UBS House View
Investor’s Guide
with recommended solutions
For investors domiciled in Switzerland
Teaming up
to perform
SPOTLIGHT
Switzerland
faces
challenges
Switzerland
CIO Wealth management
July 2014
IN CONTeXT – A meSSAGe FrOm The reGION
Dear reader,
You will notice that our new Global Chief Investment Officer Mark
haefele, as the successor of Alexander S. Friedman, has signed our
overview of the global investment markets starting on page 4 of this
UBS House View publication. I purposely wrote “our overview”
because even if we have, with Mark Haefele, a long-time associate of
Friedman’s as the new head of our Chief Investment Office, the Chief
Investment Office team remains the same. Composed of analysts and
investment specialist from all corners of the globe, it continues to
monitor the global economy and financial markets and watch out for
opportunities and risk for you. This means that, in the future too, you
will continue to benefit from the combined expertise of our investment specialists and the assessments of the financial markets that are
summarized in the UBS House View.
In Switzerland, I, as the regional Chief Investment Officer and Chief
economist of UBS Switzerland, will continue to be responsible for
investment topics in Swiss francs. And as before, you will continue to
hear and read about the latest developments of relevance to Swiss
investors as well as the best investment ideas from my team and me
at client events and in publications. In my contribution on page 21 of
this issue of the UBS House View, I discuss several topics that have
been of continued concern to many clients whom I have met in the
past few weeks and months.
I hope you enjoy reading this issue.
daniel Kalt
reGIONAl CIO SWITZerlAND
If you wish to subscribe, please contact your UBS client advisor.
TACTICAL PREFERENCES
3
CIO MONTHLY LETTER
4
PREFERREd INVESTMENT VIEwS
10
AT A GLANCE
11
KEY FINANCIAL MARKET
dRIVERS
12
ASSET CLASS OVERVIEw
14
equities
Bonds
Commodities and other asset classes
Currencies
KEY FORECASTS
20
SPOTLIGHT
21
Switzerland faces challenges
INVESTMENT IdEAS wITH
RECOMMENdEd SOLUTIONS
23
dISCLAIMER
31
Publisher
UBS AG, Chief Investment Office WM,
P.O. Box, CH-8098 Zurich
UBS House View
Mark Haefele,
Global Chief Investment Officer WM
Daniel Kalt, regional CIO Switzerland
you will find a comprehensive glossary of technical terms on the internet site www.ubs.com/glossary
If you require further information on the instruments or issuers mentioned in this publication, or you require general information
on UBS Chief Investment Office (CIO) EM including research policies and statistics regarding past recommendations, please
contact either your client advisor or the mailbox <[email protected]> giving your country of residence.
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2 | UBS House View July 2014
Recommended solutions
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Product management
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Tactical preferences
We are reducing the size of our credit overweight, taking some profits on
US high yield, and reducing EM government bonds to underweight.
However, the overall outlook for risk assets is positive.
ds
Bon
al
Tot
High
grade
Corporate
High yiel
d
EM
sove
reign
Ot
he
Co
m
GBP
Japa
n
Sw
i
lan tzerd
D
US
ies
nc
rre
Cu
EUR
Em
Ma er
rk
dit m
ies o-
rs
rs
he
Ot
)
g M
gin ts (E
e
EM
cor
por
ate
UK
Eurozone
JPY
Asset Classes
Tactical asset allocation
tal
To
sh
Ca
l
Tota
AUD
ities
Equ
US
CHF
CAD
THIS MONTH
1) We are overweight
risk assets and, within
our equity allocations,
US and Eurozone stocks.
2) We prudently overweight
our allocation to US high
yield while moderately
reducing the size of this
position.
3) We recommend underweighting emerging market
hard-currency government
bond holdings.
Legend
Overweight: Tactical recommendation to hold more of the asset class than specified in the strategic asset allocation
Neutral: Tactical recommendation to hold the asset class in line with its weight in the strategic asset allocation
Underweight: Tactical recommendation to hold less of the asset class than specified in the strategic asset allocation
UBS House View July 2014 | 3
CIO monthly letter
Teaming up to perform

Tactically, we are overweight US and Eurozone equities, and US high yield and
investment grade credit.
Mark Haefele
Global Chief Investment Officer
Wealth Management

However, we have reduced the size of our overweight position in US high yield,
and cut emerging market USD-denominated sovereign bonds to underweight,
after strong performance in both segments this year.

The year, as we approach the halftime whistle, has not been without its shocks.
But what has actually surprised us most is the relative lack of surprises.

We caution investors not to let the market calm lure them into taking more risk
than they can bear. Focusing on a long-term strategic asset allocation with a tolerable level of risk is key.
It is my honor to succeed my good friend Alexander S. Friedman as Global CIO.
Alex and I have invested together in one form or another for the past 20 years. My
investment team and I have been involved in the CIO Monthly Letter since the
beginning. So while you and I may not have been formally introduced, we already
know each other.
No level of involvement in formulating our UBS CIO House View can compare to
having the privilege and responsibility of signing my name below. As we navigate
the changing investment world together, I am certain of at least one thing: a
healthy and open dialogue with you, our valued clients and partners, is a critical
part of our transparent global investment process.
More than 15 years ago, I wrote my first letter to partners who had entrusted me
with their capital. I believed then and I believe now that the partner letter is one of
the most important elements of a solid investment process. While not all our calls
will be correct, we hope to maintain your trust and become better investors by
clearly explaining our investment positions and inviting your feedback.
Living in Europe during the football World Cup provides me plenty of free kicks to
shoot for analogies, but more on these later.
4 | UBS House View July 2014
CIO monthly letter
A surprising first half?
CIO cannot pretend that it has got everything right this year.
We did not forecast the so-called “polar vortex,” which sent US winter temperatures
plummeting and brought economic output in much of the country to a near-standstill. Output contracted by 2.9% (annualized) in the first quarter. Growth will return
in the second quarter, but some of this year’s growth is simply lost. American consumers might have bought a car in April if it was too cold in February, but they are
unlikely to have gone to two restaurants in the springtime to make up for a foregone
winter meal. We now forecast 2014 growth of 1.7% down, from 3.0% at the start
of the year.
China’s growth has also disappointed. The property market has proved weaker than
we anticipated. Prices are declining month over month in 35 of China’s 70 largest cities; this is also the first month over month decline of the overall price index since May
2012. This is weighing on property investment and construction, and exports have
failed to compensate. We now forecast 2014 GDP growth of 7.3%, down from 7.7%
at the beginning of January.
Eurozone growth, which we peg at 1.0% for the year, has broadly matched our
expectations. But inflation has declined persistently, and the European Central
Bank (ECB) was forced to cut its deposit rate into negative territory, a measure we
were positioned for but hadn’t expected the ECB to take.
>> The rally in high
grade bonds and the
intra-sector shift in
equities surprised us.
