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This report has been prepared by UBS AG and UBS FS. Please see important disclaimers and disclosures at the end of this document.

Monthly LetterUBS House View CIO Americas, WM

14 December 2017

The end of the year is a time to reflect on past successes and plan for the months to come. Regular readers will know that we took our portfolio management responsibilities seriously, held some contrarian views, and added value overall with our market calls. Yet the question of our social responsibility as portfolio managers is coming up more and more. For 20 years I answered that question by citing the influential article, “The Social Responsibility of Business is to Increase its Profits,” by Nobel prize-winning economist Milton Friedman.

But I now believe investors must consider social responsibility when making invest-ments. This is not because I would advocate mixing investing and philanthropy: there is little room for emotion in investment decisions. Rather it’s because the investment world has changed. A more transparent world means that environ-mental, social, and governance (ESG) factors are now more easily measured and are increasingly internalized into market prices. There is now strong evidence that thinking about social responsibility as part of the investment decision-making pro-cess does not sacrifice returns. Indeed, it can actually help de-risk, diversify, and enhance them.

The sustainable investment market has broadened and deepened, particularly into fixed income instruments, such as green bonds. This means that private investors can now achieve the goals of traditional diversified portfolios with sustainable assets. Sustainable investing can now move from the “satellite” to the “core” of an investor’s portfolio.

In our tactical asset allocation this month, we remain overweight in global equities, a position that remains supported by strong global economic data. In addition, we are opening two new positions: Within our FX strategy, an over-weight in a basket of four high-yielding emerging market currencies (Brazilian real, Indian rupee, Turkish lira, Russian ruble) against a set of four pro-cyclical lower yielding counterparts (Australian dollar, Hungarian forint, Norwegian krone, Taiwan dollar), and an overweight in EM local currency bonds against government bonds.

Sustainable performance

ab

Mark HaefeleGlobal Chief Investment OfficerWealth Management

Follow me on LinkedInlinkedin.com/in/markhaefele

Follow me on Twittertwitter.com/UBS_CIO

Social responsibilityThe investment world has changed. There is now solid evidence that incorporating social responsibility into investment decisions does not mean sacrificing returns.

More optionsA broader and deeper sustain-able investment market means investors can have a diversified portfolio of sustainable assets, from green bonds to funds that buy stock in firms with strong environmental, social, and gov-ernance records.

New activismWith more data available, investors are better able to engage with businesses to drive positive change as well as excess returns.

Asset allocationIn our FX strategy, we are opening an overweight in a basket of four high-yielding emerging market (EM) curren-cies versus a set of lower-yielding currencies, and an overweight in EM local cur-rency bonds against govern-ment bonds.

The next UBS House View editions of the Investment

Strategy Guide and Monthly Investment Guide will be

published in January. As such, the detailed asset allocation

tables and the US equity sector allocation table featured in

these publications appear in the back of this report.

http://www.linkedin.com/in/markhaefele

https://twitter.com/UBS_CIO

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UBS House View Monthly Letter January 2018

How the sustainable world has changedSustainable investing strategies returns are comparable or superior to traditional investment strategies.

The average return of the MSCI KLD 400 Social Index, which tracks sustainable firms, has matched the S&P 500 on risk and return criteria (Fig.1). The Bloom-berg Barclays MSCI Green Bond Index, which measures fixed income instruments whose proceeds are earmarked for projects with environmental value, slightly outperformed the Bloomberg Barclays Global Aggregate between December 2013 and October 2017, with a return of around 17% compared with 15% (Fig. 2). And the bonds of the International Bank for Reconstruction and Develop-ment, the main lending arm of the World Bank, offer a yield advantage of 13 to 20 basis points over equivalent US Treasuries across the curve.

Some sustainable investing strategies and conventional strategies show similar performance.

Fig. 1: Sustainable and conventional equity indexes show similar performanceComparison of S&P 500 Index and MSCI KLD 400 Social Index (i.e. sustainability equivalent of S&P 500), April 1990 – June 2016, in %

Source: Bloomberg Finance L.P., UBS WM CIO, as of June 2016

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Fig. 2: Sustainable bonds and conventional indexes also show similar performanceComparison of Bloomberg Barclays MSCI Green Bond Index and Bloomberg Barclays Global Aggregate Bond Index, December 2013 – October 2017, in %

Source: Bloomberg Finance L.P., UBS WM CIO, as of October 2017

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Bloomberg Barclays Global Aggregate Bond Index (USD hedged)

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Roughly 90% of the 2,200 peer-reviewed academic studies on the relationship between sustainability and financial performance found either a positive or neutral correlation. More than two-thirds of asset owners say that explicitly integrating ESG criteria into their decision-making process has significantly improved returns. Such ESG integration strategies have been growing at 17% per year and are now used with nearly half of sustainable investments1.

A sustainable investing report by UBS CIO Americas (“On the road to parity: Gen-der lens investing”) revealed that more gender-balanced US companies, in terms of executive management and board representation, tended to outperform the broader US equity market over a six-year period. The same study found that, in the US, Russell 1000 companies with women making up at least 20% of the board and senior management had higher profitability across various metrics relative to their less gender-diverse peers (Fig. 3).

For more on our research on gender diversity, you can read our report “On the road to parity: Gender lens investing”, UBS, Q1 2016.

Externalities can now be measured and are increasingly internalized into market prices.

Increasing connectivity and big data have made our world more transparent than before. As a result, it’s getting easier to measure what previously would have been considered externalities. For instance, firms such as Carbon Delta are able to quan-tify an individual company’s climate change risk, and calculate its potential valua-tion impact for investors.

This has two major consequences, both of which mean that ESG considerations are becoming increasingly important in investment processes:

The first is that companies or sectors found to be abusing the public trust face much greater legal and regulatory scrutiny – and potentially significant costs. Aggregate fines and settlements in the US hit USD 180bn in 2014 – a more-than-threefold increase in just five years. And the world’s top 20 banks were hit with conduct charges of GBP 264bn (USD 353bn) in 2012–2016, nearly one-third more than the total for 2008–2012, according to the Conduct Cost Project’s Research Foundation.

More than two-thirds of asset owners say that explicitly integrating ESG criteria into their decision-making process has significantly improved returns.

Increasing connectivity and big data have made our world more transparent than before.

Fig. 3: Gender-diverse companies exhibit higher profitabilityFive-year average, in %

Note: Based on Russell 1000 companies. Gender-diverse companies defined as at least 20% women on the board and in senior managementSource: UBS, Bloomberg as of 12 December 2017

return on assets

return on equity

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Other companies

https://www.static-ubs.com/global/en/wealth-management/chief-investment-office/key-topics/2017/us-sustainable-investing-on-the-road-to-parity-gender-lens-investing/_jcr_content/mainpar/toplevelgrid/col1/linklist/link.0843521233.file/bGluay9wYXRoPS9jb250ZW50L2RhbS9hc3NldHMvd20vZ2xvYmFsL2Npby9kb2Mvb24tdGhlLXJvYWQtdG8tcGFyaXR5LTIwMTYtMlEtc3VzdGFpbmFibGUtaW52ZXN0aW5nLnBkZg==/on-the-road-to-parity-2016-2Q-sustainable-investing.pdf

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Markets are growing aware of this risk, so investors who fail to integrate ESG consid-erations into their investment process put themselves at greater risk.

The second consequence is that, armed with this type of data, investors are in a much stronger position to engage more effectively with businesses to drive positive social, environmental, and therefore, financial, outcomes:

• Partly as a result of pressure from sustainability-focused investors, Mexico-listed multinational cement producer Cemex published 18 medium-term sustain-ability targets linked to atmospheric emissions, use of alternative fuels, sales derived from sustainable products and materials, labor safety, and responsible supply chains.2

• In May 2014, Colgate-Palmolive explicitly acknowledged the important influ-ence of outside stakeholders in its decision to commit to reduce carbon emissi-ons on an absolute basis by 25% relative to 2002 levels by 2020, and by 50% by 2050.3

• Successful shareholder engagement on ESG factors has been shown to deliver positive cumulative excess returns of around 7.1% in the year subsequent to shareholders and management reaching agreement.4

The sustainable investing market has broadened and deepened.

