ubs europ unconstrained 130312
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Seeking alpha in Europe: An Unconstrained Approach
March 12, 2013
Max Anderl
For Professional Clients Only
Concentrated Alpha Equity
Citywire Vienna Forum 2013
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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
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UBS European Opportunity Unconstrained Fund
For explanations on financial wordings please refer to the glossary at www.ubs.com/glossary or contact for further information your UBS client advisor.
• Access to European Equity markets via a largely unconstrained portfolio* 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.
Key benefits for investors
* Benchmark agnostic and ability to implement investment strategies such as short selling
Investment goals
Seek to outperform MSCI Europe Index by 300+ basis points per annum over a market cycle
How we aim to achieve this goal:
Typical active risk: Up to 15%
Number of equity holdings: Approximately 100 stocks
Normal exposures: 100 – 150% long, 0 – 50% short
Typical Max Individual stock weights
Longs 1.0 – 4.0% 10%
Shorts 0.5 – 1.5% 3%
Beta 0.8 – 1.2
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Turning insight into alpha
Long only
For illustrative purposes only.
Another way of looking at transfer coefficient…
Long/Short
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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
-100
-50
0
50
100
Market weight Long-Only andUnconstrained
Bas
is p
oin
ts
10 0
-90-100
-50
0
50
100
Market weight Long-Only weight Unconstrained
Bas
is p
oin
ts
Stock A falls by 50%
Stock B falls by 50%
Long-only excess returns
130/30 excess 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 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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Performance to 31 January 2013
Source: UBS Global Asset ManagementNote: Historical active risk is not a guide to the future. See attached disclosure information. Active risk levels will vary according to market conditions and our views. Portfolio characteristics are shown net of fees1 Since inception 31 May 2007, annualised2 Lipper rankings to 31 January 20133 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.
UBS European Opportunity Unconstrained (EUR)
Gross of fees
% return¹ (Jan 2013) Return MSCI Europe Value added Ranking2
3 months 3.6 6.6 -3.0 1 year 29.5 16.2 +13.4 1 3 years 13.3 8.2 +5.1 1 5 years 6.6 0.6 +6.0 1 SI¹ 2.8 -2.9 +5.6
Portfolio characteristics 3 years
Beta 0.7 Active risk3 7.7% Volatility:4 Fund 11.8% Benchmark 13.3% Information ratio5 0.4
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Ranking development of European Opportunity UnconstrainedBased on rolling 3 year performance (June 2010 – January 2013)
Jun.10 Sep.10 Dez.10 Mär.11 Jun.11 Sep.11 Dez.11 Mär.12 Jun.12 Sep.12 Dez.12
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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UBS European Opportunity UnconstrainedMorningstar rating: 3 year performance vs. Peers
-10
-5
0
5
10
15
20
0 5 10 15 20 25 30
Risk % std dev
Ret
urn
%
Peers UBS European Opportunity Unconstrained P-acc EUR MSCI EuropeSource: Morningstar, data as of 31 December 2012Note: 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
95
100
105
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 than the 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 December 31, 2012. 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 December 2012
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 23.3 14.5 45.5 9.0 3.5 12.5
Health Care 19.6 11.9 32.7 2.0 1.5 3.4
Consumer Discretionary 10.5 9.1 5.0 -5.2 2.6 -2.6
Energy 1.5 10.5 1.1 1.8 3.9 5.7
Not Classified 0.0 0.0 0.0 0.3 0.9 1.1
Materials 0.2 9.7 -3.2 0.4 -2.9 -2.5
Telecom Services 4.9 5.4 -7.2 3.0 -0.4 2.5
Industrials 7.4 11.2 -12.2 -3.6 -0.7 -4.3
Information Technology 14.2 3.0 -26.0 4.8 -2.0 2.8
Utilities -3.4 4.2 -32.2 3.7 1.6 5.2
Financials 21.8 20.6 -52.7 8.5 0.3 8.9
TOTAL 100.0 100.0 -14.3 24.6 8.2 32.7
Source: Wilshire, 31 May 2007 – 31 December 2012Past 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, UBS Global Asset Management. Since inception date 31 May 2007. Data to 31 January 2013
21.9%
36.3%
23.9%
4.7%
-0.2%
8.3%
-4.7%
-24.4%
17.1%
29.6%
6.8%
-12.0%
-30%
-20%
-10%
0%
10%
20%
30%
40%
1 year 3 years 5 years Since Inception
Longs Shorts MSCI Europe
Section 2
Team, Process andPositioning
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Experienced team that delivers results Concentrated Alpha Equities – 16 years’ of experience and 14 years’ at UBS
Team
Leveraging UBS’sglobal resources
Source: UBS Global Asset Management. October 2012
PortfolioManagement
EquityStrategists
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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• 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 Results
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Investment process: Research + construction
Quantitative
Fundamental
Qualitative
Portfolio Construction & Risk Management
For illustrative purposes only.
