Transcript
Multi-asset investing in an uncertain world
12 January 2012
David Buckle
FOR PROFESSIONAL CLIENTS ONLYMulti-asset solutions
SECTION 1
The case for multi-asset investing
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The challenges of an uncertain world
Global macro concerns– Will the Euro survive?
– Is the Chinese growth story over?
– Will US growth continue?
Closer to home…– Negative real yields
– Fiscal austerity
– Eurozone fallout
Demise of the ‘safe haven’ asset?
…but investors still need to achieve their investment goals
Setting the scene
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Using a multi-asset approach to navigate volatile markets
Allocate assets across a global opportunity set
Adjust portfolios in response to changing market conditions
Make risk management a part of every investment decision
Don’t underestimate the impact of costs
Multi-asset portfolios can offer a smoother ride
Important considerations
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Europe: Time to decide to break up or not break up?
Either the current structure will have to change, or the current membership will have to change
The cost of a weak country leaving the euro is significant
The economic cost is, in many ways, the least of the concerns investors should have about a break-up
Recent talks about the possibility of a revised treaty
Source: UBS Investment Bank, 6 September 2011, UBS Global Asset Management
Under the current structure and with the current membership, the euro does not work
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Asia: Can China avoid a hard landing?
Japanese growth extrapolation proved too optimistic
Source: Datastream, UBS Global Asset Management
0
5
10
15
20
1950 1960 1970 1980 1990 2000 2010
GD
P U
SD t
rillio
n
Market extrapolation high growth rate
Here is what actually happened
United States
Japan
0
5
10
15
20
25
30
35
40
45
50
1970 1975 1980 1985 1990 1995 2000 2005
% o
f G
DP
China Japan USA South Korea
Ballooning investment spending in China
Source: Datastream, UBS Global Asset Management
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US: Starting the slowing cycle from a weak position
…… and a bigger negative output gap
Source: UBS Global Asset Management, as of 30 November 2011
The US starts a slowdown from a:
…..higher US unemployment rate
Source: UBS Global Asset Management, as at 30 November 2011
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We are not currently positive on equities
Source: UBS Global Asset Management1 Applicable to global equity only
30 November 2011
Equity Positive Equity Negative Equity NeutralRecession RecoverySlowdown Expansion
Fund Manager Position1
Earning Revision
Economic Surprise Index1
Monetary Policy Support
Stress Index1
Fed Model Valuation
ValMod
Economic Cycle
Valu
ati
on
Mark
et
Beh
avio
r
May-
07
Jun-0
7
Jul-07
Aug-0
7
Sep-0
7
Oct
-07
Nov-
07
Dec-
07
Jan-0
8
Feb-0
8
Mar-
08
Apr-
08
May-
08
Jun-0
8
Jul-08
Aug-0
8
Sep-0
8
Oct
-08
Nov-
08
Dec-
08
Jan-0
9
Feb-0
9
Mar-
09
Apr-
09
May-
09
Jun-0
9
Jul-09
Aug-0
9
Sep-0
9
Oct
-09
Nov-
09
Dec-
09
Jan-1
0
Feb-1
0
Mar-
10
Apr-
10
May-
10
Jun-1
0
Jul-10
Aug-1
0
Sep-1
0
Oct
-10
Nov-
10
Dec-
10
Jan-1
1
Feb-1
1
Mar-
11
Apr-
11
May-
11
Jun-1
1
Jul-11
Aug-1
1
Sep-1
1
Oct
-11
Nov-
11
Dec-
11
Jan-1
2
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Credit remains attractive
0%
3%
6%
9%
12%
15%
18%
21%
Aug 00 Feb 02 Aug 03 Feb 05 Aug 06 Feb 08 Aug 09 Feb 11 Aug 12 Feb 14 Aug 15 Feb 17 Aug 18 Feb 20