The appetite for sustainable investments is large. According to UBS and Oppen-heimer Funds surveys with Campden Wealth, around 88% of women surveyed say they want to align their investments with their social values, along with 69% of UHNW millennials, and 40% of family offices (Fig. 4). Despite this impressive apparent appetite, assets managed to ESG objectives represent just 8% of the overall global household wealth of USD 280trn.

The gap between interest and reality is, in my view, due to a lack of sustainable options for the kinds of multi-asset portfolios at the core of our House View invest-ment process. However, the SI market has now broadened and deepened suf-ficiently that investors can construct fully diversified portfolios that should offer

Despite large appetite for sustainable investments, assets managed to ESG objectives represent less than 10% of global household wealth.

It is now possible to construct fully diversified sustainable portfolios that should offer comparable returns, risk, and liquidity to traditional portfolios.

Fig. 4: Interest in sustainable investing is growingPercentage of people surveyed that want to align their investments with their social values, in %

Source: UBS/Campden Wealth Global Family Office Report 2017, Oppenheimer Funds/Campden Wealth Research 2015, as of December 2017

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Footnotes1 “From ‘why’ to ‘why not’: Sustainable investing as the new normal”, McKinsey & Co. October 20172 “EOS Case Study: Cemex”, Hermes Investment Management, August 2017 3 “Evaluating the impact of shareholder engagement in public equity investing”, Impact of Equity Engagement (IE2) initiative, November 2014 4 “Active Ownership”, Dimson et al., The Review of Financial Studies, August 2015.

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comparable returns, risk, and liquidity to traditional portfolios while considering their impact on society and the environment.

SI therefore appears ready to go mainstream. I would like to outline some of the sustainable investing exposures we believe can be used to construct portfolios with a similar risk-return profile to traditional portfolios:

Bonds• Multilateral development bank (MDB) bonds: MDBs like the World Bank Group

play a critical role in providing development where it’s needed most. In recent years, they have financed: irrigation services for more than two million hec-tares of land; access to an improved water source for 42 million people; and the reduction of 588 million tons of CO2-equivalent emissions annually. Bonds issued by these banks are typically AAA-rated, are backed by multiple sovereign governments, have never defaulted, and can be considered, in our view, com-parable to high grade bonds such as US Treasuries.

• Green bonds: One of the fastest-growing segments of the fixed income market, green bonds are conventional fixed income instruments in which the proceeds are earmarked specifically for projects with environmental value. You can invest, for example, in bonds that target renewable energy, energy efficiency, sustaina-ble waste management, sustainable land use, biodiversity conservation, clean transportation, and clean water/drinking water. We believe you could expect diversified green bond exposure to generate returns comparable to a mix of tra-ditional high grade and investment grade corporate bonds.

Equities• Thematic: By investing in companies trying to address the world’s environ-

mental and social challenges, investors can both benefit from and support the solutions such companies offer. Our longer-term investment themes include numerous companies involved, for instance, in expanding water infrastructure, providing renewable energy, and delivering healthcare equipment.

• ESG Leaders: Leaders in ESG standards are those companies that not only avoid major adverse effects on society and the environment, but also try to influence their wider industry in improving sustainability standards. Many of these firms view ESG factors as opportunities to improve financial returns.

• ESG Improvers: Investors can help reward progress on social and environmental issues by tilting allocations toward companies that have significantly improved in these areas in recent months and years, and protect their portfolios from companies whose ESG performance has deteriorated.

• ESG engagement: Fund managers can also engage with company management to encourage ESG improvements. This can have a direct impact. For example, according to data compiled and analyzed by Ceres, of 779 climate-friendly share-holder proposals filed from 2013 to 2017, 36% were adopted without the need for a vote after investors and the companies in question agreed that more nee-ded to be done to reduce their carbon footprint.

While not part of our liquid portfolio building blocks, private equity can play an important part in a diversified portfolio. This is no different in the impact investing subset of private equity, which encompasses investments where clear intent and

MDBs play a critical role in providing development where it’s needed most.

Green bonds are one of the fastest-growing segments of the fixed income market.

Fund managers can engage with company management to encourage ESG improvements.

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evidence of impact can be demonstrated. These strategies tend to focus on fast-growing themes such as education technology, healthcare, renewable energy and clean-tech, and building responsible businesses in developing countries.

As is the case in liquid markets, the quality and quantity of the investment universe continues to develop and has reached the point where we now believe that impact investing solutions can deliver returns equivalent to traditional PE strategies.

Many investors are passionate about SI and philanthropy, and are leading the drive to integrate ESG criteria into mainstream investment analysis. But the broadening and deepening of the SI universe, the improvements in measuring societal and environmental impacts, and the long-term track record of sustainable portfolios mean that investors should consider social responsibility issues in their investment decision-making process.

Asset allocationWe are opening two new positions in our tactical asset allocation this month. First, in our FX strategy, we are adding an overweight in a basket of four high-yielding emerging market (EM) currencies (the Brazilian real [BRL], Indian rupee [INR], Turk-ish lira [TRY], and Russian ruble [RUB]) against a set of four pro-cyclical lower-yield-ing counterparts (the Australian dollar [AUD], Hungarian forint [HUF], Norwegian krone [NOK], and Taiwan dollar [TWD]).

The main appeal of this trade is the EM basket’s attractive carry of around 7%. We have held back from exploiting this carry in recent months because we antici-pated a US dollar (USD) boost – from tax reform and rising expectations for Federal Reserve tightening – to undermine EM currencies. We now believe this Trump trade in the USD has largely played out, and this makes it safer to harvest the EM carry. We selected the opposing currency pairs on the basis of their likelihood to display similar price movements in the event of potential upsets, such as a sharp swing in oil prices or a broad decline in global risk appetites. (For example, the AUD and NOK are exposed to commodity price moves, as are the BRL and RUB.)

Second, we are opening an overweight in a diversified basket of EM local cur-rency bonds against government bonds. EM local currency bonds offer an attrac-tive yield advantage of 3.6 percentage points (ppt) against US government bonds, slightly above the average premium of 3.5 ppt since 2003. We anticipate limited upward pressure on EM local currency bond yields, given the easing bias we see in EM monetary policy. This contrasts with our forecast for gradually rising yields in advanced economies like the US (Fig. 5).

We also retain several positions from previous months. We are overweight global equities. Over the past month, global stocks benefited from rising expectations of corporate tax cuts in the US. Global equities got an extra push from the strength of the financial services sector, after an agreement on Basel IV rules that give banks longer to adopt rules on how they calculate capital for trading businesses, as well as hopes for looser regulation of US banks. More broadly, we believe that stocks remain underpinned by the health of the global economy. In November, the global manufacturing Purchasing Managers’ Index (PMI) rose to 54.0 from 53.5 in Octo-ber.

Investors should consider social responsibility issues in their investment decision-making process.

In our FX strategy, we are opening an overweight in a basket of four high-yielding emerging market currencies versus a set of lower-yielding currencies.

We are opening an overweight in a diversified basket of EM local currency bonds against government bonds.

We remain overweight global equities.

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The outlook for Eurozone equities is brighter, and we are overweight versus UK stocks, within European equities. Eurozone GDP growth is expanding at its fast-est pace in six years, with the forward-looking survey data pointing to continued strength: the composite PMI rose to 57.5 in November from 56 in October. This contrasts with the outlook for the UK, where we expect higher inflation, which has hit 3.1%, to undermine consumer spending power.

In our FX strategy, we are underweight the NOK versus the Swedish krona (SEK). Norway’s inflation started the year at 2.8% but was just 1.1% in November, and a deteriorating housing market should drag on consumer confidence. By contrast, the Swedish economy is gathering momentum, with GDP growing by 2.9% in the third quarter relative to 1.9% for the first quarter and 2.7% in the second. With inflation hitting the central bank’s target, we see the Riksbank shifting in a more hawkish direction.

Finally, we expect the Canadian dollar to outperform the USD. While the US cur-rency is set to face headwinds from the twin fiscal and current account deficits, the CAD is likely to benefit from the recovery in the Canadian economy, which is now running above potential.

Mark HaefeleGlobal Chief Investment OfficerWealth Management

Within Europe, we remain overweight Eurozone equities versus UK stocks.

In our FX strategy, we remain underweight the NOK versus the SEK.

In our FX strategy, we remain underweight the USD versus the CAD.

