UBS House View
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Contents
06 Infographic
08 World in
transition
64
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20
Asset classes
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32 Behavioral
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40 Our asset
allocation
models
43 Alternative
investment
concepts
46 Sustainable
investing
48 Longer-term
investment
54 Appendix
57 Publication
details
58 Disclaimers
36 Investment
philosophy
39 Asset allocation
modeling
14.2%
2015
2020
2040
The US is likely to become a net
exporter of energy within the next
ŖWFZFBST
Spending for social security and
healthcare programs will rise to
14.2% of GDP by 2040.
15%
10%
2025
2050
The European portion
of global GDP (at PPP)
could fall to less than
15% by 2025 and less
than 10% by 2050.
3%
2025
Three quarters of the globe is
covered by water, but only 3%
is freshwater. There will be
investment opportunities in
water treatment, management
and infrastructure.
EM
Current infrastructure bottlenecks mean EM
will account for almost two-thirds of global
infrastructure spending by 2025.
2016
CO2
2001
2050
CO2 emissions from non-OECD countries
have doubled in the past 15 years and will
go on rising, due to economic growth and
urbanization.
By 2050, Germany
will only have
around 2 workers
for every retiree.
Middle-Eastern oil
producers may
accept Chinese
yuan in exchange
for oil — petroyuan.
CNY
CNY
CCNNYY
2x
2050
Today
1x
2,5x
Unlike Europe, Africa faces a
“youth bulge.” Its working
age population will be 2.5x
today’s number by 2050.
EM
Emerging market healthcare spending will
increase at double the rate of the rest of the
world, thanks to a growing middle class.
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Mark Haefele,
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Choosing sides
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UBS House View – Years Ahead
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The world’s big questions
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Same problems, different outcomes
US and Eurozone, debt-to-GDP and stock
market price performance
200
150
100
50
US gross debt to GDP (%)
Eurozone debt to GDP (%)
20
14
20
13
20
12
20
11
20
10
20
09
08
20
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20
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07
0
05
Answers
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Fig. 1
06
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MSCI USA, rebased
MSCI Eurozone, rebased
Source: Bloomberg, IMF, as of 15 October 2015
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Still a great deal to like
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Mike Ryan, CFA, Chief Investment Strategist
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UBS House View – Years Ahead
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Challenges to tackle
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Fig. 2
Age-related deficit spending poses a risk to
US global leadership
4 Surpluses
Total deficits or surpluses
as a percentage of GDP
2
0
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–4
–6
–8
Baseline projection
Source: Congressional Budget Office, as of 15 October 2015
Dynamic enough to lead, not strong enough to carry
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5
19
9
20
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19
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19
7
5
19
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–10 Deficits
19
6
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GVSUIFSVOEFSNJOF64DPNQFUJUJWFOFTT
Asia
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MJOFTXJUIBTFSJFTPGNBKPSDFOUSBMCBOLT5IFOFYUTUFQ
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XPVMECFUPGVMMZPQFOVQJUTDBQJUBMBDDPVOU But this
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TQFFEJOEPJOHTPXJMMCFDFOUSBMUPUIFZFBSTBIFBE
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XBTZFBSTBHPPSFWFOBUUIFCFHJOOJOHPGUIJTNJMMFOOJVN.BOZNJHIUOPUFWFOCFBXBSFUIBUCFUXFFO
BOE$IJOBEFWBMVFEUIF$/:CZBTUBHHFSJOH
BHBJOTUUIFHSFFOCBDLGSPNUPQFS64%#BDLUIFO
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UBS House View – Years Ahead
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PWFSUIFZFBSTBIFBE The rise of the “petroyuan”
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3VTTJBUIFXPSMEÁTTFDPOEMBSHFTUPJMFYQPSUFSBHSFFEXJUI
$IJOBUPTXJUDIGSPNBDDFQUJOH64%UPFJUIFS$/:PS36#GPS
$IJOBCPVOE3VTTJBOPJMOPUMFBTUEVFUP8FTUFSOTBODUJPOT
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NBZXFMMHFUUIFNUPTFSJPVTMZSFDPOTJEFS
Fig. 3
Chinese yuan now fourth in the payment
rankings – but a long way to go
0%
20%
30%
40%
27.2
GBP
8.5
CNY
2.8
JPY
2.8
Customer initiated and institutional
payments, based on share of value
CAD
1.8
AUD
1.6
CHF
1.6
HKD
1.4
THB
50%
44.8
EUR
The true hallmark of a global currency: deep, broad and
unrestricted capital markets
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SFDFOUDBTFPGUIFFNFSHJOHNBSLFU'SBHJMF'JWF3$IJOBTVSFMZ
EPFTOPUXJTIUPCFBNPOHUIFJSOVNCFS*OPVSWJFXUIFFDPOPNJDEBOHFSPGSBQJEÃIPUNPOFZÄŗPXTJTQSFDJTFMZUIFSFBTPO
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10%
USD
1.0
Source: SWIFT, UBS, as of 15 October 2015
