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TRANSCRIPT
Citywire Wealth Manager Retreat
UBS Emerging Markets Equity Income Fund
18,19 October 2012
Justin Wells
Equity Strategist
For Professional Clients only Equities
SECTION 1
Why EM Equities for Income?
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Survey
Please review questions on screen
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EM Equities provide stable dividend payments
For the MSCI EM Equity index, dividend payments have steadily increased over the last ten years
– Dividends have been significantly more stable than earnings
– The dividend payout ratio has been stable over time and mostly in the 30 – 40% range
– However it is currently still ca. 10% below world average
Potential for further increase in dividend payouts, as many companies enter mature growth phase
Source: DataStream, UBS Investment Research, as at 30 April 2012
MSCI EM, DPS and EPS MSCI World, DPS and EPS
US
D
US
D
0
20
40
60
80
100
Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11
DPS EPS
0
20
40
60
80
100
120
Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11
DPS EPS
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EM Equities are able to keep paying sustainable dividends…
EM companies reduced their debt levels consistently during the past decade
– Current net debt to equity ratios are below 25%, significantly lower than developed markets companies with a
ratio of 50%
In addition, EM companies have high cash levels on their balance sheets
Source: Worldscope, UBS Investment Research, April 2012
Net debt to Equity by region
…supported by low debt, high earning growth potential
Cash/Total Assets v Actual Payout Ratio
0%
20%
40%
60%
80%
100%
120%
140%
88 90 92 94 96 98 00 02 04 06 08 10 12e
LatAm Asia EMEA
10%
11%
12%
13%
14%
15%
16%
17%
Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12
30%
32%
34%
36%
38%
40%
42%
44%
46%
48%
50%
Cash / Total Asset (lhs) Payout rat io (rhs)
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Back-test of a High Dividend EM Equity portfolio over 10 years
Source: UBS Investment Bank Worldscope, Datastream
Note: The above chart shows returns by calendar year to 31 December 2011. All other information is as at 31 December 2011.
1 Back test rules: At each month end, the universe is restricted to stocks which are in the MSCI EM Index on that date. Each stock has a market capitalisation of at least USD 1 billion on that date. 75
stocks with the highest trailing dividend yield over the previous 12 months on that date are selected. These stocks are equally weighted within the portfolio. The portfolio is rebalanced at month end and
the total returns computed in USD.
Note: Back-test results or past performance are not guides for the future. No restriction to buy/sell stocks i.e. no constraint on having to actually receive dividends and payout the same as income. Our
portfolio will be selected from ca. 350-400 stocks under our research coverage.
Portfolio selected from the entire universe of stocks in the MSCI EM index
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Retu
rn b
y y
ear
EM MSCI universe High yield stocks
EM Equities performance from high dividend stocks is strong
10 years (31-Dec-2001 – 31-Dec-2011) EM M SCI universe EM high dividend portfolio
Annualised return 14.5% 24.1%
Annualised standard deviat ion 25% 23%
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Split of MSCI World stocks yielding greater than 3%
Developed
Asia Pacif ic
ex Japan
16%
UK
12%
Emerging
17%
Developed
Europe ex
UK
26%
Developed
North
America
29%
Developed
Europe ex
UK
20%
Japan
8%
Developed
Asia Pacif ic
ex Japan
13%
Emerging
33%
Developed
North
America
19%
UK
7%
EM’s share of high yielding stocks has increased
1995
Total number of stocks = 356
2011
Total number of stocks = 938
60 stocks
302 stocks
Source: Datastream, 31 December 2011
Note: Only companies with market capitalisation >USD 1 billion included in survey
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0
1
2
3
4
5
6
Mate
rials
Tele
com
Serv
ices
En
erg
y
Uti
liti
es
Fin
an
cials
Info
rmati
on
Tech
no
log
y
Ind
ust
rials
Co
nsu
mer
Sta
ple
s
Co
nsu
mer
Dis
creti
on
ary
Healt
h C
are
Gro
ss d
ivid
en
d y
ield
(%
)
EM Equities yields vary among countries and sectors
MSCI EM Index¹ (inc. Hong Kong & Singapore) MSCI EM Index
Index Dividend Yield: 2.9%
Reference Index is the MSCI EM Index
Source: UBS Investment Research, Factset, September 2012
1 Data shown is not for index as a whole but represented by the major markets within it and includes the markets of Hong Kong & Singapore, which are not included within the MSCI EM Index.
2 Source: UBS Global Asset Management. Historic yield is based on distributions declared over the last year as a percentage of the share price. It does not include the effect on any initial charge paid.