Merrill Lynch US Corporate High Yield (OAS)
Trailing 12-month US Speculative Grade Issuer Default Rates
Proprietary Projection of Default Rate
Source: Datastream, Moody’s, UBS Global Asset ManagementAs of 31 October 2011
US High Yield
US-I
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Index-linked gilts look attractive relative to nominal bonds
Source: Datastream, UBS Global Asset Management.Note: Data to 30 November 2011
-2%
0%
2%
4%
6%
Jul-92
Apr-
95
Jan-9
8
Oct
-00
Jul-03
May
-06
Feb-0
9
Nov-
11
(%)
UK 10 year breakeven inflation
RPI (all items, not seasonally adjusted)
0%
1%
2%
3%
4%
5%
Dec
-06
Aug-0
7
Mar
-08
Oct
-08
Jun-0
9
Jan-1
0
Aug-1
0
Apr-
11
Nov-
11
(%)
UK 10 year breakeven inflation
UK inflation and 10 year breakeven inflation rates Range-bound nature of breakeven inflation
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Asset allocation is primary determinant of returns
Asset mix decision:– primary determinant of returns in long term
Active decisions:– Can generate additional returns
– Can help to control risk
– Can help to navigate volatile markets
– Can be used to achieve a targeted outcome
1 Gary P. Brinson, L. Randolph Hood and Gilbert L. Beebower, “Determinants of Portfolio Performance,” The Financial Analysts Journal, July/August 1986; and Gary P. Brinson, Brian D. Singer and Gilbert L.Beebower, “Determinants of Portfolio Performance, II: An Update,”The Financial Analysts Journal, May/June 1991.
UBS asset allocation study: contribution to returns
Strategic asset allocation can help manage risk and smooth returns
Other2.1%
Security Selection4.6%
Allocation Policy
91.5%
Market Timing1.8%
Asset
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Tactical decisions can enhance returns
Source: Gilts: FT Over 15 year Gilt Index sourced from Mellon. US Equities: S&P 500 index sourced from Lipper. Corporate Bonds: Iboxx Sterling non-Gilt All Stocks index sourced from Mellon. UK Equities: FTSE All Share index sourced from Mellon. Overseas Bonds: Datastream. Real Estate: Investment Property Forum Consenus Forecasts released on 24 November 2011. Emerging Markets Equities: MSCI Emerging Markets index sourced from Lipper.All data for 2011 to 31 December 2011 except Real Estate as noted.
TOP
BOTTOM
Posi
tion
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Gilts 29.6%
Emerging Mkt.
Equities 72.0%
Real Estate 10.5%
Corporate Bonds 6.9%
Gilts 9.9%
Emerging Mkt.
Equities 40.5%
Real Estate 18.3%
Emerging Mkt.
Equities 50.5%
Real Estate 18.1%
Emerging Mkt.
Equities 37.4%
Overseas Bonds 58.1%
Emerging Mkt.
Equities 59.1%
Emerging Mkt.
Equities 23.6%
Gilts 14.7%
US Equities 27.2%
US Equities 25.0%
Overseas Bonds 10.5%
Real Estate 6.8%
Real Estate 9.6%
UK Equities 20.9%
Emerging Mkt.
Equities 17.3%
UK Equities 22.0%
UK Equities 16.8%
Overseas Bonds 9.2%
Gilts 13.6%
UK Equities 30.1%
US Equities 19.7%
Overseas Bonds 9.5%
Corporate Bonds 14.8%
UK Equities 24.2%
Corporate Bonds 10.2%
Overseas Bonds 1.8%
Corporate Bonds 9.5%
US Equities 15.7%
UK Equities 12.8%
Real Estate 19.1%
Emerging Mkt.
Equities 16.3%
UK Equities 5.3%
Corporate Bonds -4.1%
US Equities 12.6%
UK Equities 14.5%
UK Equities 9.2%
UK Equities 13.8%
Real Estate 14.5%
Gilts 8.0%
Emerging Mkt.
Equities 0.3%
Overseas Bonds 7.9%
Real Estate 10.9%
Gilts 8.4%
US Equities 17.3%
US Equities 1.6%
US Equities 3.7%
US Equities -12.8%
Corporate Bonds 10.8%
Real Estate
14.5%
Real Estate
7.5%
Overseas Bonds 13.6%
Corporate Bonds -0.2%
US Equities -1.9%
Gilts -0.9%
Emerging Mkt.