Fig. 5: EM local currency bond returns are recovering aer a setback earlier this yearTotal return of GBI-EM Global Diversified year-to-date, including return components (interest, price, and FX), in %

Source: JP Morgan, UBS WM CIO, as of 11 December 2017

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8UBS House View Monthly Letter January 2018

IN CONTEXT PERSPECTIVE FROM THE REGIONAL CHIEF INVESTMENT OFFICE – US

Congress is nearing the end of its months-long push to implement the first substantial tax reform in more than 30 years. With the broad outlines of a final law now in place (and the caveat that many details are yet to be finalized), we are now able to assess the implica-tions for Politics, Policy, Profits, and the Personal impact.

Politics – a much-needed victoryThe stakes are high for Republicans, who hold control of the executive and legis-lative branches. A tax reform victory is vital to fighting the perception of a dys-functional government – an image that would increase the risk that their majori-ties face during the 2018 mid-term elections.

The four Ps of tax reformLaws are like sausages. It’s better not to see them being made.

– Otto von Bismarck

Policy – (a little) more of the sameTax reform should provide a modest tailwind to economic growth – perhaps a 0.3%-0.6% boost to US GDP over a number of years – and should increase the deficit by around USD 1tr over the next 10 years. This won’t notably affect the US fiscal situation – the entitlement spending shortfall, which remains unad-dressed, is a much larger issue. On the margin, the temporary acceleration in growth could provide some additional room for the Federal Reserve to normal-ize monetary policy, but the effect is likely to be very limited.

Profits – from solid to stellarSuccessful tax reform would further accelerate 2018 earnings per share (EPS) growth from 8% to 15%. The primary driver of this increase is the reduction in the corporate rate from 35% to 21%. The repatriation of overseas cash will benefit earnings as companies redeploy this cash into higher-returning assets – most likely share buybacks – but this is partially offset by “base erosion” provi-sions to limit tax optimization strategies that move profits offshore.

Within US equities, the lower tax rate will primarily benefit domestically focused segments, while multinational firms would gain the most from repatriation. However, it’s important to remember that tax reform is only one driver of earnings

Justin Waring, CFAInvestment Strategy Americas, UBS Wealth Management Chief Investment Office

Alabama Senate seat Democrat Doug Jones won a surprising victory in the special election to fill the Alabama Senate seat that was vacated by Attorney General Jeff Sessions. When he takes office – likely when Congress returns from recess on 3 January 2018 – Republicans’ Senate majority will drop to one seat (with Vice President Pence casting a tiebreaking vote). This provides another strong incentive for Republicans to finalize the push while incumbent Republican Senator Luther Strange is still able to cast his vote.


IN CONTEXT PERSPECTIVE FROM THE REGIONAL CHIEF INVESTMENT OFFICE – US

and equity markets. In some cases, the greatest tax reform beneficiaries face other structural challenges that make them less attractive. Our POTUS 45: US equities: Icing on the cake report dives into these issues in greater detail.

Personal – it’s complicatedTax reform’s implications for personal taxes will be posi-tive overall, but the effects will be very unevenly distrib-uted; some taxpayers will see an outright tax cut (the top rate is being reduced from 39.6% to 37%), while others will lose important deductions. For investors, there are two important categories: Changes that merit immedi-ate attention before they go into effect, and changes that should prompt reconsideration in the New Year.

In the next few weeks, investors should focus on the immediately actionable proposals such as state and local taxes; medical expense deductions; mortgage interest deductions; and the residency requirements for gains from a home sale. These provisions, which we detail in our POTUS 45: Planning for tax reform report, should be a good starting point for personalized discussions with your CPA and your financial advisor.

Investment implicationsTax reform provides another support to the solid eco-nomic backdrop that underpins our recommended over-weight to global equities – of which US stocks are the largest segment – and another driver for our overweight to US large-cap value stocks. As we discuss in our 2018 outlook piece, Keep calm and ride the bull, successful tax reform would increase our 2018 year-end S&P 500 fore-cast range by about 9%, from 2600-2700 (no tax reform) to 2850-2950 (with tax reform). We estimate that about half of the earnings boost has already been priced into markets, so we could foresee a further 3–5% tailwind to US equity gains, but there is now some potential down-side risk if negotiations stumble.

Despite the progress that the legislation has made to date, success is not guaranteed. However, it does look like the House and Senate were successful in their confer-ence negotiations and have agreed to compromises on controversial issues such as the fate of state and local tax deductions (income and property taxes), the Alternative Minimum Tax for corporations and individuals, and the treatment of taxes for small businesses.

This clears the legislation to move to a final vote in each chamber, where the Grand Old Party can only afford to lose two Republicans in the Senate and 22 in the House. We expect this vote to occur by the middle of next week, after which it will move to the president’s desk for his sig-nature. Barring an unforeseen barrier, the process should finally wrap up around Christmas Eve, providing America with what President Trump hopes will be “a great, big, beautiful Christmas present.”

Did you know? The history of America’s tax code is partially tied to Prohibition. Prior to the 16th Amendment, which allowed Congress to levy a Federal income tax, the US government was heavily reliant on the alcohol tax, which represented about 30% of Federal revenue. Without the income tax, itís unlikely that Prohibition could have been enacted.

https://www.ubs.com/content/dam/WealthManagementAmericas/documents/potus-45-us-equities-icing-on-the-cake.pdf

https://www.ubs.com/content/dam/WealthManagementAmericas/documents/potus-45-us-equities-icing-on-the-cake.pdf

https://ubswma.bluematrix.com/docs/pdf/486307b3-7a98-41fe-ba24-38266adfc669.pdf


Detailed asset allocation taxable with non-traditional assets

Investor risk profile

Conservative Moderately conservative

Moderate Moderately aggressive

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Cash 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0

Fixed Income 69.0 –1.0 68.0 50.0 –1.5 48.5 33.0 –2.0 31.0 17.0 –2.0 15.0 5.0 –2.0 3.0

q US Fixed Income 67.0 –2.0 –1.0 65.0 48.0 –2.5 –1.0 45.5 31.0 –3.5 –1.5 27.5 15.0 –3.5 –1.5 11.5 5.0 –3.5 –1.5 1.5

US Gov't 17.0 –2.0 –1.0 15.0 2.0 –2.0 –0.5 0.0 2.0 –2.0 0.0 2.0 –2.0 0.0 2.0 –2.0 0.0

q US Municipal 46.0 +0.0 46.0 42.0 –0.5 –0.5 41.5 27.0 –1.5 –1.5 25.5 11.0 –1.5 –1.5 9.5 3.0 –1.5 –1.5 1.5

US IG Corp 4.0 +0.0 4.0 2.0 +0.0 2.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

US HY Corp 0.0 +0.0 0.0 2.0 +0.0 2.0 2.0 +0.0 2.0 2.0 +0.0 2.0 0.0 +0.0 0.0

p Int'l Fixed Income 2.0 +1.0 +1.0 3.0 2.0 +1.0 +1.0 3.0 2.0 +1.5 +1.5 3.5 2.0 +1.5 +1.5 3.5 0.0 +1.5 +1.5 1.5

Int'l Developed Markets 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

Emerging Markets 2.0 +0.0 2.0 2.0 +0.0 2.0 2.0 +0.0 2.0 2.0 +0.0 2.0 0.0 +0.0 0.0

p EM Local Currency3 0.0 +1.0 +1.0 1.0 0.0 +1.0 +1.0 1.0 0.0 +1.5 +1.5 1.5 0.0 +1.5 +1.5 1.5 0.0 +1.5 +1.5 1.5

Equity 13.0 +1.0 14.0 27.0 +1.5 28.5 44.0 +2.0 46.0 64.0 +2.0 66.0 85.0 +2.0 87.0

Global Equity4 0.0 +1.0 1.0 0.0 +1.5 1.5 0.0 +2.0 2.0 0.0 +2.0 2.0 0.0 +2.0 2.0

US Equity 8.0 +0.0 8.0 16.0 +0.0 16.0 25.0 +0.0 25.0 37.0 +0.0 37.0 46.0 +0.0 46.0

US Large cap Growth 2.5 –0.5 2.0 5.5 –1.0 4.5 8.5 –1.0 7.5 13.0 –1.0 12.0 16.0 –1.0 15.0

US Large cap Value 2.5 +0.5 3.0 5.5 +1.0 6.5 8.5 +1.0 9.5 13.0 +1.0 14.0 16.0 +1.0 17.0

