global market outlook and asset allocation views - arab … events/workshop investment... · global...

Global Market Outlook and Asset Allocation Views

Marco Rateitschak, CAIA, FRMDirector, Middle East & Sovereigns

For professional investors only

25 March 2010

1

rateitma [printed: March 19, 2010 4:30 PM] [saved: March 17, 2010 6:48 PM] C:\Documents and Settings\rateitma\Desktop\Trip Prep March 22\100317_UBS_presentation_Arab_Re.ppt

Table of Contents

SECTION 1 UBS – Overview

SECTION 2 Global Market Outlook

SECTION 3 Asset Allocation Views

SECTION 4 Implications for the Insurance Industry

SECTION 5 Conclusions

SECTION 6 Appendix

SECTION 1

UBS – Overview

3


UBS – A leading financial services firm

UBS

USD 2.2 trillion¹ invested assets

Over 65,000 employees

Wealth Management

Americas

Global Asset Management

InvestmentBank

Wealth Management & Swiss Bank

Note: As at 30 September 20091 Worldwide figures (rounded)

4


Invested assets by asset class

Total institutional assetsUSD 334 billion

Total wholesale intermediary assets USD 229 billion

Note: Assets represented are totals for the UBS Global Asset Management division worldwide Source: UBS Global Asset Management1 Alternative includes Alternative and Quantitative Investments, Infrastructure and Private Markets2 Multi asset includes asset allocation, currency and risk management. These are part of Global Investment Solutions

USD 563 billion of invested assets as at 31 December 2009

Equities27%

Fixed income21%

Money market

13%

Multi asset²18%

Real estate7%

Alternative¹14%

Fixed income20%

Money market

28%

Equities22%

Multi asset2

23%

Real estate7%

5


Investment capabilities and services

Equities FixedIncome

Alternative & Quantitative Investments

Global RealEstate

Global Investment Solutions

FundServices

Infrastructure and Private Equity

Core/Value

Global

Country & regional

Emerging markets

Specialist

Long/Short

HALO

Growth Investors

Global

Country & regional

Structured Equities

Systematic Alpha

Quantitative Equities

Index & Portfolio Solutions

Global

Country & regional

Sector specific

Emerging markets

High yield

Structured credit

Liquidity/short duration

Indexed

Single manager hedge funds

Multi-manager hedge funds

Quantitative

Infrastructure fund of funds

Private equity fund of funds

Active commodities, multi-manager

Global

Country & regional

Private strategies

Real estate securities

Agriculture

Global

Country & regional

Asset allocation

Currency management

Return & risk targeted

Structured portfolios

Risk management & advisory services

Alternative funds

Investment funds

Direct infrastructure investment

Global & regional

Note: As at December 2009

Full range of asset strategies

SECTION 2

Global Market Outlook

7


US-I

Markets have shown clear signs of stabilisationFear and distress in the financial markets as measured bydramatic change in two-year swap spreads

0

40

80

120

160

200

Feb00

Aug00

Feb01

Aug01

Feb02

Aug02

Feb03

Aug03

Feb04

Aug04

Feb05

Aug05

Feb06

Aug06

Feb07

Aug07

Feb08

Aug08

Feb09

Aug09

Feb10

Sp

rea

d (

bp

s)

2-Year Swap Spreads

Source: Barclays Capital Live, As of February 28, 2010.

2-year Swap spreads, in basis points

8


…which helped drive the initial rally in risk assets

Equities +65% Relief rally Earnings & economic data-beating rally

650

750

850

950

1050

1150

Feb

-09

Ap

r-09

Jun

-09

Au

g-0

9

Oct

-09

Dec

-09

S&P 500

650750850950

10501150125013501450

Dec

-07

Ap

r-08

Au

g-0

8

Dec

-08

Ap

r-09

Au

g-0

9

S&P 500

The two stages of the equity rally

Source: UBS Global Asset Management, Datastream, 31 December 20091 S&P 500 return from 9 March 2009 – 31 December 2009

US-I

9


(2)

0

2

4

6

8

10

Q207

Q407

Q208

Q408

Q209

Q409

Q210

Q410

Q211

Q411

Scenario projections

Economic Forecast – 3 Scenarios1. Baseline scenario: Weak recovery to a lower trend

(10)

(5)

0

5

10

15

Q207

Q407

Q208

Q408

Q209

Q409

Q210

Q410

Q211

Q411


M4 BRICs

CPI inflation in baseline scenarioHeadline CPI inflation year-on-year, quarterly

Note: The above scenario is one of three scenarios considered by the UBS Global Asset Management Cyclical Market Forum. The information is presented as an illustration of the issues discussed during the Cyclical Market Forum and is not intended to be a forecast.