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JODMVEFEUIF#SB[JMJBOSFBMUIF*OEPOFTJBOSVQJBIUIF4PVUI"GSJDBO
SBOEUIF*OEJBOSVQFFBOEUIF5VSLJTIMJSB
ubs.com/houseview
Emerging markets
The rising tide
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BŝFSUIF&.DSJTFTJOUIFTBOEJNQSPWJOHEFCUMFWFMTBOEDSFEJUSBUJOHTFODPVSBHFEHSFBUFSJOWFTUNFOU5IJT
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in the ZFBSTBIFBE
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UBS House View – Years Ahead
“You never know who’s swimming naked
until the tide goes out.”
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Fig. 4
Credit growth has exceeded GDP growth in
many emerging markets
Private sector credit growth in excess of GDP growth,
inflation-adjusted, average rate 2009 – 2014, in %
15
10
5
0
Finding some new clothes
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-5
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Source: Fitch, as of 15 October 2015
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ubs.com/houseview
Hungary
South Africa
Taiwan
India
Poland
Singapore
Saudi Arabia
Hong Kong
Russia
Thailand
Brazil
Colombia
China
Mexico
Indonesia
-10
Turkey
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Europe
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Decline of the relative importance of Europe
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UBS House View – Years Ahead
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Europe in decline on the world stage
Share of global GDP (purchasing power parity, %)
100
90
80
70
60
50
40
30
20
10
Europe
Russia
China
Brazil
US
Japan
India
Rest of the World
Source: UBS, Angus Maddison, as of 15 October 2015
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Asset class
Capital market assumptions
Annual total return
Annual risk
US Cash
2.5%
0.5%
US Government Fixed Income
2.2%
4.3%
US Municipal Fixed Income
2.9%
4.7%
US Corporate Investment Grade Fixed Income
3.5%
5.9%
US Corporate High Yield Fixed Income
5.6%
11.7%
International Developed Markets Fixed Income
4.0%
9.0%
Emerging Markets Fixed Income
4.9%
9.1%
US Large-cap Equity
7.5%
16.8%
US Mid-cap Equity
8.4%
19.6%
US Small-cap Equity
8.6%
21.8%
International Developed Markets Equity
8.5%
19.7%
10.0%
25.5%
Commodities
6.4%
18.9%
Hedge Funds
6.2%
6.7%
Private Equity
11.8%
24.4%
8.5%
11.8%
Emerging Markets Equity
Private Real Estate
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We expect equities to outperform other
asset classes
Capital market assumptions, % annual return
12
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8
6
4
2
0
Hedge funds
International developed equities
US corporate HY bonds
US large-cap equities
US corporate IG bonds
Commodities
USD cash
Source: UBS, as of 15 October 2015
Fig. 7
Equities can face prolonged drawdowns
0
–10
–20
–30
–40
–50
09
20
10
20
11
20
12
20
13
20
14
20
15
20
08
07
20
20
06
05
20
20
04
03
20
20
02
01
20
20
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00
19
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20
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8
19
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19
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6
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EM equities
MSCI AC World, drawdown vs all-time high, in %
Source: MSCI, UBS, as of 15 October 2015
Fig. 8
Diversification is key
No stock on the S&P 500 has lower volatility than the S&P 500
60
50
S&P 500 distribution of equity volatility
(162 week realized, annualized, in %)
40
30
21.0%
20
11.2%
10
0
Median company
S&P 500
Equity volatility
Source: Bloomberg, UBS, as of 15 October 2015
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A range of types
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UBS House View – Years Ahead
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Returns for safest bonds likely very low
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Highly rated bonds help stabilize portfolios
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High yield bonds: standout performers
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Fig. 9
Low yields are likely to mean low returns for
high quality bonds
In %
25
20
15
10
5
0
1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015
Barclays Aggregate Index yield
Subsequent 5-year return, in %
Source: Barclays, UBS, as of 30 October 2015
Fig. 10
High quality bonds help stabilize portfolios
Compounded annual return of a diversified portolio over a 10-year period,
assumes yearly rebalancing, in %
40
30
20
10
0
–10
–20
–30
–40
1
2
3
4
5
6
7
8
9
10
ubs.com/houseview
Compound annual return (below)
Bonds 6.1%
Stocks 7.4%
50/50 Portfolio 7.9%
Source: Morningstar, UBS, as of 15 October 2015
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Extra return for EM debt exposure
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UBS House View – Years Ahead
US high yield initial yields and subsequent
5-year total return (%)
25
20
15
10
5
0
20
14
20
12
08
20
10
20
06
20
02
04
20
00
8
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High yield returns match initial yields,
in the absence of recession
19
8
High yield bonds can be illiquid and volatile
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Fig. 11
19
8