With respect to our investment recommendations, the rally in high grade bonds surprised us, and the intra-sector shift within equities in March and April was unhelpful for
some of our thematic ideas. Equity long-short hedge fund managers, a segment we
have been recommending within alternatives, were also not able to distinguish themselves in the first half environment.
Overall, however, as we approach the year’s halftime whistle, what has actually
surprised us most is the relative lack of surprises.
>> What has actually
surprised us most is the
relative lack of surprises.
Our global economic recovery thesis remains intact. Global growth is on course to
be around 3%, with consensus forecasts in a very tight range. We have been right
to overweight risky assets: global equities are up 6.4%, with 30-day realized market volatility now at its lowest level since 1996 (see Fig.1). Credit spreads have conFig. 1: Realized 30-day volatility is at its lowest level since 1996
MSCI World 30-day volatility (%, annualized)
40
30
20
10
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
0
1996
> Equity markets are
at their least volatile
level since 1996.
Source: Bloomberg, UBS, as of 25 June 2014
UBS House View July 2014 | 5
CIO monthly letter
tracted, the euro has (finally!) begun to depreciate against the US dollar, and Brazil, our World Cup pick, topped its group and won its first knockout-round match.
Keeping the game within reach
Considering the recent past, when financial crises in the US and Eurozone threatened to upend the entire global economic order, one might be forgiven for
savoring a world of few surprises. But in future an unsurprising world is likely to
make many investors feel like returns are uninspiring, particularly in light of the
strong performance of financial assets in recent years. From here we expect equity
markets to deliver 7–8% p.a., high yield credit 4–5% p.a., and high grade bonds
0–3% p.a. (see Fig. 2).
>> A desire for higher returns
should not lure investors
into taking more risk than
they can bear.
In this environment, finding extra return is more crucial than ever. To help meet this
need, CIO will strive to deliver clearly explained, strong-performing investment
ideas. But a desire for higher returns than the market can offer should not lure
investors into taking more risk than they can bear. Risks that appear bearable in an
“unsurprising world” may become unbearable later. This is why, throughout the
economic cycle, we still advise clients to hold well-diversified portfolios suitable for
their risk tolerance.
When we do see investors overreaching for returns, there are three common
pitfalls we want to help you avoid: 1) leaving little margin for unexpected events;
2) not diversifying properly; and 3) taking on excess leverage.
Investors must always allow for the unexpected. This year’s World Cup is a
front-of-mind example. Heading into the tournament, bookmakers priced an
85% chance that Spain, the reigning world and European champions and the
No.1-ranked team globally, would qualify for the knockout round. We also
expected them to qualify, but of course they didn’t.
At our recent Investor Forum (our monthly “pre-match analysis” meeting with top
external fund managers) a participant likened this to current activity in financial
markets. The options market is pricing in an 86% chance that Brent crude oil
prices will not increase by more than 10% in the coming three months. This
participant, like us, foresees prices remaining contained, but noted there is of
course a possibility that the situation in Iraq could deteriorate and oil prices could
rise. We therefore need to do our homework and assess the potential impact of
the unexpected on our positions, a discipline all good investors should practice.
With respect to this particular risk, we remain comfortable with our positioning,
Fig. 2: Expect lower returns from financial assets in the future
5-year historic returns, and 5-year UBS projections (%, annualized)
16
> We expect equity markets
to deliver 7–8% p.a., high
yield credit 4–5% p.a., and
high grade bonds 0–3%
p.a. over the next five years.
14
12
10
8
6
4
2
0
Global Equities
Historical 5y
Expected 5y
USD Cash
Source: Bloomberg, UBS, as of 25 June 2014
6 | UBS House View July 2014
EM Bonds
US HY Bonds
High grade
Bonds
US IG Bonds
CIO monthly letter
with oil trading at USD 114/bbl, but a 10–15% price increase would concern us
due to the negative effect it would have on developed market economic growth.
Second, in a world of low returns, it is understandable that investors are looking
hard at every part of their portfolio to ensure that it will return as much as possible. For example, it may seem senseless in isolation to hold a fixed-rate bond
fund in a rising yield environment, when a floating-rate fund is likely to deliver
greater returns. Similarly, in isolation, holding high grade bonds at all may seem
illogical when credit has a more favorable return outlook.
>> Diversification is critical for
improving the risk-return
profile of portfolios overall.
But a series of decisions that may make sense in isolation can lead to a far-fromideal outcome. We prefer high yield credit to high grade bonds currently, but an
investor who dedicates an entire portfolio to it is probably ill-advised. Similarly, we
also believe that yields will rise, but swapping all fixed-rate bond exposure for
floating rates is likely also not a good idea if the portfolio also contains growthsensitive equities. Floating-rate credits and equities will likely be highly correlated,
and portfolios therefore more volatile. Diversification is critical to mitigating
idiosyncratic risks and improving the risk-return profile of portfolios overall.
>> Building a portfolio is like
picking a winning football
team, which involves players from every position.
It’s rather like picking a winning football team. At our April conference with
leading fund managers in Davos, where World Cup fever had already started, one
of our colleagues likened constructing a portfolio to selecting a football team.
Every squad, no matter where it hails from, is made up of a goalkeeper, defenders,
midfielders, and attackers. Every team develops a style suited to it while deploying
players in those positions. Picking the best 11 players in the country isn’t a winning
strategy if those 11 do not include any defenders or a goalkeeper. For the record, I
played as a center back in school, which was good preparation for portfolio
management, but not the only role needed in a winning investment team.
>> Using leverage to boost
returns involves increasing
risk by an even greater
factor.
Finally, there is leverage. In a world of low returns and volatility, employing leverage can boost returns to levels we all may have grown accustomed to. Leveraging
credit investments is particularly tempting thanks to the combination of relatively
low borrowing costs and an ongoing “hunt for yield.” Investors must remember,
however, that increasing returns using leverage involves increasing risk by an even
greater factor, once we account for borrowing costs. For example, leveraging an
investment by a factor of two in a credit instrument that yields 5% p.a. at a
borrowing cost of 2% increases the return from 5% to 8% p.a., but doubles the
amount of risk the investor assumes.
Fig. 3: We project GDP growth for EMBI-issuers to be in line with that for the US
Real GDP growth (%, yoy)
2015E
2014E
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
>Growth in the US is
likely to match growth
for EMBI-issuers for the
first time in over 10
years.
10
8
6
4
2
0
–2
–4
EMBI-weighted
US
Source: Bloomberg, JP Morgan, UBS, as of 25 June 2014
NB: EMBI-weighted GDP growthestimated using current weights, for 9 largest constituents
UBS House View July 2014 | 7
> We advise focusing on
developing and
maintaining a long-term
strategic asset allocation.