Source: Bloomberg, IMF, UBS Global Asset Management

GDP growth in baseline scenarioGDP growth quarter-on-quarter p.a.

10


(10)

(5)

0

5

10

15

Q207

Q407

Q208

Q408

Q209

Q409

Q210

Q410

Q211

Q411


Economic Forecast – 3 Scenarios2. Risk Scenario: Policy overshoot leads to higher inflation

Note: The above scenario is one of three scenarios considered by the UBS Global Asset Management Cyclical Market Forum. The information is presented as an illustration of the issues discussed during the Cyclical Market Forum and is not intended to be a forecast.


M4 BRICs

(2)

0

2

4

6

8

10

Q207

Q407

Q208

Q408

Q209

Q409

Q210

Q410

Q211

Q411


CPI inflation in risk scenarioHeadline CPI inflation year-on-year, quarterly

GDP growth in risk scenarioGDP growth quarter-on-quarter p.a.

11


(10)

(5)

0

5

10

15

Q207

Q407

Q208

Q408

Q209

Q409

Q210

Q410

Q211

Q411


Economic Forecast – 3 Scenarios3. Outlier Scenario: Double dip recession and a return of deflation risk

GDP growth in outlier scenarioGDP growth quarter-on-quarter p.a.

M4 BRICsNote: The above scenario is one of three scenarios considered by the UBS Global

Asset Management Cyclical Market Forum. The information is presented as an illustration of the issues discussed during the Cyclical Market Forum and is not intended to be a forecast.


(2)

0

2

4

6

8

10

Q207

Q407

Q208

Q408

Q209

Q409

Q210

Q410

Q211

Q411


CPI inflation in outlier scenarioHeadline CPI inflation year-on-year, quarterly

US-I

SECTION 3

Asset Allocation Views

13


Attractiveness of equity markets

-60

-50

-40

-30

-20

-10

0

10

20

30

40

50

60

70

1996 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 2010

Pric

e/V

alu

e D

iscr

epan

cy (i

n %

)

Source: UBS Global Asset Management proprietary valuation model. The S&P 500 is a capitalization-weighted index including 500 leading companies in leading industries of the U.S. economy, as compiled by Standard and Poor’s. The MSCI World Ex-US is a capitalization-weighted index of the major stocks of the developed equity markets of the world, excluding the US, as compiled by Morgan Stanley Capital International. The MSCI EME is a capitalization-weighted index of the major stocks of the developing equity markets of the world, as compiled by Morgan Stanley Capital International.Valuation estimates based on normalized earnings and growth rates

Fair value range

Overpriced

Underpriced

Over – and undervaluation31 December 1995 – 28 February 2010

US-I

US Equity = S&P 500

Global (Ex-US) Equity = MSCI World Ex-US

EM Equity = MSCI EME

14


Equity market valuations (price/value)28 February 2010

US-I

-14.1

16.9

-23.8-31.3

-18.6-6.5

-16.1

-12.0

-20.3

10.7-21.4

-39.7-25.3

-53.1

-28.8

-16.3

-20.3

30.6

-60 -50 -40 -30 -20 -10 0 10 20 30

World (Developed)

North AmericaUS

Canada

World ex US (Developed)UK

FranceGermany

SwitzerlandJapan

Australia

Emerging MarketsBrazilRussiaIndia

ChinaKorea

Taiwan

Price/value (in %)

Overvalued

Undervalued

Source: UBS Global Asset Management. Based on MSCI indices except US which is based on S&P 500. The price/value discrepancies are in local currency terms. Valuation estimates based on normalized earnings and growth rates.