US Mid cap 2.0 +0.0 2.0 3.0 +0.0 3.0 5.0 +0.0 5.0 7.0 +0.0 7.0 9.0 +0.0 9.0

US Small cap 1.0 +0.0 1.0 2.0 +0.0 2.0 3.0 +0.0 3.0 4.0 +0.0 4.0 5.0 +0.0 5.0

International Equity 5.0 +0.0 5.0 11.0 +0.0 11.0 19.0 +0.0 19.0 27.0 +0.0 27.0 39.0 +0.0 39.0

Int'l Developed Markets

5.0 +0.0 5.0 8.0 +0.0 8.0 13.0 +0.0 13.0 19.0 +0.0 19.0 28.0 +0.0 28.0


Commodities 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

Non-traditional 13.0 +0.0 13.0 18.0 +0.0 18.0 18.0 +0.0 18.0 14.0 +0.0 14.0 5.0 +0.0 5.0

Hedge Funds 13.0 +0.0 13.0 18.0 +0.0 18.0 18.0 +0.0 18.0 14.0 +0.0 14.0 5.0 +0.0 5.0

Private Equity 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

Private Real Estate 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

WMR tactical deviation legend: Overweight Underweight Neutral. Change legend: p Upgrade q Downgrade 1 Change is the difference between the tactical deviation column in the previous month and the current month.2 The current allocation column is the sum of the strategic asset allocation and the tactical deviation columns. 3 The Bloomberg Barclays EM Local Currency Government TR Index Unhedged USD is used as the benchmark for EM Local Currency FI. Our SAA allocation to EM Fixed Income is a blend of local currency (50%) and hard currency (50%) bonds.4 The MSCI All Country World Index is used as the benchmark for global equity. Source: UBS and WMA AAC, 14 December 2017. See appendix for information regarding sources of strategic asset allocations and their suitability, investor risk pro-files, and the interpretation of the suggested tactical deviations from the strategic asset allocations.


Detailed asset allocation taxable without non-traditional assets




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Cash 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0

Fixed Income 79.0 –1.0 78.0 63.0 –1.5 61.5 46.0 –2.0 44.0 27.0 –2.0 25.0 10.0 –2.0 8.0

q US Fixed Income 77.0 –2.0 –1.0 75.0 61.0 –2.5 –1.0 58.5 44.0 –3.5 –1.5 40.5 25.0 –3.5 –1.5 21.5 10.0 –3.5 –1.5 6.5

US Gov't 17.0 –2.0 –1.0 15.0 2.0 –2.0 –0.5 0.0 2.0 –2.0 0.0 2.0 –2.0 0.0 5.0 –3.5 –1.5 1.5

q US Municipal 56.0 +0.0 56.0 55.0 –0.5 –0.5 54.5 40.0 –1.5 –1.5 38.5 21.0 –1.5 –1.5 19.5 5.0 +0.0 5.0

US IG Corp 4.0 +0.0 4.0 2.0 +0.0 2.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

US HY Corp 0.0 +0.0 0.0 2.0 +0.0 2.0 2.0 +0.0 2.0 2.0 +0.0 2.0 0.0 +0.0 0.0





Equity 16.0 +1.0 17.0 32.0 +1.5 33.5 49.0 +2.0 51.0 68.0 +2.0 70.0 85.0 +2.0 87.0

Global Equity4 0.0 +1.0 1.0 0.0 +1.5 1.5 0.0 +2.0 2.0 0.0 +2.0 2.0 0.0 +2.0 2.0

US Equity 10.0 +0.0 10.0 20.0 +0.0 20.0 28.0 +0.0 28.0 40.0 +0.0 40.0 46.0 +0.0 46.0



US Mid cap 2.0 +0.0 2.0 4.0 +0.0 4.0 5.0 +0.0 5.0 8.0 +0.0 8.0 9.0 +0.0 9.0

US Small cap 1.0 +0.0 1.0 2.0 +0.0 2.0 3.0 +0.0 3.0 4.0 +0.0 4.0 5.0 +0.0 5.0


Int’l Developed Markets 6.0 +0.0 6.0 9.0 +0.0 9.0 15.0 +0.0 15.0 20.0 +0.0 20.0 28.0 +0.0 28.0


Commodities 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0



Detailed asset allocation non-taxable with non-traditional assets




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Cash 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0

Fixed Income 69.0 –1.0 68.0 50.0 –1.5 48.5 33.0 –2.0 31.0 17.0 –2.0 15.0 5.0 –2.0 3.0

q US Fixed Income 64.0 –2.0 –1.0 62.0 45.0 –2.5 –1.0 42.5 29.0 –3.5 –1.5 25.5 14.0 –3.5 –1.5 10.5 5.0 –3.5 –1.5 1.5

q US Gov't 35.0 –2.0 –1.0 33.0 25.0 –2.5 –1.0 22.5 16.0 –3.5 –1.5 12.5 7.0 –3.5 –1.5 3.5 5.0 –3.5 –1.5 1.5

US Municipal 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

US IG Corp 24.0 +0.0 24.0 15.0 +0.0 15.0 8.0 +0.0 8.0 2.0 +0.0 2.0 0.0 +0.0 0.0

US HY Corp 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0 0.0 +0.0 0.0




p EM Local currency3 0.0 +1.0 +1.0 1.0 0.0 +1.0 +1.0 1.0 0.0 +1.5 +1.5 1.5 0.0 +1.5 +1.5 1.5 0.0 +1.5 +1.5 1.5

Equity 10.0 +1.0 11.0 25.0 +1.5 26.5 42.0 +2.0 44.0 62.0 +2.0 64.0 85.0 +2.0 87.0

Global Equity4 0.0 +1.0 1.0 0.0 +1.5 1.5 0.0 +2.0 2.0 0.0 +2.0 2.0 0.0 +2.0 2.0

US Equity 6.0 +0.0 6.0 14.0 +0.0 14.0 22.0 +0.0 22.0 33.0 +0.0 33.0 45.0 +0.0 45.0



US Mid cap 1.0 +0.0 1.0 3.0 +0.0 3.0 4.0 +0.0 4.0 6.0 +0.0 6.0 8.0 +0.0 8.0

US Small cap 1.0 +0.0 1.0 1.0 +0.0 1.0 2.0 +0.0 2.0 3.0 +0.0 3.0 5.0 +0.0 5.0




Commodities 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

Non-traditional 16.0 +0.0 16.0 20.0 +0.0 20.0 20.0 +0.0 20.0 16.0 +0.0 16.0 5.0 +0.0 5.0

Hedge Funds 16.0 +0.0 16.0 20.0 +0.0 20.0 20.0 +0.0 20.0 16.0 +0.0 16.0 5.0 +0.0 5.0

Private Equity 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0




Detailed asset allocation non-taxable without non-traditional assets




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Cash 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0

Fixed Income 79.0 –1.0 78.0 63.0 –1.5 61.5 46.0 –2.0 44.0 27.0 –2.0 25.0 10.0 –2.0 8.0

q US Fixed Income 74.0 –2.0 –1.0 72.0 58.0 –2.5 –1.0 55.5 42.0 –3.5 –1.5 38.5 24.0 –3.5 –1.5 20.5 10.0 –3.5 –1.5 6.5

q US Gov't 35.0 –2.0 –1.0 33.0 25.0 –2.5 –1.0 22.5 16.0 –3.5 –1.5 12.5 7.0 –3.5 –1.5 3.5 5.0 –3.5 –1.5 1.5

US Municipal 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

US IG Corp 34.0 +0.0 34.0 28.0 +0.0 28.0 21.0 +0.0 21.0 12.0 +0.0 12.0 5.0 +0.0 5.0

US HY Corp 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0 0.0 +0.0 0.0





Equity 16.0 +1.0 17.0 32.0 +1.5 33.5 49.0 +2.0 51.0 68.0 +2.0 70.0 85.0 +2.0 87.0

Global Equity4 0.0 +1.0 1.0 0.0 +1.5 1.5 0.0 +2.0 2.0 0.0 +2.0 2.0 0.0 +2.0 2.0

US Equity 10.0 +0.0 10.0 18.0 +0.0 18.0 26.0 +0.0 26.0 35.0 +0.0 35.0 45.0 +0.0 45.0



US Mid cap 2.0 +0.0 2.0 3.0 +0.0 3.0 5.0 +0.0 5.0 7.0 +0.0 7.0 8.0 +0.0 8.0

US Small cap 1.0 +0.0 1.0 2.0 +0.0 2.0 3.0 +0.0 3.0 4.0 +0.0 4.0 5.0 +0.0 5.0




Commodities 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0



Publication note The All Equity and All Fixed Income port-folios complement our balanced portfolios and offer more granular implementation of our House View. While we generally do not recommend that investors hold portfolios consisting of only stocks or only bonds, the All Equity and All Fixed Income portfolios can be used by investors who want to complement their existing holdings.