Equities -15.0%
Corporate Bonds 5.7%
Corporate Bonds 6.7%
Gilts 11.0%
Corporate Bonds 0.8%
Gilts 2.7%
Real Estate
-22.5%
Real Estate 2.2%
Overseas Bonds 9.9%
US Equities 2.9%
Real Estate 11.8%
Gilts -0.4%
UK Equities -5.9%
US Equities -9.6%
UK Equities -22.7%
Overseas Bonds 3.0%
US Equities 3.4%
Corporate Bonds 9.0%
Gilts 0.0%
Corporate Bonds 1.8%
UK Equities -29.9%
Gilts -4.8%
Gilts 8.8%
Corporate Bonds -0.3%
Emerging Mkt.
Equities -26.2%
Overseas Bonds -2.1%
Emerging Mkt.
Equities -25.1%
UK Equities 13.3%
US Equities -29.6%
Gilts 1.2%
Overseas Bonds 2.4%
Overseas Bonds 4.3%
Overseas Bonds -7.5%
Real Estate -5.5%
Emerging Mkt.
Equities -35.2%
Overseas Bonds -9.7%
Corporate Bonds 8.4%
Emerging Markets -17.6%
Movement of UK Equities returns
No single asset class delivers consistent top performance
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Cost is another significant determinant of investor returns
Source: UBS Global Asset Management, DatastreamNote: As at 30 November 2011. Portfolio consists of 65% FTSE All-Share (total return) and 35% FTSE British Government All-Stocks Index (total return). Assumes starting value of £100 with monthly contributions of £100.
£0
£50,000
£100,000
£150,000
£200,000
£250,000
£300,000
£350,000
£400,000
Jan-7
6
Jun-7
8
Nov-
80
Mar
-83
Aug-8
5
Jan-8
8
May
-90
Oct
-92
Feb-9
5
Jul-97
Dec
-99
Apr-
02
Sep-0
4
Jan-0
7
Jun-0
9
Nov-
11
Fund with a TER of 1.1% per annumFund with a TER of 1.8% per annum (typical multi-asset fund TER)Fund with a TER of 2.4% per annum (typical multi-manager fund TER)
Since 1976, a fund with a TER of 2.4% would leave an investor contributing £100 a month with just 70% of the value of an identical fund with a TER of 1.1%
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US-R
The importance of multi-asset investing Investors need a flexible approach to navigate volatile markets
The world is uncertain
Take a diversified, multi-asset approach
Dynamically manage to adapt to rapidly changing market conditions
Understand the impact of costs on overall performance
Funds available for different target outcomes:– Income: UBS Multi-Asset Income Fund
– Capital growth: UBS Global Diversified Fund
SECTION 2
UBS – multi-asset specialists
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0
50
100
150
200
250
Dec
-99
Aug-0
0
Apr-
01
Nov-
01
Jul-02
Feb-0
3
Oct
-03
May
-04
Jan-0
5
Aug-0
5
Apr-
06
Nov-
06
Jul-07
Feb-0
8
Oct
-08
May
-09
Jan-1
0
Aug-1
0
Apr-
11
Nov-
11
GSP HFRI MSCI
…not for UBS multi-asset strategies
Long-term performance vs. equity indices, 2000 – 2011
Source: UBS Global Asset Management, as at 30 November 2011Note: Past performance is not a guarantee for future returns. GSP is a multi-asset composite.
A ‘lost’ period for equities but…
Total return over period
UBS GSP 96.2%
HFRI FoF Index 48.1%
MSCI World USD 9.2%
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Building a diversified portfolio
112 employees across the world; multi-asset portfolio managers on 3 continents
15 PhDs and 66 professional designations spanning investing disciplines
USD 97.5bn assets under management
Trade ideas
Trade ideas
Trade ideas
Trade ideas
Trade ideas
Portfolio Construction
Objectives
Regulations
UBS multi-asset funds
Portfolio Manager
Trade selection
Oversight
Risk Management team
Oversight
Allocation advice
UBS multi-asset team
Source: UBS Global Asset Management.
SECTION 3
Introducing the UBS Global Diversified Fund
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What is the UBS Global Diversified Fund?