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Subsequent 5-year return, in %
US High yield, in %
Source: BofA high yield index, UBS, as of 15 October 2015
Fig. 12
Historical default cycles and recessions
In %
20
18
16
14
12
10
8
6
4
2
0
85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15
Recession indicator
Moody’s HY default rate
HY OAS
Source: Moody’s, Yieldbook, UBS, as of 30 September 2015
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Risks in EM debt
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Fig. 13
Emerging market bonds offer a yield premium
EM investment grade bond option adjusted spread minus US equivalent (bps)
300
250
200
150
100
50
08
07
06
09
20
10
20
11
20
12
20
13
20
14
20
20
20
05
20
20
04
03
20
20
01
02
20
00
20
20
8
9
19
9
19
9
0
Source: JP Morgan EMBI+ bond index, UBS, as of 15 October 2015
ubs.com/houseview
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Simon Smiles,
+HDGRI8+1:$OWHUQDWLYHV
Andrew Lee,
'HSXW\+HDGRI8+1:$OWHUQDWLYHV
1LOV%HLWOLFK+HDGRI)XQGV
Cyril Demaria,
Private Investments strategist
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UBS House View – Years Ahead
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Overexposure to hedge funds entails
risks
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managers and styles is essential
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Fig. 14
We expect hedge funds to offer superior
risk-adjusted returns
0.6
Annual expected Sharpe ratios
0.5
0.4
0.3
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We expect high risk-adjusted
returns from private markets
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0.2
0.1
0
Hedge funds
US large-cap equity
US high yield bonds
Commodities
US IG corporate bonds
Source: UBS, as of 15 October 2015
Fig. 15
A diversified portfolio of hedge funds has
superior characteristics
Quality of hedge fund styles,
assessed on various metrics
Performance
Liquidity
Stability
Return-risk
Drawdown
protection
Diversified portfolio
(equally weighted)
Source: UBS
Global Macro
Event Driven
Relative Value
Equity Hedge
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Illiquidity must be tolerated
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Kiran Ganesh,
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Cash is important, but it’s also
a drag
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Relative appeal of cash is low
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Cash not suitable to protect against
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Head of Commodities
Wayne Gordon,
Commodities Analyst
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Commodities Analyst
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Lower supply versus uncertain
demand
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Less downside for gold
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Bad behavior hurts returns
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The sum is greater than the parts
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Home bias leads to underperformance
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Recognize that losses loom large
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Fig. 16
Home country bias is substantial
across the globe
% of market cap as share of global, and % of equities held
by domestic investors in home markets
Australia
Canada
France
Germany
Hong Kong
Italy
Japan
Netherlands
Spain
Switzerland
United Kingdom
United States
0
20
% market cap in world market
40
60
80
100
% domestic in total equity
Source: Sercu, Piet and Vanpee, Rosanna, “Home Bias in International Equity
Portfolios: A Review” (August 2007).
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We believe in a long-term strategic
asset allocation
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Regular rebalancing keeps
you in check
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UBS House View – Years Ahead
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Illiquidity premiums can help boost
return
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Regular rebalancing helps encourage buying
low and selling high
Equity share of theoretical global equity / government bond portfolio,
starting 50-50, last 10 years (%)
60
55
50
45
40
35
20
15
20
14
20
13
20
12
20
11
20
10
09
20
08
20
20
06
07
30
20
It is important not to “chase” returns
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Fig. 17
05
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Only assume risk when
compensated by return
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20
Investors cannot expect return without risk
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Quarterly rebalancing
No rebalancing
Source: Bloomberg, UBS, as of 15 October 2015
Fig. 18
In the future, investors will need to take more
risk to match past returns
Average annual return, in %
10
9.4%
8.5%
8
7.5%
7.0%
6.1%
5.6%
6
3.7%
3.5%
4
2.2%
2.5%*
2
0
US large-cap
High yield
bonds
Corporate
bonds
Government
bonds
Cash
1990-present
Current UBS capital market assumptions
*Cash assumption is long-term estimate of risk-free rate.
Source: US large-cap – S&P 500; high yield bond – Barclays US HY Credit Index; corporate