15


-20

-10

0

10

20

30

40

50

Euro

pe

ex U

K

Un

ited

Sta

tes

MSC

I W

orl

d

Au

tral

ia &

NZ

UK

Jap

an

Dev

elo

ped

Asi

a

UB

S G

lob

al A

sset

Man

agem

ent

Alp

has

Wide valuations spreads

Note: Alphas are a measurement of the gap between price/intrinsic value of a stock. Based on MSCI World Index data as at 31 December 2009. Source: UBS Global Asset Management

Fair value

Cheap

Expensive

Average Alpha

◊Average Alpha

◊

MSCI World Index by regionMSCI World Index by sector

Stock picking opportunities

US-I, EMK, 7-13-09

-20

-10

0

10

20

30

40

50

Hea

lth

care

Tele

com

s

Fin

anci

als

Uti

liti

es

Co

nsu

mer

sta

ple

s

MSC

I W

orl

d

Ind

ust

rial

s

Tech

no

log

y

Ener

gy

Co

nsu

mer

dis

cret

ion

ary

Mat

eria

lsUB

S G

lob

al A

sset

Man

agem

ent

spre

ad i

n A

lph

as

16


Global bond valuations (price/value)

Source: UBS Global Asset ManagementValuation estimates based on normalized earnings and growth rates

28 February 2010

US-I

2.9

2.8

1.6

1.5

2.1

2.0

3.4

7.3

10.2

0.2

4.5

5.0

3.3

1.7

0.0 2.0 4.0 6.0 8.0 10.0 12.0

World

World (Ex-US)

North America

Canada

US

Europe (Ex-UK)

EMU

Other Europe

Denmark

Sweden

Switzerland

UK

Japan

Australia

Price/value (in %)

Overvalued

17


Attractiveness of investment grade bond markets

Source: UBS Global Asset Management proprietary valuation modelValuation estimates based on normalized earnings and growth rates


US-I

Overpriced

Underpriced

Fair value range

-9

-6

-3

0

3

6

9

1996 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 2010

Pric

e/V

alu

e D

iscr

epan

cy (i

n %

)

US Bond = CitiGroup Treasury Index

Global (Ex-US) Bond = Citigroup Global (Ex-US) Gov’t Bond

18


-500,000

0

500,000

1,000,000

1,500,000

2,000,000

1980 1986 1991 1997 2003 2009

-50,000

0

50,000

100,000

150,000

200,000US net issuance ofdebt (USD m) (LHS)

UK net issuance ofdebt (£m) (RHS)

Sovereign debt How sustainable is the increase in government debt levels and how long will the market absorb new debt at such low yields?

0

20

40

60

80

100

120

140

160

1980 1985 1990 1995 1999 2004 2009 2014

FranceGermanyJapanUnited KingdomUnited States

Source: Annual net bond issuance: Datastream. *UK data to 30/9/09, US data to 31/12/09Net debt (as % of GDP): IMF forecasts for all countries in 2009 and for Japan in 2008

Net debt (as % of GDP)Net bond issuance

US-I

19


Attractiveness of non-investment grade bond markets

Source: UBS Global Asset Management proprietary valuation modelValuation estimates based on normalized earnings and growth rates


US-I

Overpriced

Fair value range

Underpriced

-50

-40

-30

-20

-10

0

10

20

1996 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 2010

Pric

e/V

alu

e D

iscr

epan

cy (i

n %

)

EM Debt = JP Morgan EMBI Global

US High Yield = Merrill Lynch Master Index

20


Asset class and currency valuations (price/value)

Source: UBS Global Asset ManagementValuation estimates based on normalized earnings and growth rates

28 February 2010

US-I

11.2

-1.40.0

9.65.6

13.0

18.713.3

-2.6

0.4

-9.45.0

2.8-20.3

-23.8-16.3

12.9

-40 -30 -20 -10 0 10 20 30

Japanese yenSingapore Dollar

U.S. dollarSwiss Franc

Swedish KronaCanadian dollar

EMU euroAustralian dollar

New Zealand dollarBritish pound

Emerging Market DebtHigh Yield Bonds

Global (ex-U.S.) BondsU.S. Bonds

Emerging Market EquitiesGlobal (ex-U.S.) Equities

U.S. Equities

Price / value (in %)