The UBS Global Diversified Fund offers lower cost access to long-term capital growth by allocating to a diversified mix of asset classes
Global diversified growth strategy
Long-term exposure to multiple asset classes, including alternatives
A more sophisticated investment choice than traditional balanced funds
Cost efficient:– RDR share class: 0.4% p.a.
– Retail share class: 0.9% p.a. (including 0.5% p.a. annual commission)
Targets two-thirds of equity market returns with half the volatility
Key characteristics
Addressing clients’ evolving needs
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Emerging market debt
Emerging market equities
Developed equities
Government bonds
A diversified offering and approach to managing portfoliosDiversification is achieved on many levels
Investment grade credit
Property
Commodities
Hedge funds
By asset class By trade type/horizon
By source of returnBy region
High yield credit
UK
US
Europe
Asia
Emerging Markets
Strategic allocation
Tactical asset allocation
Active currency management
Relative value
Time horizon
Economic scenario
Directional
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Cash²EquitiesUp to 60%
BondsUp to 100%
Alternatives¹Up to 40%
UBS Global Diversified Fund
Source: UBS Global Asset ManagementNote: As at 31 December 2011. Current indicative ranges - ranges will be reviewed periodically as new asset classes become available or the investable universe changes.1 Alternative asset classes as defined by UBS Global Asset Management. 2 Cash exposure includes combination of physical and synthetic cash
-40%
-20%
0%
20%
40%
60%
80%
100%
Developedequity
Emergingmarketequity
Governmentbonds
Investment gradebonds
High yielddebt
Emerging marketdebt
Comm-odities
Hedge funds/absolutereturn
Realestate
Cash
Market exposures
Current market exposures: incorporating tactical views
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UBS Global Diversified Fund
UBS Global Diversified Fund
Diversified sources of return Cost effective, multi-asset approach Targets two-thirds of equity market returns Exposure to alternatives Highly experienced team – average of 17 years’ experience1 Robust and consistent investment philosophy Core or complementary holding
Source: UBS Global Asset Management.1 Based on key decision makers within the Asset Allocation & Currency team
Summary of opportunity
SECTION 4
Introducing the UBS Multi-Asset Income Fund
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Traditional sources of income remain under pressure
Inflation above Bank of England target
Bank rates remain at historic lows
Government bond yields low
Corporate bonds – spreads are volatile
Annuity rates – under pressure
Dividends rising from low levels
Interest rate/yield (%)
Source: Bloomberg, DataStream and ONS. Note: As at 07 December 20111 Launched 16 November 2009
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Dec-08 May-09 Sep-09 Feb-10 Jun-10 Nov-10 Mar-11 Aug-11 Dec-11
Inflation (CPI)
BoE Base Rate
10 yr Gilt
Iboxx £ Non-Gilt
FTSE All-Share Yield
MAIfund launch1
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UBS Multi-Asset Income Fund
Diversification across asset classes
Combining different sources of income can generate more stable yields and lower price volatility
Diversification within asset classes
Within one asset class, we seek geographical diversification so as to generate a more stable yield
Offering potential for inflation protection
Inclusion of real rate / index-linked government bonds component to reduce exposure to inflation risk
Enhancing income from equities by the use of covered call options
Selling potential upside from rising equity markets generates additional income
Asset allocation actively and dynamically set towards higher yielding asset classes, taking into consideration diversification
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Current investment strategy
Source: UBS Global Asset ManagementNote: Data as at 31 December 2011
UBS Multi-Asset Income Fund
High Yield 8.75%
Real Estate 24.00%
Investment Grade Bonds 27.75%
Index-Linked Bonds 39.50%
US 9.75%
Global 8.75%
UK11.25%
Global12.75%
EU7.00%
UK11.00%
Index-Linked Bonds39.50%
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UBS Multi-Asset Income Fund: summaryCurrent yield of 4.8% p.a.1
UBS Multi-Asset Income Fund
Income paid quarterly Multi-asset approach – broadly diversified Disciplined asset allocation with a focus on higher yielding asset classes Highly experienced team Robust and consistent investment philosophy Comprehensive risk management Core or complementary holding Competitive TER2