bonds – Barclays US Credit Index; government bonds – Barclays US Government Index;
Cash – JPMorgan 3-month Cash Index; UBS; Bloomberg, as of 30 September 2015.
ubs.com/houseview
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Tactical asset allocation helps
performance
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Combining asset classes
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Risk
Conservative Moderately Moderate Moderately Aggressive
conservative
aggressive
1SPlMF
Taxable with
non-traditional assets
Estimated Return
4.4%
5.1%
5.9%
6.4%
7.0%
Estimated Risk
5.6%
7.4%
9.6%
11.5%
13.5%
Estimated Return
4.0%
4.8%
5.5%
6.1%
6.8%
Estimated Risk
5.4%
7.5%
9.5%
11.5%
13.5%
Estimated Return
4.3%
5.0%
5.8%
6.4%
7.0%
Estimated Risk
5.5%
7.4%
9.5%
11.4%
13.4%
Estimated Return
4.0%
4.8%
5.5%
6.1%
6.8%
Estimated Risk
5.4%
7.5%
9.5%
11.4%
13.5%
Taxable without
non-traditional assets
Non-taxable with
non-traditional assets
Non-taxable without
non-traditional assets
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UBS House View – Years Ahead
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Strategic asset allocation, taxable with non-traditional assets
Investor
TKUMRTQƂNG
KKÊFTQDRHM
Cash
Conservative
Moderate
conservative
Moderate
Moderate
aggressive
Aggressive
0.0
0.0
0.0
0.0
0.0
62.0
51.0
40.5
34.0
26.0
7.0
5.5
4.0
3.5
2.0
50.0
39.0
30.0
24.0
17.0
US IG total market
4.0
3.5
3.0
2.5
2.0
US HY Corp
1.0
3.0
3.5
4.0
5.0
Int’l Fixed Income
7.0
6.0
6.0
7.0
7.0
US Equity
9.0
15.0
20.0
26.0
31.0
International Equity
7.0
12.0
14.5
19.0
24.0
Int’l Developed Markets
4.0
7.0
8.5
11.0
14.0
Emerging Markets
3.0
5.0
6.0
8.0
10.0
4.0
4.0
4.0
5.0
5.0
11.0
12.0
15.0
9.0
7.0
US Fixed Income
US Gov’t
US Municipal
Commodities
Non-traditional
Strategic asset allocation, taxable without non-traditional assets
Investor
TKUMRTQƂNG
KKÊFTQDRHM
Cash
Conservative
Moderate
conservative
Moderate
Moderate
aggressive
Aggressive
0.0
0.0
0.0
0.0
0.0
72.0
58.0
47.0
36.0
26.0
8.0
7.0
5.0
3.0
2.0
58.0
45.0
35.0
26.0
16.0
US IG total market
4.0
3.0
3.0
2.0
1.0
US HY Corp
2.0
3.0
4.0
5.0
7.0
Int’l Fixed Income
8.0
8.0
7.5
8.0
7.0
US Equity
9.0
18.0
23.0
29.0
36.0
International Equity
7.0
12.0
17.5
22.0
26.0
Int’l Developed Markets
4.0
7.0
10.0
12.5
15.0
Emerging Markets
3.0
5.0
7.5
9.5
11.0
4.0
4.0
5.0
5.0
5.0
US Fixed Income
US Gov’t
US Municipal
Commodities
Source: UBS and WMA AAC, 22 October 2015. See appendix for information regarding sources of strategic asset
@KKNB@SHNMR@MCSGDHQRTHS@AHKHSX@MCHMUDRSNQQHRJOQNÊKDR
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Strategic asset allocation, non-taxable with non-traditional assets
Investor
SJTLQSPÎMF
KKÊFTQDRHM
Cash
Conservative
Moderately
conservative
Moderate
Moderately
aggressive
Aggressive
0.0
0.0
0.0
0.0
0.0
60.0
49.0
40.0
32.5
26.0
47.0
36.0
28.0
19.5
13.0
US Municipal
0.0
0.0
0.0
0.0
0.0
US IG total market
9.0
7.0
5.0
4.0
2.0
US HY Corp
4.0
6.0
7.0
9.0
11.0
8.0
7.0
6.5
6.5
7.0
10.0
16.0
20.5
24.0
31.0
7.0
12.0
14.0
18.0
22.0
Int’l Developed Markets
4.0
7.0
8.0
10.0
13.0
Emerging Markets
3.0
5.0
6.0
8.0
9.0
4.0
4.0
4.0
5.0
5.0
11.0
12.0
15.0
14.0
9.0
US Fixed Income
US Gov’t
Int’l Fixed Income
US Equity
International Equity
Commodities
Non-traditional
Strategic asset allocation, non-taxable without non-traditional assets
Investor
SJTLQSPÎMF
KKÊFTQDRHM
Cash
Conservative
Moderately
conservative
Moderate
Moderately
aggressive
Aggressive
0.0
0.0
0.0
0.0
0.0
69.0
57.0
47.0
38.0
29.0
55.0
42.0
32.0
23.0
13.0
0.0
0.0
0.0
0.0
0.0
10.0
8.0
6.0
4.0
3.0
4.0
7.0
9.0
11.0
13.0
9.0
8.0
8.0
8.0
7.0
10.0
18.0
23.0
28.0
33.0
8.0
13.0
18.0
22.0
26.0
Int’l Developed Markets
4.0
8.0
10.0
12.0
14.0
Emerging Markets
4.0
5.0
8.0
10.0
12.0
4.0
4.0
4.0
4.0
5.0
US Fixed Income
US Gov’t
US Municipal
US IG total market
US HY Corp
Int’l Fixed Income
US Equity
International Equity
Commodities
Source: UBS and WMA AAC, 22 October 2015. See appendix for information regarding sources of strategic asset
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4PNFBMUFSOBUJWFJOWFTUNFOUDPODFQUTQJPOFFSFECZJOTUJUVUJPOTMJLFIFEHFGVOETPSFOEPXNFOUTDBOCFBQQMJFECZQSJWBUFJOWFTUPSTUPIFMQBDIJFWFUIFJSPCKFDUJWFT5IFGPMMPXJOH
HVJEBODFJTBQQMJDBCMFUPOPOUBYBCMFJOWFTUPST5BYJNQMJDBUJPOTDPVMEDIBOHFUIFBMMPDBUJPOTTJHOJŖDBOUMZ
Endowment approach
5IFOFFETPGTPNFQSJWBUFJOWFTUPSTIBWFBMPUJODPNNPO
XJUIFOEPXNFOUTNPEFMQPSUGPMJPTPGCPUIOFFEUPQSPWJEF
SFDVSSJOHDBTIŗPXXIJMFBMTPQSFTFSWJOHUIFQVSDIBTJOHQPXFSPGUIFQPSUGPMJPBHBJOTUJOŗBUJPOJOUPQFSQFUVJUZ
.BOZFOEPXNFOUTIBWFCFFOIJHIMZTVDDFTTGVMJOGVMŖMMJOHUIJT
PCKFDUJWFJOSFDFOUZFBSTUIFNPTUOPUBCMFCFJOH64VOJWFSTJUJFT'JH
0WFSUIFQBTUEFDBEFUIF.*5FOEPXNFOUIBT
SJTFOCZBOBWFSBHFPGNPSFUIBOBOOVBMMZXJUI4UBOGPSE
1FOO4UBUFBOE)BSWBSEBMMFBSOJOHJOFYDFTTPGBOOVBMMZ
BDDPSEJOHUP#MPPNCFSHEBUB
5IFTFJOWFTUPSTFBSONPSFSFUVSOXJUIMPXFSWPMBUJMJUZ#VUJUJT
OPUCZNBHJD5IFLFZUPUIFJSTUSBUFHZMJFTJOOPUMJNJUJOHUIF
TDPQFPGUIFJSJOWFTUNFOUVOJWFSTF5IFZUBLFQPTJUJPOTJOBTTFU
DMBTTFTXPSMEXJEFJODMVEJOHOJDIFBOEMFTTMJRVJEBTTFUTJOQSJWBUFFRVJUZSFBMFTUBUFIFEHFGVOETBOEQSJWBUFEFCUNBSLFUT
Fig. 19
Fig. 20
Large endowments have outperformed major
asset classes
Endowment-style approaches require a greater
alternatives allocation
10-year return data to June 2014 (MIT to June 2015),
in %
12
Illustrative portfolios
10
8
6
4
2
Source: Bloomberg, UBS
Global hedge funds