0
1
2
3
4
5
6
7
Po
lan
d
Czech
Rep
ub
lic
Mo
rocc
o
Bra
zil
Co
lom
bia
Ru
ssia
Taiw
an
Sin
gap
ore
Ch
ina
So
uth
Afr
ica
Eg
yp
t
Hu
ng
ary
Th
ail
an
d
Mala
ysi
a
Peru
Ho
ng
Ko
ng
Tu
rkey
Ch
ile
Ph
ilip
pin
es
Ind
ia
Mexic
o
Ko
rea
Gro
ss d
ivid
en
d y
ield
(%
) Fund historic yield 5.3%²
Index Dividend Yield: 2.9%
Section 2
Why UBS for Equity Income?
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Emerging Markets Equities Team
Source: UBS Global Asset Management
As at 30 September 2012
1 Member of Emerging Markets Equity Strategy Committee EM
Equity Income Specialists
Portfolio construction and research
A stable and experienced team managing ca. USD 21 bn
Geoffrey Wong1
Head Global Emerging Markets &
Asia Pacific Equities
Hong Kong / Singapore
Manish Modi1
Portfolio Manager
Asia ex Japan
Cheah Yit Mee1
Portfolio Manager
Asia ex Japan
Bin Shi
Portfolio Manager
China
Projit Chatterjee1
Portfolio Manager /
Equity Strategist
Namit Nayegandhi
Analyst
Chan Chee Seng
Analyst
Yu Zhang
Analyst
Sanjeev Joshi
Analyst
Joanna Mak
Analyst
Leslie Chow
Analyst
Matthew Adams
Analyst
Hai Huang
Analyst
Kelvin Teo
Analyst
Han Yaw Juan
Trader
Jimmy Chua
Head Trader
Paul Hillman
Trader
Reginald Oh
Trader
Dorothy Lek
Trader
Gabriel Csendes1
Portfolio Manager
Analyst
Michael Abellera
Trader Latin America
Zurich / London / Chicago
Urs Antonioli1
Head of EM EMEA /
Latin America Equities
Mark Roggensinger
Analyst
Gabriella
Abderhalden
Analyst
Irina Budnikova
Analyst
Benita
Mikolajewicz
Analyst
Steve Herbert
Trader EMEA
Macrina Otieno
Trader EMEA
Justin Wells
Equity Strategist
Choo Shou Pin
Analyst
Section 3
What does an EM Equity Income fund look like?
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UBS Emerging Markets Equity Income Fund
Investment and Portfolio Construction Process
Investment Universe of EM Equity team
(300-400 stocks researched)
Top dividend yield stocks
Client portfolio
40 – 80 stocks
Remove stocks where dividends not sustainable or weak fundamentals
Add stocks where dividends very stable and/or likely to increase
Final portfolio construction by PMs
Filtrate: Select high dividend stocks
Remove overvalued stocks
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UBS Emerging Markets Equity Income Fund
0% 5% 10% 15% 20%
Poland
Singapore
South Af rica
Taiw an
Czech Republic
Hong Kong
Thailand
Israel
Hungary
Peru
Philippines
Turkey
Morocco
Chile
Malaysia
Egypt
Indonesia
Colombia
Russia
Mexico
India
Brazil
China
Korea
Port folio %Reference Index %
As at 30 September 2012
Country Positioning v MSCI EM Index
Overweight
Underweight
Source: UBS Global Asset Management
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UBS Emerging Markets Equity Income Fund
Overweight
Underweight
Source: UBS Global Asset Management
Sector Positioning v MSCI EM Index
As at 30 September 2012
0% 5% 10% 15% 20% 25% 30% 35%
Telecommunicat ion
Services
Financials
Informat ion
Technology
Ut ilit ies
Health Care
Materials
Indust rials
Consumer Staples
Energy
Consumer
Discret ionary
Port folio %Reference Index %
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Foschini: South Africa, Consumer Discretionary
Foschini is well positioned
Turnaround story
Mass middle market focus
Gaining market share due to improving product offering and
attractive price points
Solid FCF improvement story driven by
Good revenue growth and stabilising margins, scope to
improve working capital
Future major acquisitions are unlikely, thereby sustaining the
cash flow
Strong corporate governance
Responsible dividend discipline – flattish until top line
performance improved
Expected improving dividend payout ratio going forward
Prospect of further funds being returned to shareholders post
the IPO of microfinance business
Market Share of Modern Apparel Retail in South Africa
Top 5 Modern Apparel Retailers
Good Dividend Growth
66%
67%
68%
69%
70%
71%
72%
73%
2003 2004 2005 2006 2007 2008 2009 2010 2011
Modern
73%
Woolworths
10%
Mr Price
13%
Truworths
9%
Foschini
13% Edcon
28% Informal
28%
Source: Bloomberg, Factset, UBS Global Asset Management, September 2012
1 Historic data
3 year
dividend
grow th1
1 year
dividend
grow th1
12 month
yield1 FY1 FY2
16.5% 30.0% 3.8% 4.5% 5.3%
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Asustek: Taiwan, Information Technology
Asustek enjoys strong positioning within the industry
One of the fastest growing PC brands over last 3 years
Delivered decent margins throughout, while steadily gaining
market share
Has withstood the serious ‘headwinds’ impacting the wider PC
industry
Strong R&D capabilities and product design have positioned it
well for future challenges