In the All Equity portfolio, tactical tilts will be based on the corresponding tilts to the Equity asset classes in our balanced port-folio (moderate risk profile, taxable with-out alternative investments). The amount of cash in the All Equity portfolio will vary one-for-one with the overall overweight/underweight on equities in the balanced portfolio, subject to a 3% maximum tilt from the 5% cash allocation. This allows us to use the cash allocation to express a tactical preference between stocks and fixed income. A special feature of the All Equity portfolio is that it includes “carve-outs”: 3% allocations to our preferred sectors within US large-caps as well as our preferred countries within both interna-tional developed markets and the emerg-ing markets. A maximum of two sectors/countries of each type may be selected for carve-outs. The All Fixed Income portfolios include both taxable and non-taxable versions. In addition to the fixed income asset classes in the balanced portfolios, the non-taxable version incorporates an additional alloca-tion to Mortgage Backed Securities. Tacti-cal tilts will be based on the corresponding tilts to the Fixed Income asset classes in our balanced portfolios (moderate risk profile without alternative investments, taxable or non-taxable respectively), but only when there is a preference between the fixed income asset classes. For exam-ple, an overweight on high yield corporate bonds offset by an underweight on gov-ernment bonds in the balanced portfolio would be applied to the All Fixed Income portfolios. However, an overweight on US equities versus US government bonds in the balanced portfolio would not be re-flected in the All Fixed Income portfolios. Further, the tilts in the All Fixed Income portfolios will typically be scaled up to twice the size of the tilts in the balanced portfolio.

All equity All fixed income, taxable

All fixed income, non-taxable

All figures in %

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Cash 5.0 –2.0 3.0 5.0 +0.0 5.0 5.0 +0.0 5.0

Fixed Income 0.0 +0.0 0.0 95.0 +0.0 95.0 95.0 +0.0 95.0

US Fixed Income 0.0 +0.0 0.0 92.5 –3.0 –3.0 89.5 89.0 –3.0 –3.0 86.0

US Gov't 0.0 +0.0 0.0 19.0 –3.0 –3.0 16.0 33.0 –3.0 –3.0 30.0

US MBS 0.0 +0.0 0.0 0.0 +0.0 0.0 9.0 +0.0 9.0

US Municipal 0.0 +0.0 0.0 71.0 +0.0 71.0 0.0 +0.0 0.0

US IG Corp 0.0 +0.0 0.0 0.0 +0.0 0.0 41.0 +0.0 41.0

US HY Corp 0.0 +0.0 0.0 2.5 +0.0 2.5 6.0 +0.0 6.0

Int’l Fixed Income 0.0 +0.0 0.0 2.5 +3.0 +3.0 5.5 6.0 +3.0 +3.0 9.0

Int'l Developed Markets 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

Emerging Markets 0.0 +0.0 0.0 2.5 +0.0 2.5 6.0 +0.0 6.0

EM Local Currency3 0.0 +0.0 0.0 0.0 +3.0 +3.0 3.0 0.0 +3.0 +3.0 3.0

Equity 95.0 +2.0 97.0 0.0 +0.0 0.0 0.0 +0.0 0.0

Global Equity4 0.0 +2.0 2.0 0.0 +0.0 0.0 0.0 +0.0 0.0

US Equity 53.0 +0.0 53.0 0.0 +0.0 0.0 0.0 +0.0 0.0

US Large cap Growth 7.0 –1.0 6.0 0.0 +0.0 0.0 0.0 +0.0 0.0

US Large cap Value 7.0 +1.0 8.0 0.0 +0.0 0.0 0.0 +0.0 0.0

US Large-cap total market 23.0 –3.0 20.0 0.0 +0.0 0.0 0.0 +0.0 0.0

Energy Sector 0.0 +3.0 3.0 0.0 +0.0 0.0 0.0 +0.0 0.0

US Mid cap 10.0 +0.0 10.0 0.0 +0.0 0.0 0.0 +0.0 0.0

US Small cap 6.0 +0.0 6.0 0.0 +0.0 0.0 0.0 +0.0 0.0

International Equity 42.0 +0.0 42.0 0.0 +0.0 0.0 0.0 +0.0 0.0

Int'l Developed Markets 30.0 +0.0 30.0 0.0 +0.0 0.0 0.0 +0.0 0.0

Emerging Markets 12.0 –6.0 6.0 0.0 +0.0 0.0 0.0 +0.0 0.0

China 0.0 +3.0 3.0 0.0 +0.0 0.0 0.0 +0.0 0.0

Russia 0.0 +3.0 3.0 0.0 +0.0 0.0 0.0 +0.0 0.0

WMR tactical deviation legend: Overweight Underweight Neutral. Change legend: p Upgrade q Downgrade 1 Change is the difference between the tactical deviation column in the previous month and the current month.2 The current allocation column is the sum of the strategic asset allocation and the tactical deviation columns. 3 The Bloomberg Barclays EM Local Currency Government TR Index Unhedged USD is used as the benchmark for EM Local Currency FI. Our SAA allocation to EM Fixed Income is a blend of local currency (50%) and hard currency (50%) bonds. 4 The MSCI All Country World Index is used as the benchmark for global equity. Source: UBS and WMA AAC, 14 December 2017. See appendix for information regarding sources of strategic asset allocations and their suitability, investor risk profiles, and the interpretation of the suggested tactical deviations from the strategic asset allocations.

Detailed asset allocation All equity and all fixed income models


Taxable ultra high net worth investor with non-traditional assets




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Cash 3.0 +0.0 3.0 3.0 +0.0 3.0 3.0 +0.0 3.0 3.0 +0.0 3.0 3.0 +0.0 3.0

Fixed Income 56.0 –1.0 55.0 47.0 –1.5 45.5 30.0 –2.0 28.0 19.0 –2.0 17.0 5.0 –2.0 3.0

q US Fixed Income 54.0 –2.0 –1.0 52.0 45.0 –2.5 –1.0 42.5 28.0 –3.5 –1.5 24.5 17.0 –3.5 –1.5 13.5 5.0 –3.5 –1.5 1.5

US Gov't 2.0 –2.0 –1.0 0.0 2.0 –2.0 –0.5 0.0 2.0 –2.0 0.0 2.0 –2.0 0.0 0.0 +0.0 0.0

q US Municipal 48.0 +0.0 48.0 39.0 –0.5 –0.5 38.5 24.0 –1.5 –1.5 22.5 13.0 –1.5 –1.5 11.5 5.0 –3.5 –1.5 1.5

US IG Corp 4.0 +0.0 4.0 2.0 +0.0 2.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

US HY Corp 0.0 +0.0 0.0 2.0 +0.0 2.0 2.0 +0.0 2.0 2.0 +0.0 2.0 0.0 +0.0 0.0





Equity 16.0 +1.0 17.0 25.0 +1.5 26.5 37.0 +2.0 39.0 48.0 +2.0 50.0 62.0 +2.0 64.0

Global Equity4 0.0 +1.0 1.0 0.0 +1.5 1.5 0.0 +2.0 2.0 0.0 +2.0 2.0 0.0 +2.0 2.0

US Equity 10.0 +0.0 10.0 14.0 +0.0 14.0 20.0 +0.0 20.0 27.0 +0.0 27.0 35.0 +0.0 35.0



US Mid cap 2.0 +0.0 2.0 2.0 +0.0 2.0 4.0 +0.0 4.0 5.0 +0.0 5.0 7.0 +0.0 7.0

US Small cap 1.0 +0.0 1.0 2.0 +0.0 2.0 2.0 +0.0 2.0 3.0 +0.0 3.0 4.0 +0.0 4.0




Commodities 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

Non-traditional 25.0 +0.0 25.0 25.0 +0.0 25.0 30.0 +0.0 30.0 30.0 +0.0 30.0 30.0 +0.0 30.0