Investors can avoid such pitfalls by maintaining a clear investing framework and
making individual decisions in an overall portfolio context. We advise focusing first
on developing and maintaining a long-term strategic asset allocation (SAA) that
has a tolerable level of risk. We supplement the SAA with thematic and tactical
asset allocation (TAA) ideas, which I detail below. If used in a risk-controlled way in
the context of an overall portfolio, we believe they can boost returns relative to
their risks.
> Tactically, we are
overweight US and
Eurozone equities.
our strategy for the second half of the match
Entering the second half of 2014, we field a diversified set of tactical bets and are
playing to win. We are overweight risk assets and, within our equity allocations,
overweight US and Eurozone stocks.
In the US, indicators suggest the economy is on track again after the 1Q slowdown. We think US economic growth should translate into mid-to-high single-digit
earnings growth in percentage terms, in line with our expectation for equity
performance.
In the eurozone, leading indicators are mixed, but have stayed in expansionary
territory. The euro’s strength has hurt earnings, but they will improve in year-overyear comparisons provided the euro does not reach new highs. Thus we see the
potential for high single-digit percentage earnings growth thanks to a combination
of economic expansion and margin improvement.
> In currencies, we play
underweights in the euro
and Swiss franc relative to
the US dollar and British
pound.
Furthermore, the eCB continues to demonstrate its commitment to stimulating
growth and inflation through its twin interest rate cuts and its apparent openness
to pursuing an asset-backed security purchase program. This has bolstered our
confidence in our underweight positions in the euro and the Swiss franc. We play
these underweights relative to the US dollar and the British pound: after comments
The UBS House View suite
UBS House View
Investor’s Guide
With recommended solutions
CIO Monthly Letter
Chief Investment Office WM | 26 June 2014
For investors domiciled in Switzerland
Deeper dive
July 2014
Teaming up
to perform
CIO Weekly
Switzerland
Chief Investment Office WM | 19 June 2014
Switzerland
CIO Wealth Management
Teaming up to perform
What we are watching
What does the situation in Iraq
mean for global markets?
02
Iraq and oil prices
US personal income
Eurozone flash PMI
„„However, we reduce the size of our overweight position in US high yield, and
cut emerging market USD-denominated sovereign bonds to underweight,
after strong performance in both segments year-to-date.
We did not forecast the so-called “polar vortex,” which sent US winter temperatures
plummeting and brought economic output in much of the country to a near-standstill.
Output contracted by 2.9% (annualized) in the first quarter. Growth will return in the
second quarter, but some of this year’s growth is simply lost. American consumers might
buy a car in April if it was too cold in February, but they are unlikely to go to two restaurants
in the springtime to make up for a foregone winter meal. We now forecast 2014 growth
of 2.5%, from 3.0% at the start of the year.
3 Geopolitics were high on investors’ minds as tensions
flared again in the Ukraine after pro-Russian militants shot down
a military plane near Luhansk, where insurgents recently proclaimed
the Luhansk People’s Republic. In response, riots took place in front
of the Russian embassy in Kiev. Moreover, Russia and Ukraine failed
to agree on a compromise over gas prices when Russia rejected price
proposals. Ukraine will now only get gas it pays for in advance, and
„„We caution that the market calm does not lure investors into taking more risk
It is my honor to succeed my good friend Alex Friedman as Global CIO. Alex and I have
invested together in one form or another for the past 20 years. My investment team and I
have been involved in the CIO Monthly Letter since the beginning. So while you and I may
not have been formally introduced, we already know each other.
Switzerland faces
challenges in
more areas
than football
alone
No level of involvement in formulating our UBS CIO House View can compare to having
the privilege and responsibility of signing my name below. As we navigate the changing
investment world together, I am certain of at least one thing: A healthy and open dialogue
with you, our valued clients and partners, is a critical part of our transparent global
investment process.
More than 15 years ago, I wrote my first letter to partners who had entrusted me with
their capital. I believed then and I believe now that the partner letter is one of the most
important elements of a solid investment process. While not all our calls will be correct,
we hope to maintain your trust and become better investors by clearly explaining our
investment positions and inviting your feedback.
Living in Europe during the football World Cup provides me plenty of free kicks to shoot
for analogies, but more on these later.
Which got us thinking …
China’s growth has also disappointed. The property market has proved weaker than we
anticipated. Prices are declining month over month in 35 of China’s 70 largest cities; this is
ab
Argentine President Fernandez takes a dim view
of “holdout” bondholders.
A surprising first half?
CIO cannot pretend that it has got everything right this year.
shocks. But what has actually surprised us most is the relative lack of
surprises.
than they can bear. Focus on a long-term strategic asset allocation with a tolerable level of risk is key.
SPOTLIGHT
What you need to know
1 The Federal Reserve released its statement after the
Russia has pressured its neighbor to guarantee the EU receives delivery transit through Ukraine. Given ample gas in storage in Ukraine
latest FOMC meeting saying it would wind down its monthly pace
and assuming no major accident with the Ukraine gas pipeline, we
of asset purchases by another USD 10bn to 35bn starting in July.
do not expect the supply cut to have an immediate impact on EU gas
Changes to near-term forecasts were broadly in line with expectasupplies.
tions. The Fed cut its 2014 growth forecast to 2.2% from 2.9%, to
account for the weaker-than-expected, weather-affected first quar4 The situation in Iraq has also affected markets. Battles
ter. For 2015 and 2016, the Fed remained optimistic about a pickup
have continued with Sunni militants gaining
as it kept its projections unchanged. Further,
ground by taking control of Mosul, Iraq’s secit left its inflation forecasts almost entirely
ond-largest city, as well as two towns in the
intact until 2016, suggesting that it is not
“The Fed does not seem
eastern part of the country, and Iraq’s largest
worried about the May inflation number of
oil refinery. In the north, the void of Iraqi gov2.0% y/y released on Tuesday. What does
to be worried about
ernment forces has allowed Iraqi Kurds to
seem to have caught the market’s attention,
the May inflation number take control of the northern city of Kirkuk. In
however, are cuts to the Fed’s median foreresponse, US President Barack Obama has
cast for where the Fed funds rate will settle in
of 2.0% y/y.”
stated he does not “rule out anything because
the long run. In March, 10 out of 16 Fed
we do have a stake in making sure that these
members expected it to settle at 4%. Today,
jihadists are not getting a permanent foothold in either Iraq or
11 out of 16 anticipate it settling below 4%. Treasuries and risky
Syria.” Neighboring Iran has offered wide-ranging support to halt
assets rallied in response, and the US dollar suffered.
the advance of the Sunni insurgents, and was reported to have
2 The US Supreme court rejected an appeal from Argentina,
deployed its Revolutionary Guard. Crude oil prices continued climbing, with Brent prices up 6% in the past two weeks and now trading
meaning that the country will be forced to pay holders of repudiated
close to a nine-month high.
bonds from the debt default in 2001. Argentina had offered to
exchange the bonds in 2005 and 2010, but some holders, such as
plaintiff NML Capital, refused. Argentina’s defense estimates that if
all the current holders of the “holdout” bonds were to demand pari
passu treatment, claims against the sovereign would total USD 15bn,
Level
1-w chg
opposite liquid foreign exchange reserves of USD 18bn. We believe
Market moves
that despite efforts to reach a deal, Argentina is unlikely to settle
Nikkei 225
15,361
2.6%
with NML before the next payment of foreign law bonds is due on
UK 2 year yields
0.866%
+18bps
30 June. This would leave the country in a state of technical default,
GBPUSD
1.695
+0.9%
and risk a new round of litigation from investors who accepted the
exchange offers. CIO recommends avoiding Argentinian bonds.
