Seeking alpha in Europe: An Unconstrained Approach Citywire Montreux, Switzerland May 22 – 24, 2013 Max Anderl Jeremy Leung For Professional Clients Only Concentrated Alpha Equity
Oct 19, 2014
Seeking alpha in Europe:An Unconstrained Approach
Citywire Montreux, SwitzerlandMay 22 – 24, 2013
Max AnderlJeremy Leung
For Professional Clients Only
Concentrated Alpha Equity
1
What sets us apart
Independent investment boutique within UBS Global Asset Management– Access to the global infrastructure (compliance, trading, IT, distribution)
– But full freedom in investment decisions
Strong performance record– In varying investment environments
– Lower volatility than the benchmark
Innovative approach to portfolio construction – focus on limiting downside risk
Holistic approach to risk – focusing on Active Share
An investment boutique for all seasons
The Concentrated Alpha Equities team
2
Turning insight into alpha
Long only
For illustrative purposes only.
Another way of looking at transfer coefficient…
Long/Short
3
Flexibility to take short positions increases research impact
Source: UBS Global Asset Management. For illustrative purposes only. There are certain unique risks associated with the use of short sale strategies. For example, there is a risk that a client portfolio will incur a loss by subsequently buying a security at a higher price than the price at which the security was sold short.
Example: Research suggests meaningful underweight for stocks A and B
Stock A: 100 bps market weight
Stock B: 10 bps market weight
100
0
-100
-50
0
50
100
Market weight Long-Only and 130/30weight
Bas
is p
oin
ts
10 0
-90-100
-50
0
50
100
Market weight Long-Only weight 130/30 weight
Bas
is p
oin
ts
Stock Afalls by 50%
Stock Bfalls by 50%
Long-onlyexcess returns
130/30excess returns
+50 bps +50 bps
+5 bps +50 bps
+55 bps +100 bpsTotal
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Increasing the impact of time-tested researchEquity Unconstrained/130-30 strategy provides the flexibility to capitalize on overpriced and underpriced securities
US-ISource: UBS Global Asset Management. Data to 31 December 2012
The ability to short an overvalued security allows our investment insights to have a greater impact on the portfolio
Number of stocks Largest weight Smallest weight
MSCI Europe 436
Capitalisation: Top third 22 2.94% 0.92%
Capitalisation: Next third 65 0.88% 0.28%
Capitalisation: Bottom third 349 0.28% 0.01%
80% of stocks in MSCI Europe Index represent positions of 0.28% or less
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UBS European Opportunity Unconstrained Fund
Access to European Equity markets via a largely unconstrained portfolio1 across the capitalization spectrum
Benefit from a manager with substantial freedom to implement best ideas based on extensive research using varying approaches including the ability to hold short positions
Profit from a specialized boutique-like investment team with a proven investment process and successful track record
Note: For explanations on financial wordings please refer to the glossary at www.ubs.com/glossary or contact for further information your UBS client advisor1 Benchmark agnostic and ability to implement investment strategies such as short selling
Key benefits for investors
Investment goalsSeek to outperform MSCI Europe Index by 300+basis points per annum over a market cycle
How we aim to achieve this goalTypical active risk• Up to 15%
Number of equity holdings• Approximately 100 stocks
Normal exposures: • 100 – 150% long, 0 – 50% short
Typical Maximum
Individual stock weights
Longs 1.0 – 4.0% 10.0%
Shorts 0.5 – 1.5% 3.0%
Beta 0.8 – 1.2
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UBS European Opportunity UnconstrainedMonthly net gross exposure data to end March 2013
0
20
40
60
80
100
120
140
160
180
200
2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012
Sum of Long Sum of Short Sum of Gross Sum of Net
US-I, US-P (RU)
Source: UBS Global Asset Management
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Performance to 31 March 2013UBS (Lux) Equity SICAV – European Opportunity Unconstrained (EUR) P-acc
Net of fees Gross of fees
% return¹ (Mar 2013) Return MSCI Europe Value added Ranking2 Return MSCI Europe Value added
3 months 15.4 5.8 +9.6 1 16.0 5.8 +10.2 1 year 35.0 14.7 +20.3 1 37.8 14.7 +23.1 3 years 13.6 6.7 +6.9 1 16.0 6.7 +9.3 5 years 9.3 2.1 +7.2 1 11.6 2.1 +9.5 SI¹ 2.8 -2.4 +5.2 4.9 -2.4 +7.3
Portfolio characteristics 3 years
Beta 0.8 Active risk3 8.4% Volatility:4 Fund 12.3% Benchmark 12.7% Information ratio5 0.9
Source: UBS Global Asset ManagementNote: Past performance is not a guide to future results. See attached disclosure information. Portfolio characteristics are shown net of fees. The P-acc share class was launched on 14 June 2012.
