kevin barker citywire lake garda - l&c & formatted

UBS European Opportunity Unconstrained Fund

October 2012

Kevin Barker

Senior Equity Strategist

Strictly confidential For Professional Clients only

FOR PROFESSIONAL CLIENTS ONLY

1

Key points

European economies remain challenged with further

bad news to come

Valuations attractive in Europe, with wide stock

selection opportunities

Europe boasts many strong businesses with global

franchises and access to growth

Limited shorting increases active share and ability

to generate returns

5 star European Opportunity Unconstrained Fund well

placed to perform strongly in volatile markets

1


2 2 2

Outlook for European Equities

Policy response has supported risk assets, but underlying

economic issues remain

Southern Europe lacks competitiveness and is heavily indebted

‘Core’ Europe growth prospects stronger

Bias to industry leaders with access to growth, wary of earnings

risk

Equities attractively valued, despite rally in 2012 YTD

Hurdles remain, but opportunity set is excellent

Valuation spreads extremely wide in Europe


3 3

Central banks providing unprecedented stimulus

Source: Citigroup (Index, 01.01.2007 = 100). As at August 2012.

50

100

150

200

250

300

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

ECB balance sheet

“Within our mandate, the ECB is ready to do whatever it takes to preserve the euro.

And believe me, it will be enough…” Mario Draghi, ECB President. July 2012

European intervention continues


4 4

(% of GDP) Targeted savings

for year Achieved Shortfall

Greece 2.1 1.7 -0.4

Portugal 3.0 0.0 -3.0

Ireland 0.7 0.9 +0.2

Spain 2.6 -0.2 -2.8

Italy 2.2 0.6 -1.6

4

Southern Europe remains extremely uncompetitive

Little progress has been made in achieving

fiscal savings

– Restructuring will take time

Southern Europe is heavily indebted, with high

labour costs and inflexible job markets

Few indications of economic recovery

– Austerity to act as a break on growth in the

medium term

Little progress has been made with fiscal savings

Source: National Financial Statistics and Stability Programmes, Commerzbank Research.

31 August 2012.

The periphery faces significant headwinds to growth

Growth outlook has worsened in Southern Europe

Source: Citigroup. September 2012.

2012 GDP growth estimates as at:


5

Northern Europe better placed to navigate the crisis

Growth prospects notably stronger in northern

Europe’s economies

Lower levels of debt and unemployment,

stronger budgetary positions

Favoured names include Unilever, Swedbank,

Telenor, SAP, Sampo

Stronger growth prospects, lower debt levels

‘Core’ Europe (91% of MSCI Europe)

Overweight northern Europe, significantly underweight the

periphery

Source: UBS Global Asset Management. 30 September 2012 Peripheral Europe (9% of MSCI Europe)

96.4% of your

portfolio

3.6% of your

portfolio


6 6

Global businesses based in Europe able to prosper

Many long-term winners with established

international franchises listed in Europe

Half of your portfolio’s sales from outside

Europe

Overseas earners benefitting from

weaker Euro

Favoured names include Prudential,

Schneider, SAP, BASF

Long-term winners trading at attractive prices

The Euro has been weak…

Source: Datastream. 30 September 2012

36 month performance against:

Your portfolio’s sales exposure 50% outside Europe

Portfolio sales exposure (%) by major region

22% 50% 25% US Europe

EM

JPY

-23.8%

USD

-11.5%

GBP

-12.7%

CNY

-18.6%

KRW

-17.1%

Source: UBS Global Asset Management. 30 September 2012


7

-1

0

1

2

3

4

5

6

7

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

European dividend yield

European real bond yield

7 7

Europe’s valuation case is attractive

Compelling vs. other regions and bonds

Yield: European equities cheap vs. bonds

Source: UBS Investment Bank. Data as at 30 September 2012 Source: Datastream, IBES consensus. Data as at 30 September 2012.

P/E ratio: Europe cheap vs. US market

0

10

20

30

40

50

60

Nov-79 Nov-85 Nov-91 Nov-97 Nov-03 Nov-09

MSCI Europe

MSCI Europe Average (1979 - present )

S&P 500

S&P Avg (1881 - present )


8 8 8

Stock selection opportunities are high

Europe Composite Valuation Dispersion

Very high

Very low

Normal

Source: Bernstein. 30 September 2012. Valuation dispersion measure is based on Book/Price, Sales/Price, Cash Flow/Price and Dividend yield metrics.