Source: UBS Global Asset Management.1 Distribution yield 4.8% p.a. as at 31 December 2011. The yield figure shown is for the A Acc share class. The distribution yield reflects the amount that may be expected to be distributed over the next twelve months as a percentage of the current share price. The calculation does not include any preliminary charges and investors may be subject to tax on distributions.2 TER available on request
SECTION 5
Appendix
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UBS Global Diversified Fund
Fund name: UBS Global Diversified Fund Fund Size: £17.6m (31 Dec 2011) Distribution yield: 1.2% Underlying yield: 1.2% Launch date: 31 October 2011 Sector: IMA Cautious Managed Base currency: GBP Subscriptions/Redemptions: Daily1 Sedol codes: B5T5DR82 B53X5Z03 B60V5L04 ISIN: GB00B5T5DR862 GB00B53X5Z043 GB00B60V5L094 Fund charges5: ‘A’ Acc ‘R’ Acc Initial charge 4.0% 0.0% Commission 3.0% n/a Annual charge 0.9% 0.4% Trail 0.5% n/a Dealing closing time and valuation point: 12 noon Minimum investment: £1,000 lump sum (for A Shares) £50 per month ISA option: Yes ISA transfer: Yes
1 Swing pricing applies (see prospectus for details).2 A Shares accumulation (net)3 K Shares accumulation (net)4 R Shares accumulation (net)5 Fund charges relate to OEIC and ISA investments for the A Share class and R Share class
Fund details
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UBS Multi-Asset Income Fund
Fund name: UBS Multi-Asset Income Fund Yield target: 1 month LIBOR +3% net of fees¹ Distribution yield: 4.8%2
Underlying yield: 2.8%2 Fund size: £28.0m2 Launch date: 30 October 2009 Sector: IMA Cautious Managed Base currency: GBP Subscriptions/Redemptions: Daily3 Sedol codes: B4S2TV94 B4V91K05 ISIN: GB00B4S2TV984 GB00B4V91K055 Income distribution: Quarterly Fund charges6: Initial charge 4.0% Commission 3.0% Annual charge 1.25% Trail 0.5% Dealing closing time and valuation point: 12 noon Minimum investment: £1,000 lump sum (for A Shares) £50 per month ISA option: Yes ISA transfer: Yes
1 The investment manager’s target income is one month sterling LIBOR plus 3% net of fees. This target is not part of the fund’s stated investment objective or policy in its prospectus and is not guaranteed2 As at 31 December 2011. 3 Swing pricing applies to all daily subscriptions and redemptions except those of the last day of the calendar year, when swing pricing will be waived to ensure maintenance of the foreseen value preservation level.4 A Shares accumulation (net)5 A Shares income (net)6 Fund charges relate to OEIC and ISA investments for the A Share class
Fund details
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Monthly strategy asset class weights of Multi-Asset Income Fund (UK) – Data to 31 December 2011
Asset allocation changes in the Multi-Asset Income Fund
Source: UBS Global Asset Management
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11
Wei
ght
Index-linked bonds Investment grade bonds High yield bonds Equities Real estate
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Current yield 4.8% p.a.1
0.0
0.5
1.0
1.5
2.0
2.5
3.0
13-Nov-09 13-Feb-10 13-May-10 13-Aug-10 13-Nov-10 13-Feb-11 13-May-11 13-Aug-11 13-Nov-11
45
47
49
51
53
55
57
59Income (lhs) (pence) UBS MAI A Acummulation Net Share Class Price (rhs) (pence)
Source: UBS Global Asset Management. Note1 Distribution yield 4.8% p.a. as at 31 December 2011. The yield figure shown is for the A Acc share class. The distribution yield reflects the amount that may be expected to be distributed over the next twelve months as a percentage of the current share price. The calculation does not include any preliminary charges and investors may be subject to tax on distributions.Note: Income distribution dates as follows: 1 December 2009, 1 March 2010, 1 June 2010, 1 September 2010, 1 December 2010, 1 March 2011, 1 June 2011, 1 September 2011, 1 December 2011
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Important information
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.
The Fund will use derivatives as part of its investment capabilities which will include short positions. These instruments carry a material level of risk and the Fund could be potentially exposed to enhanced/magnified falls, should the market move against them. The Fund is also subject to counterparty risk. 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. 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.
Issued in January 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.
www.ubs.com/ifa | 0800 587 2111
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