Global corporate
bonds
Global equities
Columbia
Penn
Michigan
Northwestern
MIT
Princeton
Stanford
Yale
Texas
Harvard
0
Traditional approach
Endowment style
approach
Equities/bonds/cash
Alternatives
Source: UBS
ubs.com/houseview
"MUFSOBUJWFJOWFTUNFOUDPODFQUT
"OFOEPXNFOUTUZMFBQQSPBDIJGBQQMJFECZQSJWBUFJOWFTUPSTDPVMECFVTFEBTJ
BTPVSDFPGPOHPJOHDBTIŗPXUPGVOE
FYQFOTFTJJ
BMPOHUFSNQPSUGPMJPUPSFBDIHPBMTPSNPSF
ZFBSTJOUPUIFGVUVSFPSJJJ
BOJOUFSHFOFSBUJPOBMQPSUGPMJPUIBU
DBOTFDVSFDBQJUBMHSPXUIBDSPTTHFOFSBUJPOT
4PIPXEPFTJUXPSL 5IFLFZCVJMEJOHCMPDLTJOPVSWJFXBSF
TPNFBTTFUTGSPNQVCMJDNBSLFUTCPOETSBOHJOHGSPNUIFTBGFTU
HPWFSONFOUCPOETUPTVCJOWFTUNFOUHSBEFCPOETBOEFRVJUJFT
BOETPNFBTTFUTGSPNQSJWBUFNBSLFUTIFEHFGVOETQSJWBUFFRVJUZBOEEFCUGVOETBOESFBMFTUBUF
&OEPXNFOUTUZMFBMMPDBUJPOT
UZQJDBMMZIBWFBNVDIIFBWJFSXFJHIUJOHJOQSJWBUFNBSLFUJOWFTUNFOUTUIBONPTUUSBEJUJPOBMBMMPDBUJPOTIFMECZQSJWBUFJOWFTUPST
5IJTNJYPGBTTFUTNFFUTUIFLFZDSJUFSJBPGJODPNFBOEQVSDIBTJOHQPXFSQSPUFDUJPOJODPNFJTQSPWJEFECZEJWFSTJŖFETUSFBNT
EJWJEFOETGSPNQVCMJDFRVJUJFTEJTUSJCVUJPOTGSPNQSJWBUFFRVJUJFTSFOUTGSPNSFBMFTUBUFBOEJOUFSFTUGSPNBWBSJFUZPGŖYFE
JODPNFJOTUSVNFOUT
.FBOXIJMFQVSDIBTJOHQPXFSTIPVMECFQSPUFDUFECZDBQUVSJOH
BEEJUJPOBMTPVSDFTPGSFUVSO*OBEEJUJPOUPUIFUSBEJUJPOBMÃSJTL
QSFNJVNTÄUIBUDBOCFFBSOFECZJOWFTUJOHJOQVCMJDNBSLFUT
UIFIJHITIBSFPGQSJWBUFNBSLFUJOWFTUNFOUTNFBOTUIBUJOWFTUPSTDBOBMTPDBQUVSFSFUVSOTGSPNFYQPTVSFUPMFTTMJRVJEBOE
MFTTXFMMGPMMPXFENBSLFUT
"OBEEJUJPOBMCFOFŖUUIBUNBZCFSFBMJ[FECZQSJWBUFJOWFTUPSTJT
QSPUFDUJPOBHBJOTUCFIBWJPSBMCJBTFTUIBUBMBSHFMZMJRVJEBMMPDBUJPODBODBVTF0WFSUSBEJOHCBTFEPOFNPUJPOJTBNBKPSTPVSDF
PGVOEFSQFSGPSNBODFGPSQSJWBUFJOWFTUPST¾MFTTMJRVJEJOWFTUNFOUTBOEBMPOHUFSNUJNFGSBNFDBOIFMQBWPJEUFNQUBUJPO
The “illiquidity premium” approach
.BOZTVDDFTTGVMJOTUJUVUJPOBMIFEHFGVOETQBSUJDVMBSMZJOUIF
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OPUOFFEUPBDDFTTUIFNBKPSJUZPGUIFJSGVOETSFHVMBSMZBOEPUIFSTQSFGFSOPUUPBMMPDBUFUPFRVJUJFTUIJTBQQSPBDIDBOBMTPCF
TVDDFTTGVMMZBQQMJFECZQSJWBUFJOWFTUPST
8IFOFNQMPZFECZJOTUJUVUJPOBMJOWFTUPSTTVDITUSBUFHJFTIBWF
UFOEFEUPEFMJWFSDPOTJTUFOUSFUVSOTJOSFDFOUZFBST1SJWBUFJOWFTUPSTNBZOPUIBWFUIFUJNFPSDBQBDJUZUPDPOEVDUUIFLJOEPG
EVFEJMJHFODFPOTQFDJŖDJTTVFSTUIBUNBOZIFEHFGVOETVOEFS-
UBS House View – Years Ahead
Fig. 21
Accessing a broad credit universe
Non-financials
capital structure
Priority of claims
'JH
#ZEJWFSTJGZJOHCSPBEMZBOEBDDFQUJOHMPXFSMFWFMTPG
MJRVJEJUZUIFZBSFBCMFUPFBSOIJHISFUVSOT8FCFMJFWFTPNFPG
UIFQSJODJQMFTPGUIJTBQQSPBDIDBOBMTPCFTVDDFTTGVMMZBQQMJFECZ
NBOZQSJWBUFJOWFTUPST
Financials
capital structure
Senior debt
Senior secured loans
Senior unsecured
loans/bonds
Senior debt
Subordinated debt
Mezzanine loans
Junior mezzanine loans
Subordinated debt
Tier 2 bonds
Tier 2 contingent convertibles
(CoCo)
Hybrid debt
Hybrid corporate bonds
Debt-to-equity bonds
Hybrid debt
Tier 1 hybrid securities
AT1 – Tier 1 contingent
convertibles (CoCo)
Equity capital
Common equity
Equity capital
Mandatory convertible bonds
Common equity
Source: UBS
UBLFTPXFDPOTJEFSXBZTJOXIJDIQSJWBUFJOWFTUPSTDBO
FBSOUIFTBNFJMMJRVJEJUZQSFNJVNJOBEJWFSTJŖFEXBZ
8FCFMJFWFUIBUUIFGVMMDSFEJUTQFDUSVNJODMVEJOHUIFDPNQMFYVOJWFSTFPGEJšFSFOUDSFEJUDMBTTFTXJUIJOBDPSQPSBUF
TUSVDUVSFQSPWJEFTBUUSBDUJWFPQQPSUVOJUJFTGPSJMMJRVJEJOWFTUNFOUTUIBUQSPWJEFBIJHIJODPNFTUSFBN5IJTJODMVEFT
BTTFUTMJLFNF[[BOJOFMPBOTBTTFUCBDLFETFDVSJUJFTIZCSJE
DPSQPSBUFCPOETBOECBOLDBQJUBMJODMVEJOH5JFSTFDVSJUJFT
BOE5JFSCPOET5IFTFBTTFUTDBOGPSNBOJNQPSUBOUQBSUPG
BOJMMJRVJEJUZQSFNJVNQPSUGPMJP'JH
0GDPVSTFTPNFNPSFMJRVJEBTTFUTBSFSFRVJSFEGPSEJWFSTJŖDBUJPOQVSQPTFTUPP"XFMMDPOTUSVDUFEJMMJRVJEJUZQSF
NJVNQPSUGPMJPTIPVMEJODMVEFTPNFNPSFÃTUBOEBSEÄ
ŖYFEJODPNFBTTFUDMBTTFTTVDIBTTFOJPSDPSQPSBUFCPOET
FNFSHJOHNBSLFUDSFEJUTBOE):DSFEJUT
8FUIJOLUIBUUIFEJWFSTFDIBSBDUFSJTUJDTXJUIJOUIJTŖYFE
JODPNFVOJWFSTFNFBOUIBUBNJYPGTFDVSJUJFTTIPVMECFTVGŖDJFOUUPBDIJFWFCPUIEJWFSTJŖDBUJPOBOESFUVSOXJUIPVU
IBWJOHUPUVSOUPBTTFUTMJLFFRVJUJFTUPQSPWJEFHSPXUI
*OUFSFTUSBUFTIJŝTBSFPGDPVSTFBOJNQPSUBOUDPODFSOGPS
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SJTLPGIJHIFSSBUFTJUJTJNQPSUBOUGPSTVDIBOJMMJRVJEJUZQSFNJVNNPEFMQPSUGPMJPUPBMTPIBWFFYQPTVSFUPŗPBUJOHSBUF
EFCUJOTUSVNFOUTTVDIBTTFOJPSMPBOT
Quantitative approach
4UVEJFTTIPXUIBUNPTUJOEJWJEVBMTGFFMNPSFQBJOBUBMPTT
UIBOQMFBTVSFBUBHBJO5IFSFGPSFNBOZQSJWBUFJOWFTUPST
TFFLUPTIBSQMZSFEVDFSJTLBUUJNFTPGNBSLFUVODFSUBJOUZ
BOECVZCBDLJOXIFODPOEJUJPOTBSFNPSFTUBCMF
5IFLFZDIBMMFOHFJTEJTDJQMJOF#FIBWJPSBMCJBTFTDPOTJTUFOUMZ
XPSLBHBJOTUJOWFTUPSTFODPVSBHJOHUIFNUPDPOTJTUFOUMZ
XBJUGPSNPSFGBWPSBCMFQSJDFTUPTFMMPSCVZ5IJTPŝFOMFBET
UPJOFSUJB
0OFXBZPGPWFSDPNJOHUIJTJTUPVTFSJTLNBOBHFNFOUUPPMT
TJNJMBSUPUIPTFVTFECZMFBEJOHJOTUJUVUJPOBMJOWFTUPSTUP
QSPWJEFBÃCVZÄPSÃTFMMÄTJHOBMBOEVTJOHUIFPVUQVUXJUIJO
BEJTDJQMJOFEGSBNFXPSL
'PSUIJTBQQSPBDIXFVTFBRVBOUJUBUJWFXPSMEFRVJUZNBSLFU
JOEJDBUPSJODPSQPSBUJOHBTFSJFTPGJOEJDBUPSTPOUIFIFBMUI
PGUIFCVTJOFTTDZDMFBOENBSLFUTFOUJNFOUUPEFUFSNJOF
QFSJPETPGIJHINBSLFUVODFSUBJOUZ5IJTDBOQSPWJEFBTJHOBM
BUUJNFTXIFOJOWFTUJOHJOFRVJUZNBSLFUTJTJOIFSFOUMZNPSF
SJTLZBOEUJNFTXIFOJUJTTBGFS'JH
Additional approaches
8FDPOUJOVFUPSFWJFXUIFQPUFOUJBMNFSJUTPGPUIFS
BQQSPBDIFTFNQMPZFECZJOTUJUVUJPOBMJOWFTUPSTBOEXBZTJO
XIJDIUIFZDBOCFBEBQUFEGPSQSJWBUFDMJFOUT5IFTFJODMVEF
UIFÃSJTLQBSJUZÄBQQSPBDIUPBTTFUBMMPDBUJPOBQQMJFECZB
OVNCFSPGMBSHFBTTFUNBOBHFST
Disciplined use of a quantitative model can
protect downside
1000 An example of the potential benefits of a systematic
100