Low

High


9

Our conclusions

Markets will see bouts of volatility as unresolved

issues flare up from time to time

Great stock selection opportunities due to poor

sentiment and good valuations

An active approach is essential to avoid problem

areas

An approach with limited shorting provides

greater flexibility to capture volatility

9

0

10

20

30

40

50

60

70

80

90

2007 2009 2011

Volatility Index (VIX)

Source: Datastream. Data as at 30 September 2012


10 10


Equity SICAV with multiple share classes

Typical M ax posit ions

Individual stock weights

Longs 1.0 – 4.0% 10% over benchmark

Shorts 0.5 – 1.5% 3% (absolute)

Beta policy 0.8 – 1.2

Note: 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 ; typical active risk data is indicative only. Active risk is an

ex-ante forecast calculated using BARRA or other suitable system based on the final valuations of the last working day of each month. Active risk levels are reported to clients on a quarterly basis.

Investment goals

Seek to outperform MSCI Europe Index by 300 – 500 basis points pa over a market cycle

How we aim to achieve this goal:

Typical active risk: Up to 15% (average 7.3% since inception)

Number of equity holdings: Approximately 50 to 100 stocks

Normal exposures: 100 – 150% long, 0 – 50% short


11

UBS European Opportunity Unconstrained Fund: Key facts

Actively managed equity fund invested mainly in shares of European countries

– Including stocks of small/medium sized capitalized companies

Largely unconstrained portfolio, which can fully exploit the market opportunities

– Can use investment strategies which allow us to take advantage of declining stock prices (short

selling)

– Benchmark agnostic

Typically 70 – 130% market exposure with 50 – 100 stocks

A different approach…

Aim is to have significantly better performance than equity indices over time and

not significantly correlated to core equities strategies


12 12

Difference between our Fund and hedge funds

Equity unconstrained strategy

Clearly part of an investor’s equity allocation

While some managers may have goal of limited

losses during major market sell-offs, the aim is

to provide better than equity index returns over

time

Investors should expect volatility that is similar

to equity indices, which will result in substantial

losses when equity markets fall

Method can include use of shorting, leverage

and use of derivatives

Hedge fund strategies

Objective is provide absolute returns with clear

goal of capital preservation and returns

uncorrelated with other major asset classes

Generally not benchmarked or may be

benchmarked to cash returns

Method can include use of shorting, leverage

and use of derivatives

The overriding aim of equity unconstrained strategies is to provide substantially

better than equity index returns over time


13 13

Performance of Fund since inception

Relative performance as at 30 September 2012

Source: UBS Global Asset Management

Note: Past performance is not a guide to the future.

Figures gross of fees

1 Since inception 1 June 2007

European Opportunity Unconstrained vs. MSCI Europe EUR

% return (to Sept 2012)

UBS Global Asset Management

MSCI Europe (net dividends

reinvested) Difference

3 months 12.2 7.2 +5.0

1 year 35.6 22.3 +13.3

3 years 13.9 6.4 +7.6

5 years 2.9 -3.9 +6.8

Since Inception1 2.2 -4.3 +6.6

Since inception

Active risk: 7.3%

Standard deviation:

– Fund: 17.9%

– Benchmark: 18.2%

Source: UBS Global Asset Management. Data to 30 September 2012

Note: 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.

95

100

105

110

115

120

125

130

135

140

145

Jun

-07

Sep

-07

Dec-

07

Mar-

08

Jun

-08

Sep

-08

Dec-

08

Mar-

09

Jun

-09

Sep

-09

Dec-

09

Mar-

10

Jun

-10

Sep

-10

Dec-

10

Mar-

11

Jun

-11

Sep

-11

Dec-

11

Mar-

12

Jun

-12

Sep

-12

Unconst rained vs. MSCI Europe


14 14


Performance: value added on both longs and shorts

Since inception1:

+6.5% contribution from shorts (23% of total)

+21.5% contribution from longs (77% of total)

Shorts contributed more in proportion to allocation in portfolio (average 19%)

7.15.0

6.57.1

26.6

21.5

14.2

31.6

28.0

0

5

10

15

20

25

30

35

40

1Y 3Y 5Y

Exce

ss R

etu

rn C

on

trib

uti

on

(%

)

Short Long Total

Source: Wilshire

Notes: Data to 31 May 2012. Returns not annualized. Returns relative to MSCI Europe.