SMI
8,657
–0.6%
„„As we approach the year’s halftime whistle, the year has not been without its
Mark Haefele
Global Chief Investment Officer
Wealth Management
03
“Argentina…does not have to
submit itself to such extortion.”
„„Tactically, we are overweight US and Eurozone equities, and US high yield and
investment grade credit.
This week on the CIO WM podcast
• Overheated property markets – How
much regulation is useful?
• Japan surprises – Are «Abenomics»
taking hold?
www.ubs.com/podcast
This report has been prepared by UBS AG. Please see important disclaimers and disclosures at the end of the document. Past
performance is no indication of future performance. The market prices provided are closing prices on the respective principal
stock exchange. This applies to all performance charts and tables in this publication.
S&P 500
Eurostoxx 50
MSCI EM
Gold
Brent crude oil
US 10-year yield
VIX
1,957
3,316
1,045
USD 1,282/oz
USD 114.6/bbl
2.574%
10.6
+0.7%
+1.0%
–1.1%
+0.7%
+1.4%
–2bps
–1pts
Source: Bloomberg, as of 19 June 2014
This week’s editorial The mother
of all financial repression tools
ab
Andreas Höfert, Chief Economist, Regional CIO Europe
04
This report has been prepared by UBS AG. Please see important disclaimer at the end of the document. Past performance is no indication
of future performance. The market prices provided are closing prices on the respective principal exchange. This applies to all performance
charts and tables in this publication.
UBS House View
Investor’s Guide
The flagship report for
UBS clients
CIo Monthly Letter
A personal letter from our
Global Chief Investment
Officer
CIO Weekly
This weekly update helps you to
stay on top of volatile markets,
providing timely insight into the
latest developments and their
significance for your Investments.
If you would like even more detailed investment insights, a full range of publications from CIO is at
your disposal. Please contact your client advisor.
8 | UBS House View July 2014
from Bank of England Governor Mark Carney, we now think a UK interest rate hike
is likely near the end of the year. We remain underweight UK equities due to the
negative effect the strong pound is having on the earnings of British companies.
Elsewhere in currencies, we removed our underweight position in the Japanese yen
relative to the US dollar early last week. Our move is not intended to signal that we
expect Japanese yen strength. But since the Bank of Japan appears comfortable
with current economic and inflation developments, and is potentially wary of more
than 10% year-over-year energy inflation, the chance of the currency declining
markedly in the months ahead has declined.
>> We have reduced
the size of our US
high yield credit
overweight.
In credit, we recommend a prudent overweight allocation to US high yield (HY),
but have moderately reduced the size of our overweight position this month.
Spreads of 335bps still offer some scope for tightening (our six-month target is
300bps) and provide attractive carry, but potential gains from here are likely more
limited. Fundamentals remain relatively strong: 27% of issuance is being used for
mergers and acquisition and capital expenditure, compared with more than 50%
back in 2007, and the use of creditor-unfriendly paid-in-kind toggle bonds remains
very low, with less than 2% of the last three months of HY issuance sporting such
a structure. We expect default rates to bump along below 2% annualized over the
next six months.
We also recommend reducing emerging market hard-currency government bond
(EMBI) holdings to underweight. So far this year, EMBI has delivered performance
of more than 8%, partially due to the strong performance of US Treasuries, and
partially due to spreads contracting to 280bps. But economic fundamentals in
major EM borrowers Brazil, Russia, and Venezuela are deteriorating, and we project
GDP growth for EMBI-issuers to be in line with that for the US (see Fig. 3). We
expect spreads to widen to 330bps over the coming six months.
Thank you for reading this CIO Monthly Letter. All feedback is welcome. While
there is a different manager signature below, our seasoned professionals remain
the same. UBS fields a world-class team that will continue practicing the fundamentals every day in our quest to keep putting the ball in the net.
Mark Haefele
Global Chief Investment Officer
Wealth Management
UBS House View July 2014 | 9
Preferred investment views
As of 1 July 2014
asset class
Most preferred
least preferred
Equities
• US
• Eurozone
• Energy efficiency: Bright prospects for LED
• Restructuring to increase value
• Global giants rising in emerging markets
• US mid caps: The sweet spot
• US technology: Secular growth, on sale
• Profit from US share buybacks and dividends
• Swiss mid caps favored
• UK
> page 25
Bonds
• US high yield (à)
• Global investment grade
• Rising stars
others
• Favoring equity hedge strategies
• Exploring the benefits of equity event-driven strategies
currencies
• USD
• GBP
• Brighter times for the USD and GBP
• Buy the tightening bias in Europe,
while the ECB eases
 Recent upgrades
à Recent downgrades
• Developed market high
grade bonds ()
• EM sovereign bonds (à)
• EUR
• CHF
> page 29
Recommended solutions*
* All recommended solutions come in their entirety from entities outside of UBS Chief Investment Office WM. These entities are not
subject to the legal provisions governing the independence of financial research. It is therefore possible that the recommended solutions
do not fully reflect the views of UBS Chief Investment Office WM.
10 | UBS House View July 2014
At a glance
Economy
The US Fed indicated no urgency to step back from very loose monetary policy,
despite the recent rise of inflation to 2.1%. Following the sharp economic contraction
in 1Q, US data in 2Q has rebounded, but the economy is still far from overheating,
with wage growth still very modest. In the Eurozone, the ECB announced a package
of measures to counter the deflationary trend. A lower refinancing rate, a negative
deposit rate and targeted liquidity injections are meant to fuel bank lending to the
corporate sector. Meanwhile, the Chinese economy has been stabilized by the
government’s mini stimulus. A major threat to the global economy would be a
persistent rise in oil prices, with conflicts in Iraq, Syria and also Ukraine unresolved.
Equities
The recovery of economic growth in the
US as well as the Eurozone, supported by
very easy monetary policy, provides a
good backdrop for equities in both
regions. At the same time, current price
momentum underpins our positive outlook. US earnings are on track to grow by
8% to 9% through 2014. In the Eurozone, profit margins have started to pick
up. Margins – in particular in cyclical sectors – have strong potential to increase
from historical low levels. We overweight
both regions. The UK is our least preferred equity market as earnings are lagging other regions, partly due to the
impact the strong pound is having on
exporters.