Good prospects for maintaining sustainable dividend
Recent corporate actions have reduced working capital
requirements
Allowing cash dividends to increase over time
Future major acquisitions are unlikely, thereby sustaining the
cash flow
Payout ratio likely to be maintained
Potential for special dividend upon future prospective
divestments
Dividend Per Share
Top 5 PC vendor’s market share globally
Source: IDC
Good Dividend Growth
0
5
10
15
20
2007 2008 2009 2010 2011 2012E 2013E 2014E
Source: Bloomberg, Factset, UBS Global Asset Management, September 2012
1 Historic data
3 year
dividend
grow th1
1 year
dividend
grow th1
12 month
yield1 FY1 FY2
10.0% 26.4% 4.8% 5.3% 6.0%
SECTION 4
Performance since inception
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Strong Performance
Source: Lipper as at 30 September 2012. The performance shown is for the B Inc share class, based on NAV prices with income reinvested net of basic rate tax and in Sterling terms.
1 The Fund’s Sector is IMA Global Emerging Markets
2 Launch date 31 January 2011
Source: UBS Global Asset Management / FactSet, 30 September 2012
Each bar relates to the discrete monthly performance of the MSCI Emerging Markets Index. The blue line relates to the cumulative performance of the fund relative to the index.
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Feb-11 Apr-11 Jun-11 Aug-11 Oct -11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12
Monthly perf absolute Relat ive performance cumulat ive
Fund (%) Sector¹ (%) Quart ile
6 months -1.4 -2.6 2
1 year 16.3 12.6 1
Since launch² 5.2 -7.6 1
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UBS Emerging Markets Equity Income
Source: Lipper, based on NAV prices with income reinvested net of basic rate tax and in GBP terms. UBS EMEI refers to the B Income share class.
Risk/Return from launch (31 January 2011 to 31 September 2012)
IMA Global Emerging Markets MSCI Emerging Markets
UBS EMEI
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Summary
A summary of benefits
Prospect of providing a rising and sustainable income stream with the potential for capital growth
from investing in EM equities
May be suitable for UK investors looking to diversify their sources of income from sole exposure to
developed markets, that are burdened with debt and face demographic challenges
The UBS Emerging Markets Equity Income Fund
Benefit from the investment experience of a stable team managing in excess of USD 21 billion1 in
EM and Asian equities
Leverages UBS EM Equity team’s fundamental research based investment process. The Fund
invests in established companies within EM
Fund has achieved strong performance across multiple time periods
Coupled with an historic yield of 5.3%²
Why invest in Emerging Markets for Income?
1 Source: UBS Global Asset Management, as at 30 September 2012
2 Source UBS Global Asset Management, as at 30 September 2012. B income shareclass. Historic yield is based on distributions declared over the last year as a percentage of the share price. It does
not include the effect on any initial charge paid.
APPENDIX
Additional information
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The UBS Emerging Markets Equity Income Fund
Investment goals
Focus on income generation, together with long-term capital appreciation. To be achieved by investing in equity
securities across EM Equity Markets and HK/SG, focusing on companies with high and/or increasing dividend
distributions
Targets to exceed 120% of the yield of the MSCI EM1
Other parameters
Active risk: Not applicable as no active benchmark
Expected beta range: typical <1
Number of equity holdings: 40-80
Opportunistic allocation of up to 20% to Singapore and Hong Kong2
Portfolio exposures
Investment goals and risk parameters:
1 Gross of fees and withholding tax over a full market cycle, which is typically 3-5 years.
2 Maximum 20% allocation to Hong Kong & Singapore individually or cumulatively (to comply with IMA sector requirements this figure includes the amount of cash currently held in the Fund).
Otherwise, 25% absolute limit.
Relat ive Absolute
Stock weights Typical maximum of around 5%
Sector weights +/- 25% vs index 35%
Country weights2 +/- 25% vs index 25%
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Source: UBS Global Asset Management
1 This is a non-benchmarked, equity income product. The dividend yield of the MSCI Emerging Markets Index is used in reference to the overall dividend yield of the
Fund.
2 The IMA Global Emerging Markets sector ranks Funds on a Total Return basis. It should be noted that the Fund’s primary objective is to deliver income.