Performance pre-IPO have been calculated using the existing share class data.1 Since inception 31 May 2007, annualised2 Rankings to 31 March 20133 Historical active risk is not a guide to the future. Active risk levels will vary according to market conditions and our views. Active risk is the standard deviation of the difference between the
monthly composite and benchmark returns, based on logarithmic returns. Active risk is annualised for periods greater than one year.4 Annualised standard deviation based on monthly logarithmic returns5 Information ratio is the arithmetic value added divided by the active risk. For periods greater than one year, annualised returns are used to calculate the value added and the active risk.
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Ranking development of European Opportunity UnconstrainedBased on rolling 3 year performance (June 2010 – March 2013)
Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13
Source: UBS Global Asset Management, Lipper LIM Note: These figures refer to the past. Past performance is not a reliable indicator of future results.
1st Quartile
2nd Quartile
3rd Quartile
4th Quartile
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Attractive Risk vs. ReturnMorningstar rating: UBS European Opportunity Unconstrained 5 year performance vs. Peers
-15
-10
-5
0
5
10
15
0 5 10 15 20 25 30 35 40
Risk % std dev
Ret
urn
%
Peers UBS European Opportunity Unconstrained P-acc EUR MSCI Europe
Source: Morningstar, data as of 31 March 2013Note: Based on Morningstar European Equity Large Blend Universe. Net of fees using P share class. Past performance is no guarantee of future results.
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Since Inception
85
90
95
100
105
110
115
85 90 95 100 105 110 115
Downside (%)
Up
sid
e (%
)
A look at upside performance/downside performance
Upside Market Capture Ratio – A measure of the manager’s performance in up markets relative to the market itself. A value of 110 suggests the manager performs ten percent better thanthe market when the market is up during the selected time period. The return for the market for each period is considered an up market if it is greater than or equal to zero. The Upside Capture Ratio is calculated by dividing the return of the manager during the up market periods by the return of the market during the same periods.Downside Market Capture Ratio – A measure of the manager’s performance in down markets relative to the market itself. A value of 90 suggests the manager’s loss is only nine tenths of the market’s loss during the selected time period. A market is considered down if the return for the benchmark is less than zero. The Downside Capture Ratio is calculated by dividing the return of the manager during the down market periods by the return of the market during the same periods.Source: UBS Global Asset ManagementAs of March 31, 2013.UBS Global AM European Opportunity Unconstrained Composite inception date of 31 May 2007.The returns shown above are based on currently available information and are subject to revision. Past performance is no guarantee of future results.Performance figures are gross of fees. Please see attached disclosure information.Returns greater than one year are annualized. Returns in EUR. Benchmark used for calculation is the MSCI Europe Index. Information is supplemental to the Pan European Concentrated Composite.