Hedge Funds 10.0 +0.0 10.0 10.0 +0.0 10.0 10.0 +0.0 10.0 5.0 +0.0 5.0 0.0 +0.0 0.0

Private Equity 10.0 +0.0 10.0 10.0 +0.0 10.0 15.0 +0.0 15.0 20.0 +0.0 20.0 25.0 +0.0 25.0




Taxable ultra high net worth investor without non-traditional assets




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Cash 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0

Fixed Income 79.0 –1.0 78.0 63.0 –1.5 61.5 46.0 –2.0 44.0 27.0 –2.0 25.0 10.0 –2.0 8.0

q US Fixed Income 77.0 –2.0 –1.0 75.0 61.0 –2.5 –1.0 58.5 44.0 –3.5 –1.5 40.5 25.0 –3.5 –1.5 21.5 10.0 –3.5 –1.5 6.5

US Gov't 17.0 –2.0 –1.0 15.0 2.0 –2.0 –0.5 0.0 2.0 –2.0 0.0 2.0 –2.0 0.0 5.0 –3.5 –1.5 1.5

q US Municipal 56.0 +0.0 56.0 55.0 –0.5 –0.5 54.5 40.0 –1.5 –1.5 38.5 21.0 –1.5 –1.5 19.5 5.0 +0.0 5.0

US IG Corp 4.0 +0.0 4.0 2.0 +0.0 2.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

US HY Corp 0.0 +0.0 0.0 2.0 +0.0 2.0 2.0 +0.0 2.0 2.0 +0.0 2.0 0.0 +0.0 0.0





Equity 16.0 +1.0 17.0 32.0 +1.5 33.5 49.0 +2.0 51.0 68.0 +2.0 70.0 85.0 +2.0 87.0

Global Equity4 0.0 +1.0 1.0 0.0 +1.5 1.5 0.0 +2.0 2.0 0.0 +2.0 2.0 0.0 +2.0 2.0

US Equity 10.0 +0.0 10.0 20.0 +0.0 20.0 28.0 +0.0 28.0 40.0 +0.0 40.0 46.0 +0.0 46.0



US Mid cap 2.0 +0.0 2.0 4.0 +0.0 4.0 5.0 +0.0 5.0 8.0 +0.0 8.0 9.0 +0.0 9.0

US Small cap 1.0 +0.0 1.0 2.0 +0.0 2.0 3.0 +0.0 3.0 4.0 +0.0 4.0 5.0 +0.0 5.0




Commodities 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0



Tax-exempt institutional investor with non-traditional assets




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Cash 3.0 +0.0 3.0 3.0 +0.0 3.0 3.0 +0.0 3.0 3.0 +0.0 3.0 3.0 +0.0 3.0

Fixed Income 55.0 –1.0 54.0 41.0 –1.5 39.5 29.0 –2.0 27.0 16.0 –2.0 14.0 9.0 –2.0 7.0

q US Fixed Income 50.0 –2.0 –1.0 48.0 39.0 –2.5 –1.0 36.5 27.0 –3.5 –1.5 23.5 14.0 –3.5 –1.5 10.5 9.0 –3.5 –1.5 5.5

q US Gov't 36.0 –2.0 –1.0 34.0 28.0 –2.5 –1.0 25.5 18.0 –3.5 –1.5 14.5 11.0 –3.5 –1.5 7.5 9.0 –3.5 –1.5 5.5

US Municipal 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

US IG Corp 9.0 +0.0 9.0 7.0 +0.0 7.0 6.0 +0.0 6.0 0.0 +0.0 0.0 0.0 +0.0 0.0

US HY Corp 5.0 +0.0 5.0 4.0 +0.0 4.0 3.0 +0.0 3.0 3.0 +0.0 3.0 0.0 +0.0 0.0





Equity 12.0 +1.0 13.0 26.0 +1.5 27.5 38.0 +2.0 40.0 51.0 +2.0 53.0 58.0 +2.0 60.0

Global Equity4 0.0 +1.0 1.0 0.0 +1.5 1.5 0.0 +2.0 2.0 0.0 +2.0 2.0 0.0 +2.0 2.0

US Equity 8.0 +0.0 8.0 13.0 +0.0 13.0 19.0 +0.0 19.0 25.0 +0.0 25.0 28.0 +0.0 28.0



US Mid cap 2.0 +0.0 2.0 3.0 +0.0 3.0 4.0 +0.0 4.0 5.0 +0.0 5.0 6.0 +0.0 6.0

US Small cap 0.0 +0.0 0.0 1.0 +0.0 1.0 2.0 +0.0 2.0 3.0 +0.0 3.0 3.0 +0.0 3.0




Commodities 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

Non-traditional 30.0 +0.0 30.0 30.0 +0.0 30.0 30.0 +0.0 30.0 30.0 +0.0 30.0 30.0 +0.0 30.0

Hedge Funds 13.0 +0.0 13.0 13.0 +0.0 13.0 13.0 +0.0 13.0 10.0 +0.0 10.0 0.0 +0.0 0.0

Private Equity 10.0 +0.0 10.0 11.0 +0.0 11.0 12.0 +0.0 12.0 15.0 +0.0 15.0 25.0 +0.0 25.0




Tax-exempt institutional investor without non-traditional assets




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Cash 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0

Fixed Income 79.0 –1.0 78.0 63.0 –1.5 61.5 46.0 –2.0 44.0 27.0 –2.0 25.0 10.0 –2.0 8.0

q US Fixed Income 74.0 –2.0 –1.0 72.0 58.0 –2.5 –1.0 55.5 42.0 –3.5 –1.5 38.5 24.0 –3.5 –1.5 20.5 10.0 –3.5 –1.5 6.5

q US Gov't 35.0 –2.0 –1.0 33.0 25.0 –2.5 –1.0 22.5 16.0 –3.5 –1.5 12.5 7.0 –3.5 –1.5 3.5 5.0 –3.5 –1.5 1.5

US Municipal 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

US IG Corp 34.0 +0.0 34.0 28.0 +0.0 28.0 21.0 +0.0 21.0 12.0 +0.0 12.0 5.0 +0.0 5.0

US HY Corp 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0 5.0 +0.0 5.0 0.0 +0.0 0.0





Equity 16.0 +1.0 17.0 32.0 +1.5 33.5 49.0 +2.0 51.0 68.0 +2.0 70.0 85.0 +2.0 87.0

Global Equity4 0.0 +1.0 1.0 0.0 +1.5 1.5 0.0 +2.0 2.0 0.0 +2.0 2.0 0.0 +2.0 2.0

US Equity 10.0 +0.0 10.0 18.0 +0.0 18.0 26.0 +0.0 26.0 35.0 +0.0 35.0 45.0 +0.0 45.0



US Mid cap 2.0 +0.0 2.0 3.0 +0.0 3.0 5.0 +0.0 5.0 7.0 +0.0 7.0 8.0 +0.0 8.0

US Small cap 1.0 +0.0 1.0 2.0 +0.0 2.0 3.0 +0.0 3.0 4.0 +0.0 4.0 5.0 +0.0 5.0




Commodities 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0



US equity industry group allocation (%)

S&P 500 WMR Tactical deviation2 CurrentBenchmark Numeric Symbol allocation3

allocation1 Previous Current Previous Current

Consumer Discretionary 12.1 +0.0 +0.0 n n 12.1

Consumer Staples 8.2 –2.0 –1.0 – – 7.2

Energy 5.8 +2.0 +2.0 ++ ++ 7.8

Financials 14.9 +1.0 +1.0 + + 15.9

Healthcare 14.1 +0.0 –1.0 – – 13.1

Industrials 10.1 +0.0 +0.0 n n 10.1

Information Technology 23.9 +1.0 +1.0 + + 24.9

Materials 2.9 +0.0 +0.0 n n 2.9

Real Estate 2.9 +0.0 +0.0 n n 2.9

Telecom 2.0 +0.0 +0.0 n n 2.0

Utilities 3.1 –2.0 –2.0 – – – – 1.1

Notes: For US equity sub-sector recommendations please see the “Equity Preference List” for each sector. These reports are published on a monthly basis and can be found on the Online Services website in the Research > Equities section. The benchmark allocation, as well as the tactical deviations, are intended to be applicable to the US equity portion of a portfolio across investor risk profiles.1 The benchmark allocation is based on S&P 500 weights.2 See “Deviations from strategic asset allocation “ in the Appendix of UBS House View for an explanation regarding the interpretation of the suggested tactical deviations from benchmark. The “current” column refers to the tactical deviation that applies as of the date of this publication. The “previous” column refers to the tactical deviation that was in place at the date of the previous edition of the previous edition of UBS House View or the last UBS House View Update.3 The current allocation column is the sum of the S&P 500 benchmark allocation and the CIO WMR tactical deviation columns.