Overvalued

Undervalued

21


Global Securities Portfolio: Current balanced strategy

26.4%

32.3%

9.3%

12.5%

9.5%

0.0%

3.0%

7.0%

27.9%

28.8%

8.3%

15.0%

15.0%

2.0%

3.0%

0.0%

US Equities

Global (Ex-US) Equities

Emerging Markets Equities

US Bonds

Global (Ex-US) Bonds

Emerging Markets Debt

High Yield Bonds

Cash Equivalents

Portfolio Strategy

GSMI Benchmark

The Strategy generally expects to make its active asset allocation based on these asset ranges. The Strategy is actively managed: the Strategy may exceed these asset ranges and modify them in the future. In addition, the Strategy can maintain a cash equivalent level ranging from 0-50% of the Strategy’s asset allocation.1 Note: The Global Securities Markets Index (GSMI) Index is the benchmark for the Global Securities Composite and the Global Allocation Fund. It is an unmanaged index compiled by UBS Global Asset Management. Prior to 30 November 2003, the 40% US equity portion of the benchmark was constructed using the Wilshire 5000 Equity Index. Prior to May 1, 2009, the equity portion of the benchmark was constructed with 40% Russell 3000 Index, 22% MSCI World ex USA (Free) Index, and 3% MSCI Emerging Markets Free Index, and the US and Global fixed income portion was constructed with 21% Citigroup Broad Investment Grade (BIG) Bond Index and 9% Citigroup World Government bond ex-US Index. As of May 1, 2009, the GSMI is as follows: 65% Morgan Stanley All Country World Index, 15% Citigroup World Government bond ex-US Index, 15% Citigroup World Government Bond US Index, 3% Merrill Lynch High Yield Cash Pay Constrained Index, and 2% J.P. Morgan EMBI Global. Benchmark date as of 31 January 2010

US-I (RU), US-P

Global Equities Range0% 90%

Global Bonds & Cash Range10% 100%

Equities strategy positioning vs. internal benchmark

Bonds and cash strategy positioning vs. internal benchmark

Current Allocation

32%

28 February 2010

68%

1

22


Market exposure1

28 February 2010

US-I

43.0%

22.4%

0.0%

6.1%

12.7%

-3.0%

0.0%

27.0%

5.0%

0.0%

0.0%

-7.5%

0.0%

4.0%

20.5%

4.8%

32.5%

8.0%

-25% -15% -5% 5% 15% 25% 35% 45% 55% 65%

Total equity

US large cap equity

US small cap equity

UK equity

Europe equity

Japan equity

Emerging market equity

Other developed equity

Total bonds

Investment grade credit

High yield bonds

Emerging market debt

Real return bonds

Sovereign bonds

Global/o ther bonds

Convertible bonds

Real estate

Cash and hedge offsets

ShortLong

Total equity

Total bonds

Cash and hedge offsets

Information is representative of a specific DAS institutional portfolio. Information will vary slightly among the various investment options within the DAS strategy.Supplemental information to the DAS Composite 1 The market exposure results from holdings of physical assets, futures, options and swap positions. Source: UBS Global Asset Management.

Real Estate

Dynamic Alpha Strategies: Current absolute return strategy

SECTION 4

Implications for the Insurance Industry

24


A difficult environment for the insurance industry

Conclusion for strategic Asset-Liability Management

Example Europe: Producing attractive investment returns at given risk (capital) levels are key

Efficient use of regulatory and economic capital a must

Strategic management of interest risk a core competence to safeguard targeted returns

Attractive ROIs are key (attract life premiums /avoid lapse risk / retain capital base)

Additional returns can only be justified through suitable risk minimising strategies

2

3

4

1

Cause: market pressure and regulatory changes

Effect: less capacity for risk, yet strong demand for return

25


Insurance investment requirements

Insurance P&L and B/S

Risk

Regulatory

Return Local & Solvency Accounting

Full Range of Asset Strategies

Direct

Fund of Fund

Strategy Equities Fixed Income Real Estate Infrastructure Private Equity Hedge Funds

Strategies to exhibit regulatory fit with suitable risk andportfolio correlation

26


Economic Risk - Reduce volatility- Asset diversification- Liquidity risk vs yield

Inflation protection- Real assets- Recovery curve- Direct vs indirect hedge

ALM Considerations - Duration- Current yield- Downside protection

Investment topics driven by current client requirements

Current investment themes in the insurance sector

2

4

3

Regulatory Issues - Solvency capital- Stress testing- Duration credit

1

SECTION 5

Conclusions

28


Economic Outlook

♦ Global economy is visibly stabilizing and underlying fundamentals are becoming more robust