European Opportunity Unconstrained: 31 May 2007 to 31 March 2013
US-I, US-P (RU)
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European Opportunity Unconstrained Concentrated AlphaReturns driven by stock selection
Group Fund
weight(%) Index
weight(%) Return
(%) Stock
Selection(%) Sector
Allocation(%) Total(%)
Consumer Staples 22.0 14.2 64.7 9.7 4.5 14.2
Health Care 18.8 11.7 51.7 1.9 2.4 4.3
Consumer Discretionary 11.0 8.7 10.5 -5.6 2.7 -2.9
Energy 5.9 11.2 1.0 2.0 4.7 6.7
Telecom Services 3.3 6.2 -1.6 4.2 -0.6 3.6
Industrials 8.6 10.8 -5.2 -4.1 -0.7 -4.9
Materials 1.9 9.5 -7.2 0.9 -1.4 -0.4
Information Technology 10.5 3.0 -19.9 5.4 -1.9 3.5
Utilities -2.6 4.7 -33.0 3.9 2.2 6.1
Financials 20.5 20.0 -51.8 12.4 0.0 12.4
TOTAL 100.0 100.0 -9.6 31.2 12.8 43.9
Source: Wilshire, 31 May 2007 – 31 March 2013. Past performance is no guarantee of future results. Data not annualized. Returns in EUR
Proven stock selection driven process
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UBS European Opportunity UnconstrainedReturns in aggregate: shorts consistently underperformed
Source: Wilshire Gross of Fees in EUR. UBS Global Asset Management. Since inception date 31 May 2007. Data to 31 March 2013
24.8%
38.6%
45.8%
12.7%
-8.0% -6.4%
-11.3%
-27.9%
15.6%
23.9%
15.0%
-9.6%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
1 year 3 years 5 years Since Inception
Longs Shorts MSCI Europe
Section 2
Team, Process and Positioning
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Experienced team that delivers results Concentrated Alpha Equities – 17 years’ of experience and 15 years’ at UBS¹
Team
Leveraging UBS’sglobal resources
Source: UBS Global Asset Management. March 20131 Based on average for team shown
PortfolioManagement
EquitySpecialists
Technical Support/Execution
…and supported by 800+ individuals in global functions
Legal &Compliance
Risk Trading Distribution
Max Anderl
Rob Howard
April Robbins
Jeremy Leung
David Legg
Steve King
Alison Charles
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Investment process: Research + construction
For illustrative purposes only.
Portfolio Construction & Risk Management
• Bottom up stock selection process
• Disciplined yet flexible approach
• Benchmark agnostic
• High active share
• Holistic approach to risk
• Uncorrelated information sources
3 Circle Research Process
• Approx 100 stocks
Client portfolio
Quantitative
Fundamental
Qualitative
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Company A – long
Source: UBS Global Asset Management
Quantitative research
Qualitative research
Portfolio holding
Above median alpha versus the market and sector High FCF generation Good downside protection Attractive yield
Excellent momentum and quality reflected in average value
Diversified revenues via vaccine and consumer care business Decentralising R&D department over last 5-10 years Shareholder friendly capital allocation Cost controls in place Significant and growing EM exposure
Fundamental research
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Company B – short
Source: UBS Global Asset Management
Quantitative research
Qualitative research
Portfolio holding
Expensively valued using HOLT Unattractive on classical indicators Below cost of capital returns
Unattractive valuation, low quality and weak momentum
Large capacity additions destroyed return of industry Unsustainable dividend Weak balance sheet
Fundamental research
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…a holistic approachSource: UBS Global Asset ManagementNote: Please note that historical active risk is not a guide to the future. Active risk levels will vary according to market conditions and our views. 1 31 May 2007
Taking risk when rewarded for it
Awareness of low volatility and leverage
Active risk of European Opportunity Unconstrained 7.7% since inception¹ to 31 March 2013
Active share with index averaged 115% for European Opportunity Unconstrained as at 31 March 2013
ResultsRisk parameters
Risk systems
Price paid
Corporate Governance
Leverage and industry structure
Use of uncorrelated information sources
How we deal with risk…
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Consistently high active share
0
25
50
75
100
125
150
Jun-07
Oct-07
Feb-08
Jun-08
Oct-08
Feb-09
Jun-09
Oct-09
Feb-10
Jun-10
Oct-10
Feb-11
Jun-11
Oct-11
Feb-12
Jun-12
Oct-12
Feb-13
Act
ive
shar
e (%
)
European Opportunity Unconstrained vs. MSCI Europe
As at 31 March 2013
Source: UBS Global Asset Management. Data to 31 March 20131 Cremers, Martijn and Petajisto, Antti, How Active is Your Fund Manager? A New Measure That Predicts Performance (March 31, 2009). AFA 2007 Chicago Meetings Paper;
EFA 2007 Ljubljana Meetings Paper; Yale ICF Working Paper No. 06-14. Available at SSRN: http://ssrn.com/abstract=891719 or http://dx.doi.org/10.2139/ssrn.891719
Active Share measures the share of portfolio holdings that differ from the benchmark