Source: UBS, as of 13 December 2017.

Additional asset allocation models

Scale for Investment Strategy charts

Symbol Description/Definition Symbol Description/Definition

+ moderate overweight vs. benchmark – moderate underweight vs. benchmark

++ overweight vs. benchmark – – underweight vs. benchmark

+++ strong overweight vs. benchmark – – – strong underweight vs. benchmark

n Neutral, i.e. on benchmark n/a not applicable


Source: UBS, as of 14 December 2017

underweight neutral overweight

Fig. 1: Emerging market preferences

Brazil

Chile

Colombia

Mexico

Peru

Poland

Czech Republic

Hungary

Turkey

Russia

South Africa

China

Asi

aLa

tAm

EMEA

Malaysia

Philippines

Taiwan

Thailand

India

Indonesia

South Korea

oldnew



Fig. 2: Currency preferences

CHF

SEK

NOK

CAD

NZD

EM FX basket

NZD

DM FX basket

EUR

GBP

USD

JPY

oldnew



Fig. 3: Equity preferences

Eurozone

Switzerland

Australia

Hong Kong

Japan

Singapore

Global

Canada

USA

Equities total

Nor

thA

mer

icaEu

rop

eA

PAC

UK

oldnew

underweight

– – – – – – n + + + + + +

overweight

Fig. 4: US sector preferences


oldnew

Energy

Financials

Technology

Cons Disc

Industrials

Materials

Real Estate

Telecom

Cons Staples

Healthcare

Utilities

Preferences


Investment CommitteeGlobal Investment Process and Committee descriptionThe UBS investment process is designed to achieve replica-ble, high-quality results through applying intellectual rigor, strong process governance, clear responsibility, and a culture of challenge.

Based on the analyses and assessments conducted and vet-ted throughout the investment process, the Chief Investment Officer (CIO) formulates the UBS Wealth Management Invest-ment House View (e.g., overweight, neutral, underweight stances for asset classes and market segments relative to their benchmark allocation) at the Global Investment Committee (GIC). Senior investment professionals from across UBS, com-plemented by selected external experts, debate and rigorously challenge the investment strategy to ensure consistency and risk control.

Global Investment Committee compositionThe GIC is comprised of 10 members, representing top market and investment expertise from across all divisions of UBS:

• Mark Haefele (Chair)• Mark Andersen• Jorge Mariscal• Mike Ryan• Simon Smiles• Tan Min Lan• Themis Themistocleous• Paul Donovan• Bruno Marxer (*)• Andreas Koester

WMA Asset Allocation Committee descriptionWe recognize that a globally derived house view is most ef-fective when complemented by local perspective and applica-tion. As such, UBS has formed a Wealth Management Ameri-cas Asset Allocation Committee (WMA AAC). WMA AAC is responsible for the development and monitoring of UBS WMA’s strategic asset allocation models and capital market assumptions. The WMA AAC sets parameters for the CIO Americas, WM Investment Strategy Group to follow during the translation process of the GIC’s House Views and the in-corporation of US-specific asset class views into the US-spe-cific tactical asset allocation models.

WMA Asset Allocation Committee compositionThe WMA Asset Allocation Committee is comprised of five members:

• Mike Ryan • Michael Crook • Richard Hollmann (*) • Brian Rose• Jeremy Zirin

(*) Business areas distinct from Chief Investment Office Amer-icas, Wealth Management

This report contains statements that constitute “forward-looking state-ments,” including but not limited to statements relating to the current and expected state of the securities market and capital market assump tions. While these forward-looking statements represent our judg ments and future expectations concerning the matters discussed in this document, a number of risks, uncertainties, changes in the market, and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to (1) the extent and nature of future developments in the US market and in other market segments; (2) other market and macro-economic developments, including

movements in local and international securities markets, credit spreads, currency exchange rates and interest rates, whether or not arising directly or indirectly from the current mar ket crisis; (3) the impact of these developments on other markets and asset classes. UBS is not under any obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.

Cautionary statement regarding forward-looking statements


Explanations about asset classes

Scale for tactical deviation charts

Symbol Description/Definition Symbol Description/Definition Symbol Description/Definition

+ moderate overweight vs. benchmark – moderate underweight vs. benchmark n neutral, i.e., on benchmark

++ overweight vs. benchmark – – underweight vs. benchmark n/a not applicable

+++ strong overweight vs. benchmark – – – strong underweight vs. benchmark

Source: UBS

Sources of strategic asset allocations and investor risk profilesStrategic asset allocations represent the longer-term allocation of assets that is deemed suitable for a particular investor. The strategic asset allocation models discussed in this publication, and the capital market assumptions used for the strategic asset allocations, were developed and approved by the WMA AAC.

The strategic asset allocations are provided for illustrative purposes only and were designed by the WMA AAC for hypothetical US investors with a total return objective under five different Investor Risk Profiles ranging from conservative to aggressive. In general, strategic asset allocations will differ among investors according to their individual circumstances, risk tolerance, return objectives and time horizon. Therefore, the strategic asset allocations in this publication may not be suitable for all investors or investment goals and should not be used as the sole basis of any investment decision. Minimum net worth requirements may apply to allocations to non-traditional assets. As always, please consult your UBS Financial Advisor to see how these weightings should be applied or modified according to your individual profile and investment goals.

The process by which the strategic asset allocations were derived is described in detail in the publication entitled “Strategic Asset Allocation (SAA) Methodology and Portfolios.” Your Financial Advisor can provide you with a copy.

Deviations from strategic asset allocation or benchmark allocationThe recommended tactical deviations from the strategic asset allocation or benchmark allocation are provided by the Global Investment Committee and the Investment Strategy Group within CIO Americas, Wealth Management. They reflect the short- to medium-term assessment of market opportunities and risks in the respective asset classes and market segments. Positive/zero/negative tactical deviations correspond to an overweight/neutral/under-weight stance for each respective asset class and market segment relative to their strategic allocation. The current allocation is the sum of the strategic asset allocation and the tactical deviation.

Note that the regional allocations on the Equities and Bonds pages in UBS House View are provided on an unhedged basis (i.e., it is assumed that in-vestors carry the underlying currency risk of such investments) unless other-wise stated. Thus, the deviations from the strategic asset allocation reflect the views of the underlying equity and bond markets in combination with the assessment of the associated currencies. The detailed asset allocation tables integrate the country preferences within each asset class with the asset class preferences in UBS House View.

Asset allocation does not assure profits or prevent against losses from an investment portfolio or accounts in a declining market.

Statement of riskEquities - Stock market returns are difficult to forecast because of fluctuations in the economy, investor psychology, geopolitical conditions and other important variables.

Fixed income - Bond market returns are difficult to forecast because of fluctuations in the economy, investor psychology, geopolitical conditions and other important variables. Corporate bonds are subject to a number of risks, including credit risk, interest rate risk, liquidity risk, and event risk. Though historical default rates are low on investment grade corporate bonds, perceived adverse changes in the credit quality of an issuer may negatively affect the market value of securities. As interest rates rise, the value of a fixed coupon security will likely decline. Bonds are subject to market value fluctuations, given changes in the level of risk-free interest rates. Not all bonds can be sold quickly or easily on the open market. Prospective investors should consult their tax advisors concerning the federal, state, local, and non-U.S. tax consequences of owning any securities referenced in this report.

Preferred securities - Prospective investors should consult their tax advisors concerning the federal, state, local, and non-U.S. tax consequences of owning preferred stocks. Preferred stocks are subject to market value

fluctuations, given changes in the level of interest rates. For example, if interest rates rise, the value of these securities could decline. If preferred stocks are sold prior to maturity, price and yield may vary. Adverse changes in the credit quality of the issuer may negatively affect the market value of the securities. Most preferred securities may be redeemed at par after five years. If this occurs, holders of the securities may be faced with a reinvestment decision at lower future rates. Preferred stocks are also subject to other risks, including illiquidity and certain special redemption provisions.