Bonds
Corporate bond spreads have tightened
significantly over the past month, in particular for US high yield (HY), where
spreads have reached a post-crisis low of
around 340 basis points. We are taking
some profits on the position, reducing
our HY overweight. Still, there is nothing
in the fundamental data to suggest a
turn in the credit cycle and associated ris-
ing default rates anytime soon, and we
remain positive on credit – in particular
compared to higher rated bonds. Fundamentals in emerging markets (EM) are
still worse than in the US or Europe, and
we have introduced a small underweight
in EM sovereign bonds, which have been
among the best performing asset classes
so far in 2014.
Alternative investments
and commodities
Within hedge funds, equity hedge strategies are attractive in the current low-correlation environment, in which companyspecific fundamentals, rather than broad
market movements, are increasingly driv-
ing share-price returns. For commodities
we forecast negative total returns and
relatively high volatility until the end of
the year, and are avoiding the asset class.
Currencies
Divergent trends in monetary policy
remain the major determinant of our currency views. The ECB recently introduced,
alongside other easing measures, negative deposit rates – becoming the first
major central bank ever to take this step.
In the meantime, the US Fed is reducing
its pace of asset purchases and is moving
closer to a likely first rate hike around
mid-2015. The Bank of England is even
further along, and a first rate hike might
take place as early as 4Q 2014. Consequently, we expect the USD and the GBP
to appreciate further against the EUR and
the CHF.
UBS House View July 2014 | 11
Key financial market drivers
Global economic
outlook
We anticipate global growth to continue accelerating in 2014, with developed economies
contributing especially, and we also expect inflation to remain subdued, particularly in
developed economies. We see major central banks diverging, with the Fed becoming
more restrictive and the ECB more expansive.
Ricardo Garcia-Schildknecht
Economist, UBS AG
Eurozone
CIO View Probability: 60%
Moderate growth
We expect GDP growth in 2Q14 and
3Q14 to stabilize at 0.3% quarter-onquarter. Inflation likely reached the
bottom at 0.5% in May, but will
Ricardo Garcia-Schildknecht, economist, UBS AG
probably still disappoint the ECB in
the medium term considering its inflation outlook. We believe that the
recent introduction of the TLTRO by
the ECB mostly serves as a backstop
to ensure the provision of credit for
the next two years. We believe longterm inflation expectations will move
further down and estimate the risk of
quantitative easing at 40%.
US
CIO View Probability: 70%
Robust expansion
We expect US annualized real GDP
growth to accelerate to 5.0% in
2Q14 (consensus: 3.5%), followed by
3.3% in 3Q14 (consensus: 3.1%) and
3.2% in 4Q14 (consensus: 3.1%) as
private demand growth re-accelerates
Thomas Berner, economist, UBS FS
following weather-induced weakness,
and as the inventory drag fades. We
anticipate a combination of falling
unemployment, rising inflation, and
increasing costs associated with a
growing Fed balance sheet to enable
the Fed to continue tapering its bond
purchase program at a pace of USD
10bn per meeting, and end the program entirely by 4Q14, bringing the
total purchases to USD 1.62trn. We
expect the first Fed rate hike in mid2015.
China
CIO View Probability: 60%
Modest policy response to
stabilize growth
China’s economic growth is showing
signs of stabilization as the mini-policy
stimulus package is starting to work,
but the pressure remains on the prop-
12 | UBS House View July 2014
Gary Tsang, analyst, UBS AG
erty sector, which poses the biggest
downside risk to the economy. We
think the chance of an economic hard
landing is low this year. If growth
deteriorates further, we think the government could consider broader policy
easing in the coming months. We
maintain our official 2014 and 2015
GDP growth forecasts at 7.3% and
6.8%, respectively.
KEY FINANCIAL MARKET DRIVERS
Global growth IN 2014 expected to be:
2013
2.8%
Real GDP growth in %
2015F 1
2014F 1
2013
Inflation in %
2014F 1
2015F 1
US
1.9
1.7
3.2
1.5
2.0
2.3
China
7.7
7.3
6.8
2.6
2.7
2.8
Eurozone
Key dates
–0.4
1.0
1.5
1.4
0.7
1.1
UK
1.7
3.1
2.8
2.6
1.8
2.0
3 juLY 2014
Switzerland
2.0
2.1
2.2
–0.2
0.2
0.7
Russia
1.3
0.6
1.4
6.8
7.1
5.7
World
2.5
2.8
3.3
2.9
3.2
US
Non-farm payrolls and unemployment rate (June)
Sources: Reuters EcoWin, IMF, UBS; as of 1 July 2014
3.2
1
UBS Forecasts
3 juLY 2014
Eurozone
ECB interest rate decision
POSITIVE SCENARIO

NEGATIVE SCENARIO
à
14 juLY 2014
Strong growth and fiscal stabilization
Bond yields converge closer than expected
as peripheral countries consolidate their
budgets and economic activity recovers
faster. France and Italy follow a credible
reform path at a faster pace and political
risks fade further.
Major shock
Political uncertainty and negative bank
stress-test results rattle bank bonds.
Setbacks on consolidation progress lead to
renewed pressure on Spain and Italy;
Portugal requires additional support;
Greece fails to qualify for further support,
reviving default and exit risks; the Eurozone
slips into deflation; France experiences a
massive fiscal slippage. The severity of
economic sanctions on Russia increases
sharply; China suffers from a sharp
economic downturn.
25 juLY 2014
POSITIVE SCENARIO

Probability: 20%
NEGATIVE SCENARIO
à
Probability: 10%
Strong expansion
US real GDP growth accelerates persistently
to around 4%, propelled by an expansive
monetary policy, a more rapidly fading
fiscal drag, strong investment in housing,
improved business and consumer confidence, and subsiding China hard-landing
and Ukraine geopolitical risks. The Fed halts
QE3 earlier and raises policy rates sooner
than mid-2015.
Growth recession
US growth momentum fades as the Fed’s
stimulus measures are curtailed, the
Eurozone crisis re-escalates, China’s growth
decelerates significantly, or the Ukraine
geopolitical tension intensifies. Real GDP
growth deteriorates, raising the fiscal
deficit and leading to more aggressive
bond buying by the Fed.
POSITIVE SCENARIO

Probability: 10%
NEGATIVE SCENARIO
à
Probability: 30%
Growth acceleration
Annual growth accelerates above 8% as a
result of more substantial policy stimulus
measures from the government, and/or a
strong pick-up in external demand.
Sharp economic downturn
Annual growth falls below 6% due to a
sharp downturn in property investment,
more widespread credit events, and/or
tighter liquidity as the government heavily
reins in shadow banking activity.
Probability: 20%
Probability: 20%
In developing the CIO WM economic forecasts, CIO WM economists worked in collaboration with economists
employed by UBS Investment Research. Forecasts and estimates may change without notice.
