehicles

Generally 5 - 7%, up to 12%Active risk

Maximum 0.75Beta

Holdings

Characteristics Strategy aims to generate income and reduce downside through defensive underlying equity portfolio, dividend exposure and option overlay. Strategy should perform relatively well in sideways and moderate negative/positive markets while it is expected to underperform in growth & momentum periods/bubbles (e.g. tech bubble)

USD 242.5mnAuM

Between 60 and 100 stocks

UBS (Lux) Equity SICAV - US Total Yield (USD) P-acc: 1.80% Flat FeeFees

Mandate Map

MSCI All Country World (hedged in USD)Benchmark

(USD) P-acc: LU1013383713, (USD) P-dist: LU1013383804, (USD) Q-acc: LU1043174561 , (USD) K-1-1 dist: LU1032914613, (USD) I-A2-acc: LU1045846083, (EUR hedged) P-acc: LU1013383986, (EUR hedged) P-dist: LU1013384018, (CHF hedged) P-acc: LU1013384109, (CHF hedged) P-dist: LU1013384281

ISIN

AT, BE, FI, FR, GE, IT, LU, NL, ES, SE, CH, UK Registered in

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Disclaimer

For marketing and information purposes by UBS. UBS funds under Luxembourg law. Representative in Germany for UBS funds established underforeign law: UBS Deutschland AG, Bockenheimer Landstraße 2-4, 60306 Frankfurt am Main. Before investing in this product please read the latestprospectus carefully and thoroughly. Prospectuses, key investor information, the articles of association or the management regulations as well as annualand semi-annual reports of UBS funds are available free of charge from UBS Deutschland AG or from UBS Global Asset Management (Deutschland) GmbH, Bockenheimer Landstraße 2-4, 60306 Frankfurt am Main. Units of UBS funds mentioned herein may not be offered, sold or delivered in the United States. The information mentioned herein is not intended to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not a reliable indicator of future results. The performance shown does not take account of any fees and costs charged whensubscribing to and redeeming units. Fees and costs have a negative impact on performance. If the currency of a financial product or financial service isdifferent from your reference currency, the return can increase or decrease as a result of currency fluctuations. This information pays no regard to thespecific or future investment objectives, financial or tax situation or particular needs of any specific recipient. The details and opinions contained in thisdocument are provided by UBS without any guarantee or warranty and are for the recipient's personal use and information purposes only. Source for all data and charts (if not indicated otherwise): UBS Global Asset Management. © UBS 2014. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

Für Marketing- und Informationszwecke von UBS. UBS Fonds nach luxemburger Recht. Vertreter in Deutschland für UBS Fonds ausländischen Rechts: UBS Deutschland AG, Bockenheimer Landstrasse 2-4, 60306 Frankfurt am Main. Investitionen in diesem Produkt sollten nur nach gründlichem Studium des aktuellen Prospekts erfolgen. Prospekte, wesentliche Anlegerinformationen, die Satzung bzw. Vertragsbedingungen sowie die Jahres- und Halbjahresberichte der UBS Fonds können kostenlos bei UBS Deutschland AG bzw. bei UBS Global Asset Management (Deutschland) GmbH, Bockenheimer Landstraße 2-4, 60306 Frankfurt am Main angefordert werden. Anteile der erwähnten UBS Fonds dürfen innerhalb der USA weder angeboten noch verkauft oder ausgeliefert werden. Die genannten Informationen sind weder als Angebot noch als Aufforderung zum Kauf bzw. Verkauf irgendwelcher Wertpapiere oder verwandter Finanzinstrumente zu verstehen. Die frühere Wertentwicklung ist kein verlässlicher Indikator für künftige Ergebnisse. Die dargestellte Performance lässt mögliche bei Zeichnung und Rücknahme von Anteilen erhobene Gebühren und Kosten unberücksichtigt. Gebühren und Kosten wirken sich nachteilig auf die Performance aus. Sollte die Währung eines Finanzprodukts oder einer Finanzdienstleistung nicht mit Ihrer Referenzwährung übereinstimmen, kann sich die Rendite aufgrund der Währungsschwankungen erhöhen oder verringern. Diese Informationen berücksichtigen weder die spezifischen oder künftigen Anlageziele noch die steuerliche oder finanzielle Lage oder die individuellen Bedürfnisse des einzelnen Empfängers. Dieses Dokument enthält „zukunftsgerichtete Aussagen“, die unter anderem, aber nicht nur, auch Aussagen über unsere künftige Geschäftsentwicklung beinhalten. Während diese zukunftsgerichteten Aussagen unsere Einschätzung und unsere Geschäftserwartungen ausdrücken, können verschiedene Risiken, Unsicherheiten und andere wichtige Faktoren dazu führen, dass die tatsächlichen Entwicklungen und Resultate sich von unseren Erwartungen deutlich unterscheiden. Die Angaben in diesem Dokument werden ohne jegliche Garantie oder Zusicherung zur Verfügung gestellt, dienen ausschließlich zur Informationszwecken und sind lediglich zum persönlichen Gebrauch des Empfängers bestimmt. Quelle für sämtliche Daten und Grafiken (sofern nicht anders vermerkt): UBS Global Asset Management.© UBS 2014. Das Schlüsselsymbol und UBS gehören zu den geschützten Marken von UBS. Alle Rechte vorbehalten.

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ubs global income equity fund june-2014 fr14-093 · pdf filefor professional investors only...

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