allocation approach in an equity-bond portfolio
20
15
20
13
09
07
05
20
11
20
20
20
20
20
03
0
01
0
9
20
7
200
19
9
40
5
400
19
9
60
19
9
600
19
93
80
9
800
19
91
5IBUTBJEJUJTJNQPSUBOUUIBUJOWFTUPSTEPOPUNBLFUIFJS
FOUJSFQPSUGPMJPEZOBNJD"DSVDJBMSJTLUPDPOTJEFSJTUIBUB
EZOBNJDBQQSPBDINBZMFBWFJOWFTUPSTVOJOWFTUFEJOFRVJUJFT
JOUIFJOJUJBMSFCPVOEQIBTFGPMMPXJOHBNBSLFUDSBTIXIFO
SFUVSOTDBOCFQPXFSGVM5IFQSJODJQMFTPGBXFMMEJWFSTJŖFE
VOEFSMZJOHQPSUGPMJPTUJMMIPMEEFTQJUFUIFNPSFEZOBNJD
OBUVSFPGUIJTBQQSPBDI
Fig. 22
19
8
0OFXBZPGVTJOHUIJTTJHOBMXPVMECFUPEFUFSNJOFBQPSUJPOPGBQPSUGPMJPXIJDIJTÃEZOBNJDÄBOEDBOCFTXJUDIFE
CFUXFFOBTBGFBTTFUMJLFHPWFSONFOUCPOETBOEBSJTLZ
BTTFUMJLFFRVJUJFT8IFOUIFTJHOBMJOEJDBUFTIJHIMFWFMTPG
NBSLFUSJTLUIFEZOBNJDQPSUJPOPGUIFQPSUGPMJPDBOCF
TXJUDIFEUPUIFTBGFSBTTFUBOEXIFOUIFTJHOBMJOEJDBUFT
MPXNBSLFUSJTLUIFEZOBNJDQPSUGPMJPDBOCFTXJUDIFEUP
FRVJUJFT
Equity exposure (rhs)
Static allocation, performance indexed to 100 (lhs)
Systematic allocation, performance indexed to 100 (lhs)
Source: UBS
ubs.com/houseview
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JOWFTUJOH
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/DXUD.DQH&)$7KHPDWLFDQG6XVWDLQDEOH,QYHVWPHQW6WUDWHJLVW:0$
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Secular tailwinds for sustainable investing
8JUIJOUIFJOWFTUNFOUDPNNVOJUZTVTUBJOBCJMJUZJT
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.BOZJOWFTUPSTBSFEFNBOEJOHUIBUUIFJSQPSUGPMJPT
SFŗFDUUIFJSQFSTPOBMWBMVFTPSFWFOFYFSUBQPTJUJWF
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BHFODJFTBOESFHVMBUPSTBOEDJWJMTPDJFUZ¾BSFNBLJOHUIFJSEFNBOETGPSTVTUBJOBCMFCFIBWJPSJODSFBTJOHMZMPVEBOEDMFBSUPDPNQBOJFT5IJTUSFOEJTCFJOH
ESJWFOFTQFDJBMMZCZUIFHSPXJOHJOŗVFODFPGUIF.JMMFOOJBMHFOFSBUJPOBOEJUTJEFBMJTUJDWBMVFT5IFSVMFT
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What is sustainable investing?
8FEFŖOFTVTUBJOBCMFJOWFTUJOH4*
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DPNCJOBUJPO
UBS House View – Years Ahead
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Performance concerns are not warranted
"DPNNPODPODFSOBCPVU4*JTUIBUUIFBQQSPBDINBZ
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4VTUBJOBCMFJOWFTUJOH
to exclude: Approaches to sustainable investingJO+VMZ
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A thematic perspective on sustainability
*O4FQUFNCFSUIF6/(FOFSBM"TTFNCMZBEPQUFEJUT
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5IFTFIJHIMJHIU
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5IFHPBMTSBOHFGSPNGPPETFDVSJUZXBUFSBDDFTTBOE
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TFUUPBEPQUQPMJDJFTBOEQSPHSBNTBJNFEBUNPCJMJ[JOHQSJWBUFDBQJUBMUISPVHISFHVMBUJPOTJODFOUJWFTUSVDUVSFTBOEQVCMJDQSJWBUFQBSUOFSTIJQT5IFDIBMMFOHFT
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Integrating sustainability-themed investment
ideas in portfolios
4VTUBJOBCJMJUZUIFNFEJOWFTUNFOUJEFBTTVDIBTUIPTF
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'JOBMMZXJUIJOBOFYDMVTJPOBQQSPBDIBOJOWFTUPSNBZ
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QBUUFSOT
$POTFSWFBOETVTUBJOBCMZVTFUIFPDFBOTTFBTBOE
NBSJOFSFTPVSDFTGPSTVTUBJOBCMFEFWFMPQNFOU
1SPUFDUSFTUPSFBOEQSPNPUFTVTUBJOBCMFVTFPGUFSSFTUSJBMFDPTZTUFNTTVTUBJOBCMZNBOBHFGPSFTUTDPNCBU
EFTFSUJŖDBUJPOBOEIBMUBOESFWFSTFMBOEEFHSBEBUJPO
BOEIBMUCJPEJWFSTJUZMPTT
1SPNPUFQFBDFGVMBOEJODMVTJWFTPDJFUJFTGPSTVTUBJOBCMF
EFWFMPQNFOUQSPWJEFBDDFTTUPKVTUJDFGPSBMMBOECVJME
FšFDUJWFBDDPVOUBCMFBOEJODMVTJWFJOTUJUVUJPOTBUBMM
MFWFMT
4USFOHUIFOUIFNFBOTPGJNQMFNFOUBUJPOBOESFWJUBMJ[F
UIFHMPCBMQBSUOFSTIJQGPSTVTUBJOBCMFEFWFMPQNFOU
4PVSDF6/
ubs.com/houseview
-POHFSUFSN
investment themes
6WHSKHQ)UHHGPDQ&)$+HDGRI7KHPDWLFDQG6XVWDLQDEOH,QYHVWLQJ6WUDWHJ\:0$
/DXUD.DQH&)$7KHPDWLFDQG6XVWDLQDEOH,QYHVWPHQW6WUDWHJLVW:0$
Extending one’s time horizon
6#4$*0TFFTWBMVFJOFNQIBTJ[JOHUIFMPOHUFSNESJWFST
PGJOWFTUNFOUQFSGPSNBODF5IJTQIJMPTPQIZJTDFOUSBMUP
PVSÃ%FDBEF"IFBEÄTFSJFTXIJDIGPDVTFTPOJOWFTUJOHJO
FOEVSJOHTUSVDUVSBMUSFOETFHQPQVMBUJPOHSPXUIBHJOH
JODSFBTFEVSCBOJ[BUJPOSFTPVSDFDPOTUSBJOUTJOOPWBUJPO
8FCFMJFWFUIBUJOWFTUPSTXIPBSFXJMMJOHUPGPMMPXUIF
JOTJHIUTPGTVDIMPOHUFSNUIFNFTPWFSNVMUJQMFCVTJOFTT
DZDMFTDBOCFOFŖUGSPNQPUFOUJBMNJTQSJDJOHDSFBUFECZUIF
UZQJDBMMZTIPSUFSUFSNGPDVTPGŖOBODJBMNBSLFUT
Transformational technologies
0WFSUIFOFYUEFDBEFXFFYQFDUBXBWF
PGUFDIOPMPHJDBMJOOPWBUJPOUPESJWFQSPEVDUJWJUZHSPXUIEJTSVQUJOEVTUSJFTBOE
DSFBUFTVCTUBOUJBMHSPXUIPQQPSUVOJUJFT5IFSFBSFUXPCSPBEDBUFHPSJFTPG
UFDIOPMPHJDBMJOOPWBUJPOUIBUXFCFMJFWF
XJMMCFESJWJOHGPSDFTCFIJOEQSPEVDUJWJUZ
HBJOTPWFSUIFOFYUTFWFSBMZFBSTEJHJUBM
EBUBBOETNBSUBVUPNBUJPO
8FIBWFUIFSFGPSFFTUBCMJTIFEBGSBNFXPSLUPJEFOUJGZ
MPOHUFSNJOWFTUNFOUPQQPSUVOJUJFTUIBUJTCSPBEBOEWFSTBUJMFFOPVHIUPJODPSQPSBUFNBKPSQPUFOUJBMTPVSDFTPG
DIBOHFJOUIFDPNJOHEFDBEF*OUIJTQVSTVJUXFGPDVTPO
UIFGPMMPXJOHTFUTPGESJWFST
%JHJUBMEBUBHSPXUIJTTFUUPFYQMPEFJO
UIFDPNJOHZFBSTXJUIUIFHMPCBMEJHJUBMVOJWFSTFMJLFMZUPJODSFBTFGPME
GSPNUP5IJTFYQBOTJPOJT
CFJOHESJWFOCZBDPNCJOBUJPOPGEFNPHSBQIJDGBDUPSTMJLFSJTJOHHMPCBM*OUFSOFU
QFOFUSBUJPOBOEJODSFBTFEEBUBVTBHF
JOFNFSHJOHNBSLFUTBTXFMMBTTFDVMBSUSFOETTVDIBTDIBOHJOHDPOTVNFS
EJHJUBMMJGFTUZMFTBOEUIFSJTFPGUIF*OUFSOFUPG5IJOHTUIFWBTUOFUXPSLPGDPOOFDUFEEFWJDFTTVDIBTDIJQTFNCFEEFE
JOIPVTFIPMEBQQMJBODFT
%JHJUBMEBUB
USBWFMTUISPVHITJYTUBHFTEVSJOHJUTMJGF
DSFBUJPOUSBOTNJTTJPOTUPSBHFQSPDFTTJOHDPOTVNQUJPOBOENPOFUJ[BUJPO8F
TFFPQQPSUVOJUJFTUPJOWFTUBDSPTTUIJTMJGF