China
2Q14 GDP
UK
2Q14 GDP
UBS House View July 2014 | 13
ASSET CLASS OVERVIEW
Equities
US and Eurozone equities are well underpinned
Markus Irngartinger, strategist, UBS AG
Carsten Schlufter, analyst, UBS AG
We recommend an overweight allocation to equities via overweight positions in the US and the Eurozone. We are
underweight UK equities. Broad-based earnings growth continues to support US equities. The easy monetary policy
stance of the European Central Bank supports Eurozone companies via low refinancing costs. The trailing earnings per
share (EPS) of UK large caps continue to lag those of other developed markets.
Switzerland
Eurozone
We are neutral on Swiss equities relative to global equities. The market is less volatile than global equities and
shows a resilient price momentum. It offers steady earnings growth despite currency effects continuing to negatively impact earnings; we expect the currency drag to
reduce profit growth by over five percentage points in
1H14. We favor midcaps due to their above-average balance-sheet strength, better earnings growth, and attractive valuations relative to the Swiss market average.
We have an overweight position in Eurozone equities. The
region’s economic growth momentum, combined with an
uptick in global manufacturing, bodes well for the
Eurozone corporate earnings outlook. We prefer the
consumer discretionary sector as it offers good revenue
and earnings growth and generates high free-cash flow.
Financials offer attractive valuations and superior earnings
growth. Utilities are cheap and earnings will increase.
SMI (As of 25 June 2014: 8,582)
Euro Stoxx (As of 25 June: 328)
House view neutral
 Positive scenario
à Negative scenario
Six-month target
8,820
9,400
7,600
US
House view overweight
 Positive scenario
à Negative scenario
Six-month target
345
385
265
UK
We are overweight US equities. Despite a weather-influenced economic contraction in 1Q, we believe the economic recovery is durable and US equity market fundamentals are improving. Earnings are advancing, monetary
conditions remain accommodative despite the likely end
of the Fed’s bond purchases this autumn, and broad valuation gauges are not stretched. Further market gains are
likely to be driven mostly by corporate earnings growth,
especially in financials, IT and industrials.
We have an underweight stance on UK equities relative to
global equities. The UK’s overall earnings dynamics lag
those of global markets. The monetary policy stance of
the Bank of England supports the strong pound, which
remains a drag on earnings. Three-quarters of FTSE 100
sales are generated abroad. The UK’s valuation discount
to global equities is in line with that of the past 20 years.
S&P 500 (As of 25 June 2014: 1,960)
FTSE 100 (As of 25 June 2014: 6,734)
House view overweight
 Positive scenario
à Negative scenario
14 | UBS House View July 2014
Six-month target
2,025
2,275
1,675
House view underweight
 Positive scenario
à Negative scenario
Six-month target
6,900
7,500
5,800
ASSET CLASS OVERVIEW
EMU earnings growth should follow economic recovery
EMU PMI manufacturing (index) and trailing earnings per share growth (in %)
65
55
60
40
55
25
50
10
45
–5
40
–20
35
–35
30
–50
2003
2005
EMU PMI manufacturing (lhs)
2007
2009
2011
2013
EMU 12m trailing EPS growth (yoy, rhs)
Source: Thomson Reuters, UBS, as of June 2014
Japan
Listed real estate
We are neutral on Japanese equities. With the yen trading
sideways recently, we forecast corporate earnings growth
to slow to 10% in the fiscal year ending March 2015. The
consumption tax hike in April was a drag on economic
growth in the second quarter. Should inflation decline
considerably, the Bank of Japan is likely to increase its
monetary policy stimulus measures.
Topix (As of 25 June 2014: 1,261)
House view neutral
 Positive scenario
à Negative scenario
Six-month target
1,300
1,480
980
Emerging markets
We favor listed real estate over defensive equities, but prefer cyclical stocks. Valuations are at a fair level, though
some markets are increasingly expensive. Yet, moderate
rental income growth and gradually falling vacancies
owing to limited supply support the sector. Yield spreads
remain attractive overall also due to low yield. We favor
Continental Europe, Hong Kong developers, Japan properties, JREITs, and Singapore REITs. We rate Australia, Singapore developers and the US as least preferred. We prefer US outlets, class A regional malls, industrials and
multi-family.
FTSE EPRA/NAREIT Developed TR USD
(As of 25 June 2014: 4,096)
House view
 Positive scenario
à Negative scenario
Six-month target
4,100
4,240
3,600
We hold a neutral position in EM equities. The consensus
expectation is for EM earnings to grow by 10.3% over the
next 12 months. We are more cautious, however, and
expect around 7%. We do not foresee a material re-rating
of EM equities over the next six months, but expect the
P/E multiple of the MSCI EM index to stay close to its current level of about 11.9x based on realized earnings. We
prefer Mexico, South Korea, and Taiwan over Malaysia
and Thailand.
MSCI EM (As of 25 June 2014: 1,042)
House view neutral
 Positive scenario
à Negative scenario
Six-month target
1,070
1,180
830
Legend
Overweight: Tactical recommendation to hold more of the asset class than specified in the strategic asset allocation
Neutral: Tactical recommendation to hold the asset class in line with its weight in the strategic asset allocation
Underweight: Tactical recommendation to hold less of the asset class than specified in the strategic asset allocation
UBS House View July 2014 | 15
ASSET CLASS OVERVIEW
Bonds
Reduce overweight in credit
Achim Peijan, strategist, UBS AG
Philipp Schöttler, strategist, UBS AG
We are taking some profits on credit following the very strong performance over the past few months. We are reducing
our overweight in US high yield (HY) bonds and introducing an underweight in EM sovereign bonds. Both asset classes
belong to the best performers in 2014 and have seen their spreads tighten considerably. While EM fundamentals are still
weak, we continue to see value in DM credit and thus are keeping a reduced overweight.
High grade bonds
High yield bonds
We are underweight high grade bonds versus investment
grade and high yield bonds. We expect higher coupons
and roll-down in the longer maturity segments to compensate for much of the expected bond price decline
stemming from the moderate expected increase in the
yield curve. We expect performance to be close to zero
and recommend a neutral duration stance with a focus
on bonds with maturities of three to seven years.
US high yield corporate bonds offer an attractive riskreturn outlook, and we advise an overweight position
versus high grade bonds. Moderate economic growth,
tepid inflation, and an expansionary monetary policy provide a supportive backdrop. Importantly, defaults are
expected to remain well below 2% (ex-TXU) for six to 12
months as corporate fundamentals remain robust. US
corporates are in the midst of the credit cycle, usually
accommodating gradually higher leverage and tighter
spreads. In Europe, leveraged loans offer an attractive
credit alternative for qualified investors.