1 31 May 2007


15 15

Strong performance in “up” and “down” markets

Protecting on the downside while keeping with benchmark in up markets

Source: UBS Global Asset Management. Data to 31 May 2012

Note: Please note that historical standard deviation is not a guide to the future.

Past performance is no guarantee of future results. Performance figures are gross of fees. Please see attached disclosure information.

1 Data to 31 May 2012. Inception date European Opportunity Unconstrained 31/05/07. The returns shown above are based on currently available information and are subject to revision.

40

50

60

70

80

90

100

110

Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11

UBS European Opportunity Unconst rained MSCI Europe (net )

+10.1% value

added in up market

+13.0% value

added in down

market

+7.2% value added

in down market


16

Down Market

Source: UBS Global Asset Management. Data to 30 September 2012. Past performance is not a guarantee of future results.

Down market defined as period from a relative peak to trough.1 31 May 2004. In EUR. 2 31 May 2007. In EUR

90

95

100

105

110

115

120

125

130

135

140

May-0

4Sep

-04

Jan

-05

May-0

5Sep

-05

Jan

-06

May-0

6Sep

-06

Jan

-07

May-0

7Sep

-07

Jan

-08

May-0

8Sep

-08

Jan

-09

May-0

9Sep

-09

Jan

-10

May-1

0Sep

-10

Jan

-11

May-1

1Sep

-11

Jan

-12

May-1

2Sep

-12

Pan Europe Conc. vs. MSCI Europe

Consistent track record in different environments

Product leverages off long-term success

Pan Europe Concentrated/MSCI Europe wealth relative

A strong team delivering performance for 8 years

Value added since inception1 = +4.0%pa

95

100

105

110

115

120

125

130

135

140

145

Jun

-07

Sep

-07

Dec-0

7

Mar-0

8

Jun

-08

Sep

-08

Dec-0

8

Mar-0

9

Jun

-09

Sep

-09

Dec-0

9

Mar-1

0

Jun

-10

Sep

-10

Dec-1

0

Mar-1

1

Jun

-11

Sep

-11

Dec-1

1

Mar-1

2

Jun

-12

Sep

-12

Uncons vs. MSCI Europe

European Opp. Unconstrained/MSCI Europe wealth relative

Value added since inception2 = +6.6%pa


17 17

Experienced team that delivers results

The Concentrated Alpha Equities team

Team

Portfolio

Management

Equity

Strategists

Technical Support/

Execution

Leveraging UBS’s

Global resources

Legal &

Compliance Trading

Risk

Management

Distribution Company Access

Kevin Barker Max Anderl Rob Howard

Source: UBS Global Asset Management. October 2012

Alison Charles Jeremy Leung David Legg

External resources Independent

research

Financial

data sources

Individual industry

contacts


18 18

Concentrated Alpha: Investment Process

Idea Generation Research Portfolio Construction

Constant communication with our selected

information sources flag potential investment themes

and ideas

Potential ideas are placed

through the rigorous assessment

of the three circles

Once an idea has passed through the 3-

circle process, we compare against our

existing holdings and adjust our holdings

if there is an opportunity

Portfolio Client

100-130 stocks

(long-short)

Fundamental

Quantitative Qualitative

Portfolio

14,000 companies

covered by HOLT

1,800 internal

valuations by

analysts globally

4,500 quantitative

profiles from five

quantitative models

8,000 corporate

governance

profiles

Proven individual

contacts1

• Risk aware

• High active share

• Benchmark agnostic

Disciplined review process every

3 – 6 months for each holding

Stock ideas

• Company A

• Company B

• Company C

1 Proven individual contacts (strategists, analysts, fixed income investors, asset allocators)


19 19

The Concentrated Alpha investment process

Diverse range of independent

information sources including:

– Global fundamental analysis

– Global quantitative analysis

– Corporate governance

– Corporate activists

– Global strategists

Disciplined and simple approach but

not dogmatic – must be open to

admitting mistakes and to new ideas

Team based but not committee driven

Investment thesis for every decision

reviewed by “independent eye”

Aiming to protect the downside

Fundamental

research

(eg internal & external

recommendations, discounted

cash flow model, company

management visits)

Quantitative

research

(eg multi-factor

models)

Qualitative

research

(e.g. strategists,

corporate activists,

corporate governance)