♦ Improvement in final demand is a necessary condition to avoid a set-back in H2 2010

♦ Markets remain vulnerable to short term shocks and volatility is expected to remain elevated

♦ Investment opportunities, particularly in equity markets remain, but are more selective

♦ Prices which are observed reaching “normal” levels should be interpreted and observed with considerable caution

January 2010 Source: UBS Global Asset Management

Summary views

29


Asset Allocation and Currency Summary views

UnattractiveAttractive Neutral

US

Bo

nd

sEq

uit

ies

Cu

rre

nci

es

Emerging

Ex-US

SEK EUR

JPY

USD GBP

Emerging

Sovereign

Note: As of 31 December 2009Based on UBS Global Asset Management views

High Yield

Investment Grade

Source: UBS Global Asset Management, as of December 31, 2009

SECTION 6

Appendix

31


UBS Global Asset Management

♦ UBS Global Asset Management is a large scale asset manager with well diversified businesses across regions, capabilities and distribution channels

♦ We provide a wide range of traditional, alternative, real estate, infrastructure and private equity investment capabilities and fund administration services

♦ We have around 3,500 employees, located in 25 countries

♦ Invested assets total some CHF 583 billion (EUR 384 billion, GBP 352 billion, USD 562 billion).

♦ We are one of the world’s leading asset managers, as well as a leading fund house in Europe, the largest mutual fund manager in Switzerland1 and the largest global hedge fund of funds manager2

Overview

Note: As at 30 September 20091 Source: Lipper FundFlows Insight Report (as at 30 September 2009)2 Source: InvestHedge Billion Dollar Club (September 2009)

32


Full range of asset strategiesAsset strategy selection supported by industry specific expertise

Insurance Specific Services

Financial Industry Assets (FIA) Global Investment Solutions (GIS)

Full Range of Asset Strategies

Alternatives

Global/ regional/ Emerging

Liability driven

Sector & credit

Cash management

Global/ regional

Private strategies

Agriculture

Real estate Securities

Single / Multi manager

Hedge Funds single & multi manager

Private equity, single & multi manager

Multi-strategy

Quantitative

Direct investments

Single / multi manager

Listed securities

Long/ short

Global/ Regional/ Emerging

Social responsible

Indexed and enhanced ind

Note: As at September 20091 Worldwide figures (rounded)

InfrastructureReal EstateFixed IncomeEquities

♦ CHF 146 billions AuM

♦ Proprietary research (more than 100 analysts) and risk management

♦ Between 14 and 11 years average investment experience across teams

♦ Global infrastructure providing services and local delivery


♦ Buy side credit research 20+ credit analysts

♦ Long standing experience of portfolio managers with over 14 years of investment experience


♦ Investing in real estate for over 65 years

♦ Global platform able to leverage UBS’s large network

♦ Global diversification possible via “ex-home market” investment

♦ Single fund and fund of funds available

♦ UBS infrastructure single fund raised CHF 1.5 billions in 2008

♦ FoF: conservative investment strategy with 5 years track record

♦ Single and fund of hedge funds available

♦ 1st tier HF manager with USD 36 bn AuM

♦ UBS HF 1st quartile performance in 2009

♦ Single and fund of private equity funds available

♦ PE: consistent 1st

quartile track record

Integrated strategiesAsset and liability investment solutions

Investment outsourcing solutions

Global and regional balanced portfolios

Global tactical asset allocation solutions

Dynamic alpha strategies

33


FIA: Insurance and asset management expertise

1 Economic Value Added

2 Return on Risk-adjusted capital

InvestmentRationale

1

EconomicRationale

3

AccountingRationale

4

RegulatoryRationale

Liquidity-Rationale

2

5

Local investment restrictionsSolvency capital requirementsRequirements of rating agencies

Classification of assetsManagement of B/S & P&L volatilityConsolidation issues

Impact on EVA1 or RORAC2

Risk management and transferAsset allocation & diversificationDuration of liabilities

Quality of asset manager Track record & performance Portfolio fit

Cash flow profile of assetsLiquidity of assetsRisk & duration of liability book

Applied know how – the key for high level client discussions and best fit offerings

Scope extends beyond traditional AM criteria UBS capabilities

Team of alternative & insurance experts provide suitable products

Products optimized resupervisory and

solvency requirements

Proprietary models:(solvency) capital efficiency

Products optimized retax & accounting treatment

Unique yield and liquidity enhancement

34

oreillva [printed: ____] [saved: July 31, 2007 2:12 PM] G:\Graphics\GPS work in progress\Vanessa\diana\Europeex-UKEquityPerformance[1].ppt

Schedule of composite performance

The composite's past performance is not necessarily an indication of how it will perform in the future.