10-year government yields
(As of 25 June 2014: 2.6% / 1.3%)
current spreads (As of 25 June 2014: 343bps / 306bps) House view underweight
 Positive scenario
à Negative scenario
Six-month target
USD / EUR
3.0% / 1.8%
3.3–3.9% / 1.6–2.2%
2.0–2.8% / 1.1–1.3%
Corporate bonds
We still prefer IG corporate bonds in EUR and USD relative to high grade bonds. While total returns of IG corporate bonds will be modest, their yield carry will likely lead
to outperformance over high grade. Bonds from the
lower IG rating segments (“BBB”) offer better return
potential than higher-rated issuers. Selected subordinated (hybrid) bonds of high-quality non-financial issuers
offer yield gain at moderate additional risk.
Current spreads (As of 25 June 2014: 97bps / 99bps) House view overweight
 Positive scenario
à Negative scenario
16 | UBS House View July 2014
Six-month target
USD / EUR
100bps / 100bps
85bps / 85bps
300bps / 350 bps
House view overweight
 Positive scenario
à Negative scenario
Six-month target
USD / EUR
300bps / 275bps
250bps / 225bps
800bps / 1,000 bps
ASSET CLASS OVERVIEW
Emerging market bonds
Emerging market sovereign bonds in USD
Emerging market bonds in local currencies
Valuations of emerging market sovereign bonds denominated in USD are becoming stretched when compared to
fundamentals. The lack of economic recovery in key
emerging markets is a worry for EM sovereign bonds.
Better economic data out of the US and Europe and
favorable sentiment support EM bonds. We prefer sovereign issuers with current-account surpluses or small manageable deficits, coupled with attractive valuations.
Please refer to our EM bond list for bond-specific guidance.
Looking beyond the strengthening of the asset class in
recent weeks, we see that rising global interest rates will
put renewed upward pressure on yields of EM bonds in
local currency. Although the risk of further rate hikes has
eased, the economic recovery in EM is still fragile and
several currencies are expected to depreciate. In sum,
these factors weigh on the return outlook and will keep
the volatility of the asset class elevated, reducing its
attractiveness in risk-adjusted terms. We therefore are
keeping a neutral view on EM bonds in local currency.
EMBIG spreads (As of 25 June 2014: 279bps) GBI-EM yield (As of 25 June 2014: 6.6%) House view underweight
 Positive scenario
à Negative scenario
Six-month target
330bps
285bps
450bps
House view
 Positive scenario
à Negative scenario
Six-month target
7.1%
7.4%
8.0%
Emerging markets corporate bonds in USD
Emerging market corporate bond valuations are becoming stretched relative to corporate fundamentals. The
operating and funding environment remains challenging
despite a recent stabilization of rating trends and default
rates. New issuance activity, fund inflows and overall sentiment are supportive. We prefer Mexican issuers and
Chinese blue-chip companies. We remain on the sidelines
with regard to Russian issuers. Please refer to our EM
bond list for bond-specific guidance.
cembi Broad spread
(As of 25 June 2014: 295bps)
House view neutral
 Positive scenario
à Negative scenario
Six-month target
350bps
300bps
520bps
UBS House View July 2014 | 17
ASSET CLASS OVERVIEW
Commodities and other asset classes
Still expecting negative returns
Dominic Schnider, analyst, UBS AG
Giovanni Staunovo, analyst, UBS AG
Cesare Valeggia, analyst, UBS AG
We believe several factors speak against broadly diversified commodity indices and instead indicate potentially negative
returns for the asset class of around 5% over the coming six months. Solid US crude oil production, China’s structural
growth slowdown, the normalization of the US monetary policy and favorable weather conditions should again bring
prices under pressure or limit their upside potential.
Commodities
Hedge funds
GOLD
A favorable growth-inflation mix in the developed world
with fewer economic tail risks should allow US monetary
policy to normalize further and the USD to strengthen.
We believe this will dent investment demand for gold’s
insurance asset qualities and bring prices down to USD
1,200/oz over the next six months followed by more
weakness.
Gold (As of 25 June 2014: USD 1,310/oz)
House view
 Positive scenario
à Negative scenario
Six-month target
USD 1,200/oz
USD 1,500/oz
USD 900/oz
CRUDE OIL
A firm increase in crude oil production by non-OPEC
countries in 2014 should outpace demand growth this
year. While excess supply should bring the Brent crude oil
price to USD 100/bbl over the next 12 months, Saudi Arabia is in a good position to balance the market. At or
below USD 100/bbl, we advise investors to build up some
long exposure on crude oil.
crude oil (BRENT)
(As of 25 June 2014: USD 113.8/bbl)
House view
 Positive scenario
à Negative scenario
18 | UBS House View July 2014
Six-month target
USD 105/bbl
USD 130–165/bbl
USD 80–90/bbl
Equity hedge strategies are attractive in a low-correlation
environment in which company-specific fundamentals,
rather than market movements, drive share-price returns.
Event-driven and relative value strategies should generate
risk-adjusted returns in line with the hedge fund composite index. Macro/trading strategies overall will continue to
be challenged by a lack of persistent market trends outside of equities.
House view
 Positive scenario
à Negative scenario
Prefer equity hedge strategies
Prefer equity hedge and event-driven
strategies
Prefer macro/trading (Global Macro +
CTA)
ASSET CLASSES OVERVIEW
Currencies
Diverging monetary policy leading EURUSD lower
Thomas Flury, strategist, UBS AG
Constantin Bolz, analyst, UBS AG
We expect the USD to strengthen against the EUR, leading to our EURUSD 12-month target of 1.24. Investors will prepare step by step for the Fed’s first rate hike, which we expect to happen in mid-2015. ECB monetary policy is likely to
stay easy well beyond that point as efforts to re-accelerate inflation expectations are a longer-term project that might
even imply a program of quantitative easing. Declining unemployment rates in the US and the UK strengthen their
economies. The Swiss franc remains closely tied to the euro as the SNB has to defend the floor even further in a period
of disinflation in Europe as Swiss inflation is strongly influenced by European inflation. Japan seems to be hesitant about
weakening the JPY further for now.
CHF
The Swiss National Bank, at its quarterly meeting, had its
first opportunity to react to the recent easing measures
of the ECB. The SNB made clear that its conviction in the
EURCHF floor is stronger than ever. We trust the SNB to
keep to its promise and hold EURCHF very close to the
1.20 floor for years to come. Consequently the CHF
should depreciate in sync with the EUR against many
other currencies.
GBP
UK growth trends are positive and support the GBP,
which we expect to appreciate further. The improvements
in the labor market are so strong that the BoE is likely to
discuss rate hikes soon. We expect a first hike in November 2014.
JPY
EUR
The ECB is easing policy and discussing QE as inflation
expectations are declining and the money supply has
fallen. The ECB also branded the euro as one of the key
risks to Eurozone inflation. Therefore, EURUSD is in a
Catch-22 situation. Either the euro falls due to rising
inflation, or it falls due to the ECB introducing QE to fight
deflation.