Portfolio

Concentration


20

Long example: Sage


Quantitative

research

Qualitative

research

Portfolio holding

Cheap in HOLT, high alpha versus the market

Good corporate governance with share buybacks

Positive momentum and quality with

average value

Unleveraged, stable, non extended returns

High percentage of recurring revenues

Potential take over target

Expansion into EM

Fundamental research


21 21

“Short” Investing; adding further value

European economies will remain challenged presenting opportunities to capitalise on

weak companies with poor business models

Shorts are selected through the same proven investment process – we have shown

added value in shorting over a long period since inception

Shorts can grow in size when they go against you – we integrate into our daily checks a

stop loss provision that flags up negative contributors which are reviewed by the team

daily

Shorts have liquidity risks – we regularly monitor the market for short interest and supply

to borrow and have never been squeezed


22

Short example: Company A


Quantitative

research

Qualitative

research

Portfolio holding

Below cost of capital returns

Declining asset turnover and margin pressure

Poor momentum and quality

Above average value

High pension deficit

Increasing competition from Chinese players



23 23


Monthly net gross exposure data to end August 2012

0

20

40

60

80

100

120

140

160

180

200

2007 2008 2009 2010 2011 2012

Sum of Long Sum of Short Sum of Gross Sum of Net



24 24

…a holistic approach


Note: 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 UBS European Opportunity

Unconstrained 7.3% since inception1 to 30 September

2012

Active share with index 117% as at 30 September

2012

Results

Risk parameters

Risk systems

Price paid

Corporate Governance

Leverage and industry structure

Use of uncorrelated information sources

How we deal with risk…


25 25

How we view your portfolio online

European Opportunity Unconstrained Fund, 30 September 2012

Major contributors to

risk using stock

level, sectoral and

risk model factors

Headline active risk:

8.2%

(key risk measure)

Risk analysis using our

internal risk model

Exposures to market cap weighted

sectors/countries/size factor portfolios

Source: UBS Global Asset Management/GEVS

Note: 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: 0.8 (sensitivity to

market)


26 26

Sector posit ions %

Insurance +7.8

Pharma, Bio & Life Sciences +7.4

Sof tware & Services +6.3

Household & Personal +2.9

Comms & Pro Services +2.9

Capital Goods -4.1

Materials -5.3

Energy -5.7

Ut ilit ies -6.8

Banks -8.3

European Opportunity Unconstrained Fund: Current views

Overweight strong franchises with valuation

support and financial flexibility

– Unilever, GlaxoSmithKline

Underweight compromised defensives

– Utilities

Favouring asset-light over capital-intensive

companies

– Real cost of capital to remain high

Underweight companies where profitability is

extended and expensive

– Materials, Capital Goods

Focusing on areas where capacity is

consolidating or leaving the market

30 September 2012

Stock positions


Posit ive (overw eight) %

GlaxoSmithKline 3.4

Qinet iq 2.9

Sampo 2.8

Sage 2.7

Legal & General 2.6

Negat ive (underw eight)

Banco Santander -2.0

Vodafone -2.1

HSBC -2.5

Ast razeneca -2.7

Nest le -3.1


27

Summary

Highly active portfolio, shorting helping increase active share and capitalise on volatility

Investment process (“Three Circle” approach) helps to deliver consistent returns through use of

uncorrelated sources

Successful approach that has worked in varied market conditions

27

APPENDIX

Additional information


29 29

Fund name: UBS (Lux) Equity SICAV – Europ. Opportunity Unconstrained (EUR) P-Acc

Fund type: SICAV, part I

Fund domicile: Luxembourg

Custodian: UBS (Luxembourg) S.A.

Currency of account: EUR

Benchmark MSCI Europe (net div. reinv.)

Accounting year ends: 31 May

Share class inception: June 14, 2012

Subscriptions / redemptions: Daily / daily

Distribution: reinvestment

Flat fee: 2.04%

Issue commission: 1%

EU savings tax: Not affected

Swing pricing: Yes

Securities no. / ISIN: 14543379 / LU0723564463


Technical details

Data as of 12.06.12


30 30


3 year performance vs. peers

-15

-10

-5

0

5

10

15

20

0 5 10 15 20 25 30

Risk % std dev

Retu

rn %

Peers UBS European Opportunity Unconst rained P-acc EUR MSCI Europe

Source: Morningstar, data as of 30 September 2012

Note: Based on Morningstar European Equity Large Blend Universe. Net of fees using P share class. Past performance is no guarantee of future results.


31 31


Returns in aggregate: shorts consistently underperformed

Source: UBS Global Asset Management. Since inception date 31 May 2007.