US-I
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…a holistic approach
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.1 31 May 2007
• Taking risk when rewarded for it
• Awareness of low volatility and leverage
• Active risk of European Opportunity Unconstrained 7.3% since inception¹ to 31 December 2012
• Active share with index averaged 115% for European Opportunity Unconstrained as at 31 December 2012
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
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
Dec
-12
Act
ive
shar
e (%
)
European Opportunity Unconstrained
As at 31 December 2012
Source: UBS Global Asset Management. Data to 31 December 20121 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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What to own and what not to own?
European and many Global economies remainin deleveraging mode, resulting in:
• Low growth
• Low inflation despite monetary excess of low interest rates and QE
We continue to prefer low leverage and growth,preferably asset light for strong conversion ofprofits into free cash-flow to reward shareholders
• For example: Pharma, IT, Insurance
• Underweight to Southern Europe (Italy, Spain, Portugal & Greece), banks, materials and utilities
Source: UBS Global Asset Management
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Key overweights
Source: UBS Global Asset Management
As at 31 January 2013
UBS European Opportunity Unconstrained
O/W Software & Services Sage, SAP
Pharma & Biotech Bayer, Grifols, Novartis, Fresenius, GSK, Sanofi
Insurance Jardine Lloyd Thompson, Legal & General, Prudential, Sampo
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UBS (Lux) Equity SICAV – European Opportunity Unconstrained (EUR) P-acc
Top 10 holdings by stock (%) GlaxoSmithKline 4.6% Bayer 3.1% Novartis 2.9% Sampo 2.8% SAP 2.7% Sanofi 2.6% Heineken 2.4% Roche 2.3% Reckitt Benckiser 2.3% Qinetiq 2.2%
Source: UBS Global Asset Management
Holdings by investment domicile
Active positions by industry group (in %)
Portfolio structure – 31 January 2013
9.6
-4.7
-5.9
-8.6
-9.3
-9.3
4.7
11.3
6.2
4.2
-15 -10 -5 0 5 10 15
Insurance
Pharms & Biotech
Software & Services
Food, Beverage & Tobacco
Household & Personal
Capital Goods
Utilities
Banks
Materials
EnergyUK
53.4%
Others0.9%
Switzerland6.2%
Germany22.1%
France6.2%
Norway4.0%
Netherlands7.2%
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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
Section 4
Outlook
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The last two years were challenging
Source: Thomson Datastream. Data to 11 January 2013.
3
4
5
6
7
8
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13
6% Threshold Italy Spain
Contagion shifts to Spain and Italy leading
to ESM and LTRO
Yields rise as LTRO effect wears off. ECB promises to
“do whatever it takes”
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Still printing money 4 years on…
Source: Bloomberg, BOE, FED, BOJ and ECB, December 2012
Size of balance sheet of each central bank in relation to its economy
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Eurozone shrinking to a balanced economy
Source: Datastream, ECB, November 2012
Current account balance
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2012 policy action – Get out of jail card?
Positive development
• Clear path for sustainable financing for struggling countries
• Significant reduction of tail risk for bond investors and banks as seniority falls
• Full bail out not necessary – a less painful exercise with less political consequences
But
• Northern Europeans will remain firm with conditionality resulting in painful near term fiscal and structural adjustments
• Growth could therefore continue to disappoint
• Spain and Italy will only agree to bail out (ECCL – enhanced condition credit line) if bonds yields start to rise again
Source: UBS Global Asset Management
Big improvement but most likely no “get out of jail card” yet.
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Are European equities attractive?Schiller Price-to-Earnings: Europe = 13.0, US = 22.2
Source: Morgan Stanley Research, MSCI. Data to 10 January 2013
US
Europe
0
5
10
15
20
25
30
35
40
45
50
1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 MSCI Europe MSCI Europe Average (1979 - present)S&P 500 S&P 500 Avg (1881 - present)
27
What about growth?GDP growth vs. equity returns – fact or myth?
Source: Datastream – 31 December 20121 SSE A Share index in Local currency terms. MSCI Europe in EUR currency terms
50
60
70
80
90
100
110
120
130
2009 2010 2011 2012
MSCI Europe SSE A Share Index
End of Q3 GDP year-on-year
Europe -0.2%China +7.4%
12 month Equity Returns
Europe +17.3%China -1.1%
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Not about growth but returnsReturn on capital employed for the listed sector
Source: CLSA Asia-Pacific Markets - 10 September 2012
% 2007 2012
USA 13.5 13.6
Europe 13.1 11.7
Brazil 15.6 10.7
China 15.6 10.7
India 11.6 9.6
Russia 15.8 15.9
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
Quantitative
Fundamental
Qualitative • 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
• More than 4,000 quantitative profiles of global companies, biweekly refreshed data
• From 5 different data providers
Portfolio Holding
US-I
31
Monthly net gross exposure data – UnconstrainedData to 31 December 2012
Line chart
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
GEN019n.ppt
US-I, US-P (RU)
Source: UBS Global Asset Management
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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 for supporting 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. Prospectuses, simplified prospectuses or Key investor information, the articles of association or the management regulations as well as annual and semi-annual reports of UBS funds are available free of charge from the Austrian branch of UBS (Luxembourg) S.A., Wächtergasse 1, A-1010 Wien. UBS Institutional Funds under Swiss and Luxembourg law. Before investing in a product please read the latest prospectus carefully and thoroughly. 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 2013. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.