UBS Global Asset Management (the Firm) has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS®). UBS Global Asset Management has been verified for the periods from January 1, 2002 through December 31, 2007 by Ernst & Young. A copy of the verification report is available upon request.

1. Global Securities Composite - A composite of accounts that are diversified across the equity and fixed income markets of the US and a broad range of other countries. Futures are used to help implement our top down country allocation typically with a negligible net exposure. The benchmark, Global Securities Market Index, is produced internally from generally available indices. It is a blended index incorporating percentages of various indices across all of those capital markets. The percentages may be periodically re-weighted to reflect changing capital market expectations. Prior to March 31, 1984, the Global Securities Composite was a subsector of the UBS Multi-Asset Portfolio Collective Fund (MAP) excluding the following fund holdings: Institutional Venture Capital I, Institutional Venture Capital II, Fund F Real Estate Fund and the UBS US High Yield Bond Collective Fund, and represents the equity holdings and frictional cash of the portfolio.

2. A list of all Firm composites is available upon request. The Firm is defined as all actively and passively managed institutional and retail accounts of UBS Global Asset Management (the Firm). The effective date of the Firm is January 1, 2002. Prior to that, the Firm originally consisted of the following entities: UBS Global Asset Management (Americas) Inc., UBS Global Asset Management Trust Company, UBS Realty Investors LLC & UBS AgriVest LLC. As of 2001, the Firm assets reflect the integration of the investment management platform of UBS Global Asset Management (UK) Ltd and UBS Global Asset Management International Ltd into the existing Firm definition. Each of the entities comprising the Firm definition is an affiliate of UBS AG. Prior to January 1, 1993, certain terminated accounts are not included.

3. Composites consisting of more than one portfolio are asset weighted by beginning-of-period asset values. Investment results are time-weighted performance calculations representing total return. Returns are calculated using geometric linking of monthly returns. Composites are valued at least monthly, taking into account cash flows. All realized and unrealized capital gains and losses, as well as all dividends and interest from investments and cash balances, are included. Interest income from fixed income securities is accrued, and equity dividends are accrued as of the ex-dividend date. Investment transactions are accounted for on a trade date basis. Sources of foreign exchange rates may be different between accounts in the composite as well as the benchmark. The rates of return are presented both net and gross of investment management fees. Gross of fee returns are calculated net of transaction fees and other trading expenses. Net of fee performance reflects the deduction of the highest fee charged, as described in Part II of Form ADV. The highest fee charged for accounts of this type is 0.80% since January 2006, 0.85% from July 1993 to December 2005, 0.70% from January 1989 to June 1993 and 0.60% prior to January 1989. There are additional transaction fees upon entry and exit from the strategy. Due to the graduated nature of fees, as account size increases, the annual percentage fee will decline. Net of fee returns are calculated by geometrically deducting the deannualized highest annual management fee from each monthly gross return and geometrically linking the monthly returns for each period. Additional information regarding the firm’s policies and procedures for calculating and reporting performance returns is available upon request.

4. Results include all actual fee-paying, discretionary client portfolios including those clients no longer with the Firm. Portfolios are included in the composite beginning with the first full month of performance to the present or to the cessation of the client’s relationship with the Firm. Terminated accounts are included through the last full month in which they were fully invested, and no alterations of composites have occurred due to changes in personnel.

5. Composite dispersion represents the consistency of the Firm’s composite performance results with respect to the individual portfolio returns within the composite. Presented is the asset-weighted dispersion (standard deviation) of the portfolios within the composite. Only portfolios in the composite for each full time period are included in the dispersion calculation, and no dispersion is presented for composites consisting of only a single portfolio.