Empirical studies have shown the highest Active Share funds significantly outperform their benchmarks and exhibit strong performance persistence¹
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UBS (Lux) Equity SICAV –European Opportunity Unconstrained (EUR) P-acc
Top 10 holdings by stock (%) GlaxoSmithKline 5.3% Novartis 4.1% Roche 3.3% Unilever 2.8% Reckitt Benckiser 2.8% Bayer 2.8% Sampo 2.6% SAP 2.6% UCB 2.4% British American Tobacco 2.4%
Source: UBS Global Asset Management
Holdings by investment domicile
Active positions by industry group (in %)
Portfolio structure – 31 March 2013
11.4
-3.9
-7.1
-7.2
-9.2
-13.9
5.1
12.0
6.9
5.1
-20 -15 -10 -5 0 5 10 15
Insurance
Pharms & Biotech
Food, Beverage & Tobacco
Household & Personal
Software & Services
Telecom Services
Banks
Utilities
Energy
Materials
Germany16.9%
Netherlands7.1%
Switzerland12.9%
UK47.4%
Ireland7.6%
Others8.1%
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Summary
An independent investment boutique with…
Backing of a strong organisation
Innovative investment process
Strong and consistent performance in varying environments
Lower volatility than the benchmark
Good upside and downside capture
High Active Share and holistic approach to risk
A long term client base of sophisticated investors
An investment boutique for all seasons
Concentrated Alpha
Appendix A
Additional Information
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Global and multi-faceted approach
…but specific targeting is key Source: UBS Global Asset Management. December 2012
Diverse information sources are necessary…
More than 14,000 companies in Holt Selective internal & external analysts
More than 4,000 quantitative profiles of global companies, biweekly refreshed data
From 5 different data providers
More than 8,000 companies covered by Governance Metrics and ISS; more than 300,000 individuals covered by Boardex
Contacts with global, US, Asian and European specific strategists
Contacts with bond strategists and asset allocators and corporate activists
Exchange of information with buy side investors
Fundamental
QuantitativeQualitative
PortfolioHolding
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As of March 31, 2013.UBS Global AM European Opportunity Unconstrained Composite inception date of May 31, 2007.The returns shown above are based on currently available information and are subject to revision. Past performance is no guarantee of future results.Performance figures are gross of fees. Please see attached disclosure information.Excess returns calculated by subtracting benchmark returns from portfolio returns. Returns greater than one year annualized. Returns in EUR. Benchmark used for excess return calculation is the MSCI Europe index. Source: Factset/MSCI, GCS
UBS European Opportunity Unconstrained
-60%
-40%
-20%
0%
20%
40%
60%
May-08 May-09 May-10 May-11 May-12
% R
etu
rn B
ench
mar
k
-30%
-20%
-10%
0%
10%
20%
30%
% R
ollin
g 1-year alp
ha (fu
nd
)
Rolling 1-year benchmark return Rolling 1-year alpha: UBS European Opportunity Unconstrained strategy
Value added in up and down markets
Rolling one-year excess returns since inception
25
UBS European Opportunity Unconstrained
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
May-08 May-09 May-10 May-11 May-12
% R
etu
rn
Value outperforms Growth Growth outperforms Value Rolling 1 year alpha: UBS European Opportunity Unconstrained
Value added over style cycles
As of March 31, 2013.UBS Global AM European Opportunity Unconstrained Composite inception date of May 31, 2007.The returns shown above are based on currently available information and are subject to revision. Past performance is no guarantee of future results.Performance figures are gross of fees. Please see attached disclosure information.Excess returns calculated by subtracting benchmark returns from portfolio returns. Returns greater than one year annualized. Returns in EUR. Benchmark used for excess return calculation is the MSCI Europe index. Growth performance is measured by the MSCI Europe Growth Index. Value performance is measured by the MSCI Europe Value Index.Source: Factset/MSCI, GCS
Rolling one-year excess returns since inception
Value Growth
% months outperformed 48% 68%
Average value added per month 0.15% 0.82%
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How we view your portfolio onlineEuropean Opportunity Unconstrained – measures active positions – as at 31 March 2013
Major contributors to risk using stock level, sectoral and risk model factors
Headline active risk: 10.0% (key risk measure)
Risk analysis using our internal risk model
Exposures to market cap weighted sectors/countries/size factor portfolios
Source: UBS Global Asset ManagementNote: Please note that historical active risk is not a guide to the future. Active risk levels will vary according to market conditions and our views.