DZDMFTQFDJŖDBMMZJOEBUBFOBCMFSTEBUB
JOGSBTUSVDUVSFDPNQBOJFTEJHJUBMNBSLFUJOHŖSNTBOEDZCFSTFDVSJUZQSPWJEFST
UFDIOPMPHJDBMJOOPWBUJPO
EFNPHSBQIJDDIBOHFT
TPVSDFTBOEVTFTPGOBUVSBMSFTPVSDFT
USFOETJOHMPCBMJ[BUJPO
HPWFSONFOUQPMJDZDIPJDFT
FDPOPNJDOPSNBMJ[BUJPOBOE
TPDJFUBMBOEDVMUVSBMTIJŝT
5IFTFESJWFSTTFSWFBTBDPNQBTTBMMPXJOHVTUPJEFOUJGZ
BOEBOBMZ[FNPSFTQFDJŖDTUSVDUVSBMTIJŝT5IJTJOUVSO
DBOIFMQVTEFUFSNJOFHSPXUIBSFBTBOETFMFDUJOWFTUNFOU
PQQPSUVOJUJFTCFTUTVJUFEUPDBQJUBMJ[FPOUIFTFUSFOET
XIJMFBWPJEJOHBSFBTPGTFDVMBSEFDMJOFUIBUNBZFNFSHF
TJNVMUBOFPVTMZ*OUIFSFNBJOEFSPGUIJTTFDUJPOXFIJHIMJHIUUIFNPSFTBMJFOUÃ%FDBEF"IFBEÄUIFNFTXIJDI
XFÁWFXSJUUFOBCPVUEVSJOHUIFMBTUZFBS
UBS House View – Years Ahead
-POHFSUFSNJOWFTUNFOUUIFNFT
8FCFMJFWFTNBSUBVUPNBUJPOJTQPXFSJOHUIFPOHPJOHJOEVTUSJBMSFWPMVUJPO
DPNCJOJOHUIFJOOPWBUJPOQPXFSPG
JOEVTUSJBMBOE*5QSPDFTTFTUPESJWFHMPCBMNBOVGBDUVSJOHQSPEVDUJWJUZHBJOT
3JTJOHXBHFTBOEDIBMMFOHJOHEFNPHSBQIJDEFWFMPQNFOUTXJMMQSFTTVSFUIF
DPTUTPGNBOVGBDUVSJOHDPNQBOJFTJO
UIFFNFSHJOHNBSLFUTESJWJOHJOWFTU-
NFOUTJOBVUPNBUJPO8FFYQFDUUIF
TNBSUBVUPNBUJPOJOEVTUSZUPQPTUNJE
UPIJHITJOHMFEJHJUHSPXUIPOBWFSBHF
JOUIFOFYUEFDBEFPXJOHUPTUSPOH
HSPXUIJOJOEVTUSJBMTPŝXBSF4NBSU
BVUPNBUJPOSFQSFTFOUTPOFPGUIFGBTUFTUHSPXJOHTFHNFOUTJOUIFCSPBEFS
JOEVTUSJBMBOE*5TFDUPST
The rising Millennials
.JMMFOOJBMT¾UIFEFNPHSBQIJDDPIPSU
PGJOEJWJEVBMTCPSOCFUXFFOBOE
OPXUPZFBSTPGBHF¾
DPOUJOVFUPHBSOFSTJHOJŖDBOUNFEJB
BUUFOUJPOGPSBOVNCFSPGSFBTPOTQBSUJDVMBSMZUIFJSTIFFSTJ[F"DDPSEJOHUP
UIF64$FOTVTUIJTHFOFSBUJPOSFQSFTFOUTOFBSMZPOFUIJSEPGUIFUPUBM64
Drivers behind Decade Ahead themes
Resources
Innovation
Demographics
Globalization
Government
Normalization
Society
Decade themes
5SBOTGPSNBUJPOBM
UFDIOPMPHJFT
3
3
3
5IFSJTJOH.JMMFOOJBMT
3
3
3
3
3
F$PNNFSDF
3
3
&OWJSPONFOUBMPQQPSUVOJUJFT
/PSUI"NFSJDBOFOFSHZ
JOEFQFOEFODF3FFOFSHJ[FE
3
3
3
3
3
3
3
3
#FZPOECFODINBSLŖYFE
JODPNFJOWFTUJOH
3
3
3
3
3
)VNBODBQJUBM
3
3
3
-JBCJMJUZPQUJNJ[BUJPO
3
ubs.com/houseview
-POHFSUFSNJOWFTUNFOUUIFNFT
QPQVMBUJPO*OBEEJUJPO.JMMFOOJBMT
DPNQSJTFUIFMBSHFTUTIBSFPGUIFDVSSFOU"NFSJDBOXPSLGPSDFBDDPSEJOHUP
BSFDFOUSFQPSUCZUIF1FX3FTFBSDI
$FOUFS0WFSUIFOFYUEFDBEFBNBKPSJUZPG.JMMFOOJBMTXJMMFOUFSUIFXPSLGPSDFGPSNIPVTFIPMETTUBSUGBNJMJFT
BOEBQQSPBDIUIFJSQFBLFBSOJOHZFBST
(JWFOUIFMBSHFTJ[FBOEFBSOJOHTQPUFOUJBMPG.JMMFOOJBMTXFCFMJFWFDPNQBOJFTXJUIQPTJUJWFFYQPTVSFUPUIJTSJTJOH
HFOFSBUJPOXJMMFYQFSJFODFBHSPXUI
UBJMXJOEJOUIFZFBSTUPDPNF
8IJMFUPEBZÁTZPVOHBEVMUTFYIJCJUTPNFCFIBWJPSBMUSBJUTJODPNNPO
XJUIQBTUHFOFSBUJPOTEJšFSFOUTPDJFUBM
JOŗVFODFTBOEFDPOPNJDDJSDVNTUBODFTEJTUJOHVJTIUIJTDPIPSUJOBOVNCFS
PGXBZT5IJTJTBHFOFSBUJPOPGÃEJHJUBM
OBUJWFTÄ5IFJSQBTTJPOGPSBOEŗVFODZXJUIUFDIOPMPHZBSFGVFMJOHHSPXUI
JOF$PNNFSDFTPDJBMNFEJBTFSWJDFT
BOENPCJMFBQQMJDBUJPOT"EEJUJPOBMMZ
FBTZBDDFTTUPJOGPSNBUJPOJTMFBEJOH
UPNPSFJOGPSNFEDPOTVNQUJPOEFDJTJPOTUIBUGBWPSDPTUDPNQFUJUJWFPOMJOF
SFUBJMFSTBOEXFMMOFTTGPDVTFECSBOET
'JOBMMZUIJTDPNNJUNFOUGSFFHFOFSBUJPOJTSFOUJOHJOMBSHFOVNCFSTBOE
TVQQPSUJOHHSPXUIJOÃTIBSJOHFDPOPNZÄTFSWJDFT5IFUZQFTPGDPNQBOJFT
UIBUTUBOEUPCFOFŖUGSPNUIJTHFOFSBUJPOBOEBTBSFTVMUUPPVUQFSGPSNUIF
CSPBEFSNBSLFUBSFUIPTFFOHBHFE
JONPCJMFUFDIOPMPHZTPDJBMNFEJB
F$PNNFSDFTIBSJOHFDPOPNZTFSWJDFT
IFBMUIBOEXFMMOFTTBOENVMUJGBNJMZ
SFOUBMIPVTJOH
e-Commerce: Beyond Amazon
&YQMPTJWFHSPXUIJOF$PNNFSDFDPOUJOVFTUPBMUFSUIFDPOTVNFSMBOETDBQF
0NOJDIBOOFMDPNQBOJFT¾UIPTFUIBU
BSFDPNQMFUFMZBHOPTUJDUPIPXXIFSF
BOEXIFOBDPOTVNFSTIPQTPSJOUFSBDUTXJUIBCSBOE¾XJMMMFBEUIFXBZ"U
BOPNOJDIBOOFMSFUBJMFSBMMQVSDIBTF
DIBOOFMTBSFFšPSUMFTTMZDPOOFDUFE
QSPWJEJOHBDPOWFOJFOUBOETFBNMFTT
XBZUPTIPQ1SJDJOHJTUZQJDBMMZDPOTJTUFOUBDSPTTBMMDIBOOFMTBOEQVSDIBTFT
NBEFPOMJOFDBOFBTJMZCFSFUVSOFEJO
TUPSFBOEWJDFWFSTB
-POHUFSNQPTJUJWFESJWFSTPGEJHJUBM
HSPXUIJODMVEJOHUIFSBQJEBEPQUJPO
PGNPCJMFEFWJDFTTVDIBTTNBSUQIPOFT
BOEUBCMFUTXJMMIBTUFONBSLFUTIBSF
TIJŝTPOMJOF5IFTNBSUQIPOFIBT
Fig. 24
Scarcity in food, water, and energy is tightly related
Water
irrigation
runoffs
cooling water injection
water treatment
desalination
Food
Energy
mechanization
fertilizer biofuels
Source: UBS
UBS House View – Years Ahead
CFDPNFBEJTSVQUJWFGPSDFJOSFUBJMJOH
XJUIUIFNBKPSJUZPGNPCJMFUSBOTBDUJPOT
UBLJOHQMBDFPOEFWJDFTTVDIBT"QQMFÁT
J1IPOFBOEUIF4BNTVOH(BMBYZ5IF
EJHJUBMTIJŝIBTDPOUJOVFEUPHBUIFS
TQFFEBTUIFUSBOTJUJPOUPNPCJMFJT
IBQQFOJOHFWFOGBTUFSUIBOFYQFDUFE
0QQPSUVOJUJFTBSPVOEUIFF$PNNFSDF
UIFNFFYUFOECFZPOEKVTUPXOJOH
QVSFQMBZPOMJOFTIPQQJOHDPNQBOJFT
MJLF"NB[PO64CBTFEDPNQBOJFTJO
DPOTVNFSGPDVTFEJOEVTUSJFTTVDIBT
SFUBJMBQQBSFMDPOTVNFSQBDLBHFE
HPPETBOESFTUBVSBOUTXJMMCFOFŖUBT
UIFZUBLFBOPNOJDIBOOFMBQQSPBDI
UPUIFJSCVTJOFTTBOEBTNPSFDPOTVNFSTTIJŝUIFJSTIPQQJOHBOETQFOEJOH
POMJOF*OBEEJUJPOUPDPNQMFNFOUUIFJS
POMJOFFšPSUTŖSNTBSFVTJOHEJHJUBM
NBSLFUJOHTUSBUFHJFTJODMVEJOHTPDJBM
NFEJBTFBSDIBOECJHEBUBUPOBNFB
GFX$PNQBOJFTUIBUGBDJMJUBUFF$PNNFSDFUSBOTBDUJPOTGSPN*5QSPWJEFST
UPUIFQBZNFOUPGHPPETTIPVMEBMTP
CFCFOFŖDJBSJFTPGUIFF$PNNFSDF
UIFNF
Environmental opportunities
)VNBOJUZJTGBDJOHFOWJSPONFOUBMBOE
SFTPVSDFSFMBUFEDIBMMFOHFTPOBHMPCBM
TDBMFXJUIGPPEFOFSHZBOEXBUFSTDBSDJUZMJLFMZUPSFNBJOPOHPJOHDPODFSOT
GPSUIFOFYUEFDBEF'JH
5IFHMPCBM
QPQVMBUJPOJTFYQBOEJOHBUBSBQJESBUF
BOEQPQVMBUJPOHSPXUIXFJHITIFBWJMZPOWJUBMSFTPVSDFT5IJTJODSFBTFJO
QPQVMBUJPOJTDPNQPVOEFECZHSPXUI
JOJODPNFQFSDBQJUBFTQFDJBMMZJOEFWFMPQJOHDPVOUSJFTBOEUIFPOHPJOHUSFOE
UPXBSEVSCBOJ[BUJPO
5IFTFGBDUPSTBSFJODSFBTJOHUIF
EFNBOEGPSIJHIFSRVBMJUZGPPETJO
QBSUJDVMBSBOJNBMQSPUFJOTPVSDFTTVDI
BTNFBUT)JHIFSDPOTVNQUJPOPGBOJNBMQSPUFJOXPSMEXJEFJTDIBMMFOHJOHBT
JUSFRVJSFTBTJHOJŖDBOUMZMBSHFSBNPVOU