Composite Performance: Global Securities Composite (January 1, 1982 through December 31, 2008) Amounts and returns expressed in USD

Year

Gross Asset- Weighted Return (%)

Benchmark Return (%)

Net Asset- Weighted Return (%)

# of Portfolios End of Period

Total Composite Assets End of Period (millions)

Asset- Weighted Dispersion (%)

Composite Assets as % of Firm Assets Firm Assets (billions)

1982 24.37 16.86 23.64 1 35 NA 0.86 4 1983 18.19 18.43 17.50 1 83 NA 1.63 5 1984 7.90 6.02 7.26 3 133 NA 2.22 6 1985 26.10 32.91 25.36 3 237 0.25 3.31 7 1986 19.66 24.78 18.95 3 233 0.24 0.72 32 1987 14.06 9.92 13.39 3 274 0.01 0.73 37 1988 15.82 15.96 15.14 3 502 0.23 1.23 41 1989 19.20 19.36 18.38 3 780 0.09 1.65 47 1990 4.92 -3.56 4.19 3 942 0.01 1.92 49 1991 23.07 23.97 22.23 3 122 0.13 0.25 50 1992 9.05 4.47 8.30 1 451 NA 0.80 56 1993 12.04 14.46 11.19 2 784 NA 1.41 56 1994 -0.76 1.42 -1.60 3 1,038 0.09 1.47 71 1995 26.03 24.70 24.99 2 1,187 NA 1.44 82 1996 15.25 12.53 14.29 2 2,017 0.47 2.30 88 1997 11.83 14.30 10.90 2 1,843 0.19 1.91 96 1998 9.78 16.45 8.86 4 2,128 0.29 1.97 108 1999 2.69 16.85 1.82 4 1,805 1.20 1.76 103 2000 6.62 -6.11 5.72 2 714 1.10 0.84 85 2001 3.37 -7.50 2.50 1 552 NA 0.47 117 2002 -2.31 -8.27 -3.14 1 661 NA 0.22 305 2003 29.87 26.48 28.80 2 1,037 NA 0.24 431 2004 15.10 12.87 14.13 3 1,736 0.33 0.35 500 2005 7.36 6.51 6.45 5 2,950 0.19 0.54 543 2006 15.02 14.84 14.11 4 3,666 0.20 0.57 642 2007 5.85 8.78 5.01 4 3,884 0.49 0.57 677 2008 -34.83 -26.87 -35.40 3 1,998 0.69 0.43 466 Composite created March 25, 1999. The Report of Independent Accountants, available upon request, is based on procedures performed on the composite from January 1, 1993 through December 31, 2007. Benchmark returns are not covered by the Report of Independent Accountants.

Global Securities Composite

US-I, US-P (RU)

35


Schedule of composite performance

The composite's past performance is not necessarily an indication of how it will perform in the future.

UBS Global Asset Management (the Firm) has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS®). UBS Global Asset Management has been verified for the periods from January 1, 2002 through December 31, 2007 by Ernst & Young. A copy of the verification report is available upon request.

1. Dynamic Alpha Strategy (6-8% real) Return Objective Composite – A composite of accounts providing integrated asset management across and within capital markets with a total real return objective. The portfolios are actively managed within an

asset allocation framework that encompasses the full range of market, currency, and security exposures within the world capital markets. Derivatives are employed in this strategy to increase or decrease market exposures. Readily available derivative instruments (for example, financial futures, forward agreements, options, swaps, and other instruments) may be used in each market. The benchmark, CPI, is an absolute real return benchmark reflecting the goal of achieving total returns over inflation for the portfolio regardless of market returns.

2. A list of all Firm composites is available upon request. The Firm is defined as all actively and passively managed institutional and retail accounts of UBS Global Asset Management (the Firm). The effective date of the Firm is January 1, 2002. Prior to that, the Firm originally consisted of the following entities: UBS Global Asset Management (Americas) Inc., UBS Global Asset Management Trust Company, UBS Realty Investors LLC & UBS AgriVest LLC. As of 2001, the Firm assets reflect the integration of the investment management platform of UBS Global Asset Management (UK) Ltd and UBS Global Asset Management International Ltd into the existing Firm definition. Each of the entities comprising the Firm definition is an affiliate of UBS AG.