Further analysis drills deeper into the portfolio
Beta: 0.7 (sensitivity to market)
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Maximilian Anderl, CFA Head of Concentrated Alpha EquityExecutive Director
Maximilian Anderl is Head of Concentrated Alpha Equity and is the lead portfolio manager for the Global and European Concentrated Alpha long only and long / short strategies.
Maximilian has worked on the Concentrated Alpha team and its distinctive approach and strategies since its inception in 2004, becoming head of that team in January 2011.
Maximilian joined the European Equity Team in London in 2002, having joined UBS Global Asset Management, Zurich, in 2000 as an equity fund manager. In that role he was responsible for the retail funds and European client mandates.
Prior to joining UBS, Maximilian worked in academic research, university teaching, research and development and corporate finance for the pharmaceutical industry.
Maximilian is a Regular Member of the CFA Society of the UK and the CFA Institute.
Years of investment industry experience: 14
Education: University of Innsbruck (Austria), MS; University of St Gallen (Switzerland) and Stockholm School of Economics (Sweden), Lic.oec.HSG
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Jeremy Leung, CFAPortfolio Manager – Concentrated Alpha Equity Director
Years of investment industry experience: 8
Education: Tufts University (US), BS; London School of Economics and Political Science (UK), MSc
Jeremy Leung is a member of the Concentrated Alpha Equity team. He is responsible forsupporting the investment process and capability management for the team.
Prior to undertaking his role in March 2011, Jeremy was a Quantitative Analyst within the Equities Group. He was responsible for conducting quantitative and fundamental research for the Group’s investment teams. He also worked extensively on the Group’s fundamental equity valuation model.
Prior to joining UBS in 2007, Jeremy worked as a consultant for FactSet Research Systems. He was responsible for providing advice and support to large investment managers across Europe on various analytical tools for investing.
Jeremy is a Regular Member of the CFA Society of the UK and the CFA Institute.
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Performance: European Opportunity Unconstrained
GIPS Disclosure
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Disclaimer
For marketing and information purposes by UBS. For professional investors only. Representative in Switzerland for UBS funds establishedunder foreign law: UBS Fund Management (Switzerland) AG, P.O. Box, CH-4002 Basel. Paying agent: UBS AG. Prospectuses, simplifiedprospectuses, the articles of association or the management regulations as well as annual and semi-annual reports of UBS funds are availablefree of charge from UBS AG, P.O. Box, CH-4002 Basel or from UBS Fund Management (Switzerland) AG, P.O. Box, CH-4002 Basel. UBS Funds under Swiss and Luxembourg law. Before investing in a product please read the latest prospectus carefully and thoroughly. Thisdocument is for distribution only under such circumstances as may be permitted by applicable law. It was written without reference to anyspecific or future investment objective, financial or tax situation or requirement on the part of a particular individual or group. The documentis for information purposes only and is not intended to be construed as a solicitation or an invitation to make an offer, to conclude a contract, or to buy or sell any securities or related financial instruments. The products or securities described herein may not be eligible forsale in all jurisdictions or to certain categories of investors. The information and opinions contained in this document have been compiled orarrived at based upon information obtained from sources believed to be reliable and in good faith, but is not guaranteed as being accurate, nor is it a complete statement or summary of the securities, markets or developments referred to in the document. The details and opinionscontained in this document are provided by UBS without any guarantee or warranty and are for the recipient's personal use and informationpurposes only. Past performance of investments (whether simulated or actual) is not necessarily an indicator of future results. Theperformance shown does not take account of any commissions and costs charged when subscribing to and redeeming units. Commissionsand costs have a negative impact on performance. Should the currency of a financial product or service not match your reference currency, performance may rise or fall due to currency fluctuations. All such information and opinions are subject to change without notice. UBS AG and / or other members of the UBS Group may have a position in and may make a purchase and / or sale of any of the securities or otherfinancial instruments mentioned in this document. This document may not be reproduced, redistributed or republished for any purposewithout the written permission of UBS AG. This document contains statements that constitute "forward-looking statements", including, butnot limited to, statements relating to our future business development. While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. Source for all data and charts (if not indicated otherwise): UBS Global Asset Management. © UBS 2013. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rightsreserved.