3 From 1 January 2013
4 For total direct investment. Also available through certain platforms.
UBS Emerging Markets Equity Income Fund
Fund objective
To seek to generate income and achieve some long-term capital appreciation predominantly through active
management of a diversified portfolio invested in high yield equity securities across global emerging markets
including Hong Kong and Singapore
Fund details ‘B’ shares ‘C’ shares
Fund Launch date 31 January 2011
Reference index¹ MSCI Emerging Markets Index
Sector IMA Global Emerging Markets²
Init ial charge 0.00% 0.00%
AMC 1.00%³ 0.75%
Minimum init ial investment
£1,000 £1,000,000
XD dates 31 March, 30 September
Pay dates 31 May, 30 November
Sedol code (Acc) B5M1470 B8BDQ49
Sedol code (Inc) B5KZ5J3 B8BLLB5
ISIN code (Acc) GB00B5M14703 GB00B8BDQ491
ISIN code (Inc) GB00B5KZ5J37 GB00B8BLLB55
ISA Yes
ISA t ransfer Yes
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Urs Antonioli, CFA
Head of EM EMEA & Latin America Equities and Portfolio Manager
Managing Director
Urs Antonioli heads investment management and research for Emerging Europe, the Middle East and Latin America. He manages a team of analysts researching companies, industries and countries in the above region.
Urs is a member of the UBS Global Asset Management Emerging Markets Strategy Committee.
Urs began his financial career by joining the UBS Zurich graduate training programme in 1994. In 1995 he moved to UBS Asset Management to launch and manage the first UBS emerging market fund investing in Eastern European countries. From 1996 to 2000, his responsibilities comprised management of all Eastern European portfolios managed at UBS. He has spent more than eight years in research activities, specializing in energy, telecommunications, basic materials and the technology sector. He took up his present position in August 2001.
Years of investment industry experience: 16
Education: University of Fribourg (Switzerland) MBA
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Projit Chatterjee, CFA
Equity Strategist, Global Emerging Markets and Asia Pacific Equities, Managing
Director
Projit Chatterjee is an Equity Strategist within the Global Emerging Markets and Asia Pacific Equities team. He is a member of the Global Emerging Markets Strategy Committee and is based in the Singapore office. He is also co-manager of the GEM and Asia High Dividend funds.
Projit has primary responsibility for overall product positioning and development of Emerging Markets and Asian Equity strategies, as well as marketing and communication of these strategies to existing and prospective clients globally.
Prior to this, Projit led an acquisition project in the Indian market.
Projit joined UBS in 1997 as a Corporate Finance Analyst with UBS Investment Bank in Mumbai, India. In 1999, he moved to UBS Global Asset Management in Zurich to work in Strategic Projects, International Fund Marketing. In Zurich, Projit held various roles in the areas of strategic business development, business management and investment solutions.
Before joining UBS, Projit worked briefly as a money market and foreign exchange dealer in the treasury of Mashreq Bank, a UAE bank in Mumbai.
Years of investment industry experience: 16
Education: Indian Institute of Technology (India), B.Tech;
Indian Institute of Management (India), MBA
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Justin Wells
Equity Strategist
Director
Justin Wells is an Equity Strategist for Emerging Market Equities, based in Zurich. He is responsible for representing the strategies managed by the EM Equities team in Zurich, including Global Emerging Markets, Latin America, Russia, and Central & Eastern Europe.
Justin joined UBS Global Asset Management in 2007 initially as a Product Development Manager. He was responsible for coordinating the launch of the Global Emerging Market HALO fund and worked with the Equities team on the Long-Short initiative. He moved to his current role in August 2010.
Prior to joining UBS, Justin worked in various roles within Equity Capital Markets, latterly as an Investment Advisor to the CIO of Shinsei Bank, Tokyo. Before pursuing a career in finance, Justin practiced as a Barrister in London for a number of years.
Years of investment industry experience: 7
Education: Queen’s University of Belfast (UK), BA (Hons); Durham University (UK), LL.B (Hons)
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Disclaimer
This document is for Professional Clients only. It is not to be distributed to or relied upon by Retail Clients under any
circumstances.
Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up
and are not guaranteed. Investors may not get back the amount originally invested. Changes in rates of exchange may cause the value
of this investment to fluctuate. Investments in less developed markets may be more volatile than investments in more established
markets. The Fund is permitted to, and may, on occasion, hold a limited number of investments. As the annual management fee of the
Fund is charged to capital, the potential capital growth of the Fund will be reduced.
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 FSA 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.
Issued in October 2012 by UBS Global Asset Management (UK) Ltd, a subsidiary of UBS AG, 21 Lombard Street, London EC3V 9AH.
Authorised and regulated by the Financial Services Authority. Telephone calls may be recorded.
© UBS 2012. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.