3. Composites consisting of more than one portfolio are asset weighted by beginning-of-period asset values. Investment results are time-weighted performance calculations representing total return. Returns are calculated using geometric linking of monthly returns. Composites are valued at least monthly, taking into account cash flows. All realized and unrealized capital gains and losses, as well as all dividends and interest from investments and cash balances, are included. Interest income from fixed income securities is accrued, and equity dividends are accrued as of the ex-dividend date. Investment transactions are accounted for on a trade date basis. The rates of return are presented both net and gross of investment management fees. Gross of fee returns are calculated net of transaction fees and other trading expenses. Net of fee performance reflects the deduction of the highest fee charged. The highest fee charged for accounts of this type is 0.90% since May 2007, 1.10% from January 2006 to April 2007, and 1.40% prior to January 2006. Due to the graduated nature of fees, as account size increases, the annual percentage fee will decline. Net of fee returns are calculated by geometrically deducting the deannualized highest annual management fee from each monthly gross return and geometrically linking the monthly returns for each period. Additional information regarding the firm’s policies and procedures for calculating and reporting performance returns is available upon request.

4. Results include all actual fee-paying, discretionary client portfolios including those clients no longer with the Firm. Portfolios are included in the composite beginning with the first full month of performance to the present or to the cessation of the client’s relationship with the Firm. Terminated accounts are included through the last full month in which they were fully invested, and no alterations of composites have occurred due to changes in personnel.

5. Composite dispersion represents the consistency of the Firm’s composite performance results with respect to the individual portfolio returns within the composite. Presented is the asset-weighted dispersion (standard deviation) of the portfolios within the composite. Only portfolios in the composite for each full time period are included in the dispersion calculation, and no dispersion is presented for composites consisting of only a single portfolio.

6. The composite assets at 12/31/2003 and 12/31/2004 are represented by one account that is non-fee-paying.

Dynamic Alpha Strategy (6-8% real) Return Objective Composite (December 1, 2003 through December 31, 2008) Amounts and returns expressed in USD

Year

Gross Asset-Weighted Return (%)

Benchmark Return (%)

Net Asset-Weighted Return (%)

# of Portfolios End of Period

Total Composite Assets End of Period (millions)

Asset-Weighted Dispersion (%)

Composite Assets as % of Firm Assets

Firm Assets USD (billions)

2003* 3.01 -0.11 2.90 1 43 NA 0.01 431

2004 10.98 3.26 9.45 1 48 NA 0.01 500

2005 9.56 3.42 8.05 2 2,015 NA 0.37 543

2006 8.48 2.54 7.30 2 4,241 0.04 0.66 642

2007 -2.64 4.08 -3.58 4 3,898 0.58 0.58 677

2008 -20.57 0.09 -21.29 5 2,161 1.87 0.46 466

* Performance presented for December 2003. No statistics are annualized. Composite created November 30, 2003. The Report of Independent Accountants, available upon request, is based on procedures performed on the composite from December 1, 2003 through December 31, 2007. Benchmark returns are not covered by the Report of Independent Accountants.

US-I, US-P (RU)

Dynamic Alpha Strategy Composite

36


Disclaimer

US-I

For marketing and information purposes by UBS. For professional investors only. This document has been issued by UBS AG, a company registered under the Laws of Switzerland. This document is for distribution only under such circumstances as may be permitted by applicable law. It was written without reference to any specific or future investment objective, financial or tax situation or requirement on the part of a particular individual or group. The document is 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 for sale in all jurisdictions or to certain categories of investors. The information and opinions contained in this document have been compiled or arrived 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 opinions contained in this document are provided by UBS without any guarantee or warranty and are for the recipient's personal use and information purposes only. Past performance of investments (whether simulated or actual) is not necessarily an indicator of future results.

The performance shown does not take account of any commissions and costs charged when subscribing to and redeeming units. Commissions and 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 other financial instruments mentioned in this document. This document may not be reproduced, redistributed or republished for any purpose without the written permission of UBS AG. This document contains statements that constitute “forward-looking statements”, including, but not 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 2010. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved

37


Contact information

UBS AGGlobal Asset ManagementGessnerallee 3CH-8098 Zürich

Marco Rateitschak, CAIA, FRMDirectorMiddle East & Sovereigns

Tel: +41-22-375 95 12Fax: +41-44-235 20 [email protected]