Municipal bonds - Although historical default rates are very low, all municipal bonds carry credit risk, with the degree of risk largely following the particular bond’s sector. Additionally, all municipal bonds feature valuation, return, and liquidity risk. Valuation tends to follow internal and external factors, including the level of interest rates, bond ratings, supply factors, and media reporting. These can be difficult or impossible to project accurately. Also, most municipal bonds are callable and/or subject to earlier than expected redemption, which can reduce an investor’s total return. Because of the large number of municipal issuers and credit structures, not all bonds can be easily or quickly sold on the open market.


Appendix

Nontraditional AssetsNontraditional asset classes are alternative investments that include hedge funds, private equity, real estate, and man-aged futures (collectively, alternative investments). Interests of alternative investment funds are sold only to qualified investors, and only by means of offering documents that include information about the risks, performance and expenses of alternative invest-ment funds, and which clients are urged to read carefully before subscribing and retain. An investment in an alternative investment fund is speculative and involves significant risks. Specifically, these investments (1) are not mutual funds and are not subject to the same regulatory requirements as mutual funds; (2) may have performance that is volatile, and investors may lose all or a substantial amount of their investment; (3) may engage in leverage and other speculative investment practices that may increase the risk of investment loss; (4) are long-term, illiquid investments; there is generally no secondary market for the interests of a fund, and none is expected to develop; (5) interests of alternative investment funds typically will be illiquid and subject to restrictions on transfer; (6) may not be required to provide periodic pricing or valuation information to investors; (7) generally involve complex tax strategies and there may be delays

Emerging Market InvestmentsInvestors should be aware that Emerging Market assets are subject to, among others, potential risks linked to currency volatility, abrupt changes in the cost of capital and the economic growth outlook, as well as regulatory and sociopolitical risk, interest rate risk and higher credit risk. Assets can sometimes be very illiquid and liquidity condi-tions can abruptly worsen. CIO Americas, WM generally recommends only those securities it believes have been registered under Federal US registration rules (Section 12 of the Securities Exchange Act of 1934) and individual State registration rules (commonly known as “Blue Sky” laws). Prospective investors should be aware that to the extent permitted under US law, CIO Americas, WM may from time to time recommend bonds that are not registered under US or State securities laws. These bonds may be issued in jurisdictions where the level of required disclosures to be made by issuers is not as frequent or complete as that required by US laws.

For more background on emerging markets generally, see the CIO Americas, WM Education Notes “Investing in Emerging Markets (Part 1): Equities,” 27 August 2007, “Emerging Market Bonds: Under-standing Emerging Market Bonds,” 12 August 2009 and “Emerging Markets Bonds: Understanding Sovereign Risk,” 17 December 2009.

Investors interested in holding bonds for a longer period are advised to select the bonds of those sovereigns with the highest credit ratings (in the investment-grade band). Such an approach should decrease the risk that an investor could end up holding bonds on which the sovereign has defaulted. Subinvestment-grade bonds are recommended only for clients with a higher risk tolerance and who seek to hold higher-yielding bonds for shorter periods only.

in distributing tax information to investors; (8) are subject to high fees, including management fees and other fees and expenses, all of which will reduce profits.

Interests in alternative investment funds are not deposits or obliga-tions of, or guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other governmental agency. Prospective investors should understand these risks and have the financial ability and willingness to accept them for an extended period of time before making an investment in an alternative investment fund, and should consider an alternative investment fund as a supplement to an overall investment program.

In addition to the risks that apply to alternative investments gener-ally, the following are additional risks related to an investment in these strategies:

• Hedge Fund Risk: There are risks specifically associated with investing in hedge funds, which may include risks associated with investing in short sales, options, small-cap stocks, “junk bonds,” derivatives, distressed securities, non-US securities and illiquid investments.

• Managed Futures: There are risks specifically associated with investing in managed futures programs. For example, not all man-agers focus on all strategies at all times, and managed futures strategies may have material directional elements.

• Real Estate: There are risks specifically associated with invest-ing in real estate products and real estate investment trusts. They involve risks associated with debt, adverse changes in general economic or local market conditions, changes in governmental, tax, real estate and zoning laws or regulations, risks associated with capital calls and, for some real estate products, the risks associated with the ability to qualify for favorable treatment under the federal tax laws.

• Private Equity: There are risks specifically associated with investing in private equity. Capital calls can be made on short notice, and the failure to meet capital calls can result in significant adverse conse-quences including, but not limited to, a total loss of investment.

• Foreign Exchange/Currency Risk: Investors in securities of issu-ers located outside of the United States should be aware that even for securities denominated in US dollars, changes in the exchange rate between the US dollar and the issuer’s “home” currency can have unexpected effects on the market value and liquidity of those securities. Those securities may also be affected by other risks (such as political, economic or regulatory changes) that may not be readily known to a US investor.


Research publications from Chief Investment Office Americas, Wealth Management, formerly known as CIO Wealth Management Research, are published by UBS Wealth Management and UBS Wealth Manage-ment Americas, Business Divisions of UBS AG or an affiliate thereof (collectively, UBS). In certain countries UBS AG is referred to as UBS SA. This publication is for your information only and is not intended as an offer, or a solicitation of an offer, to buy or sell any investment or other specific product. The analysis contained herein does not con-stitute a personal recommendation or take into account the particular investment objectives, investment strategies, financial situation and needs of any specific recipient. It is based on numerous assumptions. Different assumptions could result in materially different results. We recommend that you obtain financial and/or tax advice as to the implications (including tax) of investing in the manner described or in any of the products mentioned herein. Certain services and products are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis and/or may not be eligible for sale to all inves-tors. All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to its accuracy or completeness (other than disclosures relating to UBS). All information and opinions as well as any prices indicated are current only as of the dateof this report, and are subject to change without notice. Opinions expressed herein may differ or be contrary to tho-seexpressed by other business areas or divisions of UBS as a result of using different assumptions and/or criteria. At any time, investment decisions (including whether to buy, sell or hold securities) made by UBS and its employees may differ from or be contrary to the opinions expressed in UBS research publications. Some investments may not be readily realizable since the market in the securities is illiquid and therefore valuing the investment and identifying the risk to which you are exposed may be difficult to quantify. UBS relies on informa-tion barriers to control the flow of information contained in one or more areas within UBS, into other areas, units, divisions or affiliates of UBS. Futures and options trading is considered risky. Past perfor-mance of an investment is no guarantee for its future performance. Some investments may be subject to sudden and large falls in value and on realization you may receive back less than you invested or may be required to pay more. Changes in FX rates may have an adverse effect on the price, value or income of an investment. This report is for distribution only under such circumstances as may be permitted by applicable law.

Distributed to US persons by UBS Financial Services Inc. or UBS Securi-ties LLC, subsidiaries of UBS AG. UBS Switzerland AG, UBS Deutschland AG, UBS Bank, S.A., UBS Brasil Administradora de Valores Mobiliarios Ltda, UBS Asesores Mexico, S.A. de C.V., UBS Securities Japan Co., Ltd, UBS Wealth Management Israel Ltd and UBS Menkul Degerler AS are affiliates of UBS AG. UBS Financial Services Incorporated of PuertoRico is a subsidiary of UBS Financial Services Inc. UBS Finan-cial Services Inc. accepts responsibility for the content of a report prepared by a non-US affiliate when it distributes reports to US per-sons. All transactions by a US person in the securities mentioned in this report should be effected through a US-registered broker dealer affiliated with UBS, and not through a non-US affiliate. The con-tents of this report have not been and will not be approved by any securities or investment authority in the United States or elsewhere. UBS Financial Services Inc. is not acting as a municipal advisor to any municipal entity or obligated person within the meaning of Section 15B of the Securities Exchange Act (the “Municipal Advisor Rule”) and the opinions or views contained herein are not intended to be, and do not constitute, advice within the meaning of the Municipal Advisor Rule.

UBS specifically prohibits the redistribution or reproduction of this material in whole or in part without the prior written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect.

Version as per May 2017.

© UBS 2017. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

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