Data to 31 May 2012

-4.9%

49.7%

-11.9%

-27.1%

22.4%

-34.2%

-11.0%

27.6%

-27.4%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

1 year 3 years 5 years (since incept ion)

Longs Shorts Universe


32 32

Taking opportunities across the spectrum

…but selectively weight according to the environment

Monitor all three circles…

Quantitative

research

(e.g. multi-factor

models)

Qualitative

research

(e.g. venture

capital contacts,

strategists)

Portfolio

Concentration

Less exposure 2006/2010

Valuation spreads low

Increased exposure 2008/2009

Valuation spreads wide and falling

Less exposure in 2007/2008

Leverage high, valuation spreads low

Increased exposure 2009+

Leveraged buy-outs models attractive

Private equity / strategists warn on

high leverage and low valuation spreads in 2007

Signaling capitulation in February 2009

Free cash flow yield and dividend yield versus 10y bond

yield points to M+A and stable dividend growers in

2011/2012


(e.g. internal

recommendations,

corporate governance,

company management

visits)


33 33

Global and multi-faceted approach

…but specific targeting is key Source: UBS Global Asset Management. September 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

Quantitative Qualitative

Portfolio


34 34


-5.2

-1.2

7.16.1

2.5

18.6

-2.2

7.1

21.5

2.21.8 1.5

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0A

dd

ed

valu

e (

bp

s)Short Long

M ay-07 to Jun-08

M ay-08 to Jun-09

M ay-09 to Jun-10

M ay-10 to Jun-11

M ay-11 to Jun-12

Since inception1

Shorts in aggregate (100%) -14.1% -37.4% 37.0% 21.8% -27.1% -34.2%

Longs in aggregate (100%) -15.4% -30.5% 35.2% 16.6% -4.9% -11.9%

MSCI Europe -15.5% -32.7% 21.2% 18.3% -11.0% -27.4%

Source: UBS Global Asset Management, Wilshire

The returns shown above are relative to MSCI Europe and based on currently available information and are subject to revision. Past performance is not indicative of future results. Performance

figures are gross of fees. Please see attached disclosure information.

1 Inception as of May 31, 2007

1

Performance of longs and shorts: As of May 31, 2012 (in EUR)


35 35 35

Spain remains an area for concern

Outlook for economic growth poor due to

structural challenges

– Real GDP growth of -3.2% predicted for 2013

Spanish unemployment level at 25%

– 52% of under 25s out of work

House prices down -25% since 2008

Troubled financials sector a key issue

– Capital ratios short of regulatory requirements

– Banks have €156bn of loans at risk of not being

repaid (9% of all loans)

Unemployment has tripled since 2006

Source: Eurostat, August 2012.

Eurozone’s 4th largest economy poised for a bail out

Spanish banking sector undercapitalised

Source: UBS Global Asset Management. 30 September 2012.

Source: Citigroup, BBC. 30 September 2012. “…the battle for the Euro will be fought in Spain” Luis de Guindos, Spain’s finance minister, May 2012


36 36

Performance: Pan European Equity Concentrated Composite

GIPS Disclosure


37 37

Performance: European Opportunity Unconstrained (130/30)

GIPS Disclosure


38 38

Disclaimer

UBS Global Asset Management (UK) Ltd is a subsidiary of UBS AG.

Registered in England, authorised and regulated by the Financial Services Authority: UBS Global Asset Management (UK) Ltd, UBS Global Asset Management

Funds Ltd, UBS Global Asset Management Life Ltd.

Telephone calls may be recorded.

© UBS 2012. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

This document is for Professional Clients only. It is not to be distributed to or relied upon by Retail Clients under any circumstances.

This material supports the presentation(s) given. It is not intended to be read in isolation and may not provide a full explanation of all the topics that were presented

and discussed. Care has been taken to ensure the accuracy of the content, but no responsibility is accepted for any errors or omissions.

Please note that past performance is not a guide to the future. The value of investments and the income from them may go down as well as up, and investors may

not get back the original amount invested.

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.

This document does not create any legal or contractual obligation with UBS Global Asset Management.

The recipient agrees that this information shall remain strictly confidential where it relates to the Investment Manager's business. The prior consent of UBS Global

Asset Management (UK) Ltd should be obtained prior to the disclosure of commercially sensitive information to a third party (excluding the professional advisors of

the recipient).

Information reasonably deemed to be commercially sensitive and obtained from UBS Global Asset Management (UK) Ltd should not be disclosed. This information

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kevin barker citywire lake garda - l&c & formatted

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