PGMBOEXBUFSBOEFOFSHZSFTPVSDFT
-POHFSUFSNJOWFTUNFOUUIFNFT
North American energy
independence: Reenergized
5IFQBTUZFBSBOEBIBMGIBTCFFOUVSCVMFOUGPSFOFSHZNBSLFUTBOEUIF
HSPXUIUSBKFDUPSZJOUIF/PSUI"NFSJDBOPJMBOEHBTJOEVTUSZIBTCFFOUFNQPSBSJMZEJTSVQUFE:FUXFSFNBJO
DPOWJODFEUIBU/PSUI"NFSJDBSFNBJOT
POBQBUIUPXBSEFOFSHZJOEFQFOEFODF
'JH
5ISPVHIUIFQSJDFEPXOUVSOB
DPNCJOBUJPOPGEFDMJOJOHEFWFMPQNFOU
DPTUTBOEJODSFBTJOHPQFSBUJOHFGŖDJFODZIBTLFQU64POTIPSFPQFSBUPSTDPNQFUJUJWFPOUIFHMPCBMTUBHF0WFSUJNF
XFQSPKFDUBSFTVNQUJPOPGHSPXUI
BMCFJUNPSFNPEFTUJOUIF/PSUI"NFSJDBOPJMBOEHBTJOEVTUSZ
DPNQBSFEUPUIBUSFRVJSFECZWFHFUBSJBOEJFUT4JNJMBSMZFDPOPNJDEFWFMPQNFOUBOEUIFHMPCBMQIFOPNFOPOPG
VSCBOJ[BUJPOIBWFSFTVMUFEJOBTVSHFPG
FOFSHZDPOTVNQUJPOBOEIBWFBEEFE
QSFTTVSFPOFYJTUJOHXBUFSJOGSBTUSVDUVSF5IFTFUSFOETPOMZFYBDFSCBUFUIF
CVSEFOPOFOWJSPONFOUBMSFTPVSDFT
*NQSPWJOHDVSSFOUUFDIOPMPHJFTUPCF
NPSFFGŖDJFOUXIJMFTJNVMUBOFPVTMZ
EFWFMPQJOHNPSFTVTUBJOBCMFTPMVUJPOTJT
FTTFOUJBMUPSFTPVSDFQSFTFSWBUJPO
5IFTFDIBMMFOHFTJGDPOTJEFSFEDBSFGVMMZ
BOEIPMJTUJDBMMZDBOUVSOJOUPBDPNQFMMJOHTPVSDFPGJOWFTUNFOUPQQPSUVOJUJFT
BSPVOESFTPVSDFPQUJNJ[BUJPOBOEFGŖDJFODZ'PSXBSEMPPLJOHDPNQBOJFTBSF
TUSBUFHJDBMMZHSPXJOHCVTJOFTTMJOFTUIBU
QSPWJEFQSPEVDUTBOETFSWJDFTUBSHFUFEUPNFFUJOHUIFTFDIBMMFOHFT$POTFRVFOUMZBWBSJFUZPGFOWJSPONFOUBM
PQQPSUVOJUJFTBSFCFHJOOJOHUPTVSGBDF
UIBUDBOCFJOUFHSBUFEJOUPJOWFTUNFOU
QPSUGPMJPT5IFTFJODMVEFJOWFTUNFOUT
JOBMUFSOBUJWFFOFSHZFOFSHZFGŖDJFODZ
XBUFSUSFBUNFOUBOEJOGSBTUSVDUVSFBT
XFMMBTTVTUBJOBCMFGPPEQSPEVDUJPO
8FTFFUISFFQSJNBSZQBUITUPFOFSHZ
JOEFQFOEFODFŖSTUUISPVHISJTJOH64
PJMBOEHBTQSPEVDUJPOTFDPOEUISPVHI
JODSFBTFEPJMTVQQMJFTGSPN$BOBEBBOE
UIJSEBTBSFTVMUPGDPOTFSWBUJPOBOE
EJWFSTJŖDBUJPOPGPVSFOFSHZGVFMCBTF
JODMVEJOHTUSPOHHSPXUIJOBMUFSOBUJWF
BOESFOFXBCMFFOFSHZTPVSDFT
/PUPOMZEPXFBOUJDJQBUFNPSFFOFSHZTFMGTVGŖDJFODZJO/PSUI"NFSJDBCZ
UIFFOEPGUIFEFDBEFXFFYQFDUUIBU
Fig. 25
US crude oil imports have been trending lower
In thousands of barrels per day
10,000
9,500
9,000
8,500
8,000
7,500
7,000
6,500
Aug-15
Feb-15
May-15
Nov-14
Aug-14
Feb-14
May-14
Nov-13
Aug-13
Feb-13
May-13
Nov-12
Aug-12
Feb-12
May-12
Nov-11
Aug-11
Feb-11
May-11
Nov-10
Aug-10
6,000
UIF64XJMMTPPOCFBOFUFYQPSUFSPG
OBUVSBMHBT5SFOETTVQQPSUJWFPGUIFPJM
BOEHBTJOEVTUSZ¾TVDIBTSPCVTUESJMMJOHBDUJWJUZGPSPJMBOEOBUVSBMHBTJOGSBTUSVDUVSFCVJMEPVUBOEXJEFTQSFBE
BWBJMBCJMJUZPGSFMJBCMFBOEBšPSEBCMF
FOFSHZTVQQMJFT¾BSFESJWJOHPQQPSUVOJUJFTGPSJOWFTUPST5FDIOPMPHJFTGPS
FYUSBDUJOHPJMBOEHBTBSFMFBEJOHUP
JNQSPWFEXFMMQSPEVDUJWJUZBOESFEVDFE
DPTUT
8FCFMJFWFUIF64DPNQFUJUJWFMBOETDBQFGBWPSTUIFTUSPOHFSPQFSBUPST
"QPUFOUJBMTIBLFPVUBNPOH64TIBMF
PQFSBUPSTDPVMEFOBCMFUIFNPSFFGŖDJFOUPQFSBUPSTUPCFOFŖUGSPNJOEVTUSZDPOTPMJEBUJPOBOEUPDPNFPVUFWFO
CFUUFSQPTJUJPOFEUPDBQUVSFGVUVSF
HSPXUIPQQPSUVOJUJFT.FBOXIJMFXF
FYQFDUFOFSHZDPOTVNFSTUPFOKPZUIF
POHPJOHCFOFŖUTPGMPXFSDPTUFOFSHZ
*OQBSUJDVMBSJOEVTUSJBMDPOTVNFSTOPU
POMZIBWFBDDFTTUPBMPXDPTUBOESFMJBCMFFOFSHZSFTPVSDFCVUBMTPFOKPZB
DPTUBEWBOUBHFPWFSUIFJSJOUFSOBUJPOBM
QFFSTXIPBSFSFMJBOUPONPSFFYQFOTJWFJNQPSUFEHBT
#FZPOECFODINBSLÎYFEJODPNF
investing
4JODFUIFHMPCBMŖOBODJBMDSJTJTŖYFE
JODPNFJOWFTUPSTIBWFGPVOEUIFNTFMWFTJOBEJGŖDVMUFOWJSPONFOU5IF
IFBEXJOETGBDJOHUIFCPOENBSLFUBSF
OVNFSPVTBOEJODMVEFOFBS[FSPSBUFT
JOTIPSUNBUVSJUZJOTUSVNFOUTBMPOHFS
ESBXOPVUOPSNBMJ[BUJPODZDMFBOEGSFRVFOUCPVUTPGWPMBUJMJUZ%FTQJUFUIF
QSPMPOHFEXBJUJOHHBNFXFTUJMMFYQFDU
UIF'FEFSBM3FTFSWFUPCFHJOSBJTJOH
SBUFTCZUIFFOEPGUIFZFBS
5IFQBUIUPBOPSNBMJ[FEJOUFSFTUSBUF
FOWJSPONFOUXJMMQSPEVDFIFBEXJOET
GPSŖYFEJODPNFJOWFTUPSTPWFSBNFEJVNUPMPOHFSUFSNQFSJPE)JHIFSSBUFT
XJMMFYFSUQSFTTVSFPOQSJODJQBMWBM-
Source: Energy Information Administration, UBS, as of 4 November 2015
ubs.com/houseview
-POHFSUFSNJOWFTUNFOUUIFNFT
VFTBOEMPXTUBSUJOHZJFMETXJMMMFBEUP
HSFBUFSCPOEQSJDFTFOTJUJWJUZ"DDPSEJOHMZGVUVSFŖYFEJODPNFSFUVSOTBSF
MJLFMZUPCFNPSFNPEFTUXJUITUBSUJOH
ZJFMEMFWFMTCFJOHBTUSPOHJOEJDBUPSPG
GVUVSFQFSGPSNBODF
POFÁTQSPGFTTJPOBMDBSFFS"TUJNFHPFT
CZBOEJODPNFJTTBWFEBOEJOWFTUFE
IVNBODBQJUBMSVOTEPXOXIJMFŖOBODJBMBTTFUTHSPX0ODFBOJOEJWJEVBMIBT
SFBDIFEGVMMSFUJSFNFOUIVNBODBQJUBM
EFŖOFEJOUIJTNBOOFSSFBDIFT[FSP
8FSFDPNNFOEEJWFSTJGZJOHCPOEQPSUGPMJPTBXBZGSPNUSBEJUJPOBMUBYBCMF
ŖYFEJODPNFCFODINBSLTUIBUBSFIFBWJMZHPWFSONFOUXFJHIUFEJF#BSDMBZT
"HHSFHBUF*OEFY
BOEJODPSQPSBUJOH
PUIFSUZQFTPGÃCFZPOECFODINBSLÄ
BTTFUT8FCFMJFWFUIBUEJWFSTJGZJOH
IJHIRVBMJUZCPOEQPSUGPMJPTBOEJODPSQPSBUJOHEJšFSFOUUZQFTPGŖYFEJODPNF
BTTFUDMBTTFTPVUTJEFPGHPWFSONFOU
TFHNFOUTTIPVMEMFBEUPTVQFSJPSSJTL
BEKVTUFESFUVSOTPWFSUJNF
6OEFSTUBOEJOHUIFDIBSBDUFSJTUJDTPG
IVNBODBQJUBMIBTJNQMJDBUJPOTGPSBTTFU
BMMPDBUJPO)VNBODBQJUBMIBTGFBUVSFT
UIBUBSFNPSFCPOEMJLFUIBOFRVJUZ
MJLF5IFSFGPSFDPOTJEFSJOHBOJOEJWJEVBMÁTFOUJSFOFUXPSUIJODMVEJOHIVNBO
DBQJUBM
TVHHFTUTIPMEJOHBMMPDBUJPOT
UPTUPDLTXJUIUIFBMMPDBUJPOTEFDMJOJOHPWFSUJNFBMPOHBDFSUBJOHMJEF
QBUI5IFTQFDJŖDQBUIEFQFOETPOUIF
OBUVSFPGBOJOWFTUPSÁTIVNBODBQJUBM¾JOQBSUJDVMBSIPXSJTLZBOEIPX
SFMBUFEJUJTUPTUPDLNBSLFUDPOEJUJPOT
)VNBODBQJUBMUIBUJTFJUIFSSJTLJFSFH
BOBUIMFUF
PSNPSFIJHIMZDPSSFMBUFE
XJUIFRVJUZSFUVSOTFHBTUPDLCSPLFS
XJMMJNQMZBMPXFSTIBSFPGFRVJUJFTPWFS
UJNFUIBOGPSSFMBUJWFMZTBGFIVNBODBQJUBMFHBUFOVSFEVOJWFSTJUZQSPGFTTPS
*OWFTUPSTDBODJSDVNWFOUUSBEJUJPOBM
CFODINBSLTIPSUDPNJOHTCZJODSFBTJOHFYQPTVSFUPDSFEJUTQSFBETFDUPST
XIFSFUIFBEEJUJPOBMSJTLQSFNJVN
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Nontraditional Assets
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Editor in Chief
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