USD
The Fed is moving slowly toward a first rate hike, which
should support the USD eventually. Recent labor market
data and the improvement in the fiscal balance should
ensure that the Fed continues to normalize its policy.
The Bank of Japan cooled down expectations of additional monetary stimulus measures. Therefore we expect
only a slow appreciation of USDJPY. However, we anticipate the BoJ preventing USDJPY from falling below 100
and expect a new base there.
UBS CIO foreign exchange forecasts
EURUSD
30.06.14
3M
6M
12M
PPP
1.365
1.32
1.28
1.24
1.30
USDJPY
101.4
103
103
105
81
GBPUSD
1.702
1.72
1.66
1.64
1.67
USDCHF
0.890
0.93
0.96
0.99
1.00
EURCHF
1.215
1.23
1.23
1.23
1.30
1.67
GBPCHF
1.515
1.60
1.60
1.63
EURJPY
138.4
136
132
130
105
EURGBP
0.802
0.77
0.77
0.76
0.78
Sources: Reuters EcoWin, IMF, UBS; as of 30 June 2014
PPP = Purchasing power parity
UBS House View July 2014 | 19
Key forecasts
Overweight
Neutral
Underweight
As of 30 June 2014
Asset class
TAA 1
Equities
US
Eurozone
UK
Japan
Switzerland
Emerging markets
Listed real estate
ytd perf.
in % 4
6 month forecast
Positive
House View
scenario
Benchmark
Value 2
m/m perf.
in % 3
Negative
scenario
S&P 500
Euro Stoxx
FTSE 100
Topix
SMI
MSCI EM
FTSE EPRA/NAREIT
Dev.
1,961
327
6,765
1,263
8,569
1,046
4,127
1.9
–0.9
–1.2
5.1
–1.2
1.8
1.5
6.1
4.0
0.2
–3.1
4.5
4.3
12.3
2,025
345
6,900
1,300
8,820
1,070
4,100
2,275
385
7,500
1,480
9,400
1,180
4,240
1,675
265
5,800
980
7,600
830
3,600
0.2
11.4
3.0%
3.3–3.9%
2.0–2.8%
Bonds
High grade bonds
US 10yr yield
Corporate bonds
German 10yr yield
Spread global IG
1.2
103
0.6
5.1
High yield bonds
Spread USD HY
401
0.8
1.4
Emerging market
sovereign bonds in USD
Emerging market
corporate bonds in USD
Emerging market bonds
in local currencies
Spread EMBIG
270
1.6
9.3
1.8%
100bps (USD)
100bps (EUR)
300bps (USD)
275bps (EUR)
330bps
Spread CEMBI
broad
Yield GBI EM
297
1.3
6.2
350bps
300bps
520bps
6.5
1.0
5.9
7.1%
7.4%
8.0%
USD 1,500/oz
USD
130–165/bbl
–
USD 900/oz
USD
80–90/bbl
–
Yield/Spread
2.5
other asset classes
Gold
Crude oil (Brent)
USD/oz
USD/barrel
1,315
113
5.2
3.6
9.1
3.8
Hedge funds
HFRX Global
1,245
1.2
1.6
USD 1,200/oz
USD
105/bbl
–
Currencies
USD
Currency pair
USDCHF
USDJPY
EURUSD
EURCHF
EURGBP
GBPUSD
GBPCHF
0.89
101.36
1.37
1.2
0.8
1.7
1.5
0.9
1.0
0.4
0.5
1.3
1.7
-0.7
0.3
3.9
–0.7
1.0
3.5
2.8
–2.5
0.96
103
1.28
1.23
0.77
1.66
1.60
EUR
GBP
Source: UBS, Bloomberg
1
TAA = Tactical asset allocation
2
As of 30 June 2014
3
Month-on-month performance in %
4
Year-to-date performance in %
Past performance is no indication of future performance.
Forecasts are not a reliable indicator of future performance.
20 | UBS House View July 2014
1.6–2.2%
1.1-1.3%
85bps (USD)
300bps (USD)
85bps (EUR)
350bps (EUR)
250bps (USD)
800bps (USD)
225bps (EUR) 1,000bps (EUR)
285bps
450bps
spotlight
Switzerland faces challenges
Daniel Kalt
Regional CIO Switzerland, UBS AG
But it’s not just the Swiss national team at the World Cup;
the Swiss business center is also facing stiff international
competition. Sitting back and resting on your laurels can
quickly come back to haunt you. As noted here on several
occasions, we are doing rather well in Switzerland compared to many European states. Unfortunately though,
there appears to be a belief spreading in many quarters
that, in view of the high level of prosperity, we can afford
to say yes to political initiatives that are diametrically
opposed to the notion of Switzerland as an attractive business location that generates jobs and wealth – that, in fact,
damage the location. The amount of regulatory and administrative red tape is constantly on the rise, and demands for
the redistribution of wealth are stifling entrepreneurship
and our pioneering spirit.
Implementing the immigration initiative a challenge
Now, the initiative on mass immigration approved by popular referendum is threatening to destabilize foreign relations with the EU over the long term. A few days ago, the
Federal Council presented its implementation plan for the
initiative, a plan that proved that the process would adhere
to the constitution. As a quota system was resolutely
rejected by the EU and deemed incompatible with the free
movement of persons (FMP), the Federal Council is now
aiming to renegotiate the Agreement on the Free Movement of Persons. This undertaking will be difficult, not least
because there would be – if the new agreement were ratified in all 28 EU member states as well as in Switzerland
before implementation of the quota system in around two
and a half years – very little time left for renegotiation. The
EU, by contrast, has all the time in the world – anything but
an ideal situation in which to negotiate.
Furthermore, many EU countries would be – to put it mildly
– very hesitant to set a precedent by granting Switzerland
broad exemptions from the FMP. As long as there are countries in the EU, such as the UK, that also want to restrict the
free movement of persons, it is unlikely that Switzerland
will be given generous concessions in advance. Since, if
renegotiation efforts fail, Switzerland would be violating
the existing FMP Agreement by introducing immigration
quotas, all bilateral agreements would be subject to termination as a result of the infamous guillotine clause.
The economic consequences for Switzerland would
undoubtedly be negative and not insignificant. Various surveys of companies show that many have already withheld
investments in Switzerland as a result of the much higher
level of political uncertainty. Instead, they are thinking
about establishing production facilities and thus value creation and jobs abroad in light of the imminent shortage of
skilled labor. Institutional uncertainty has thus already led
directly to a loss of economic prosperity.
Swiss National Bank a prisoner of its own policy
In addition to foreign policy and general location policy,
Switzerland also remains challenged in terms of fiscal policy. Because there is currently little opportunity for the
Swiss National Bank (SNB) to exit its foreign-exchange policy, it cannot raise its key rates before the European Central
Bank (ECB) does. However, the frothy development of the
current (residential) real estate market has long called for a
cautious increase in interest rates. Thus, the SNB, the Swiss
Financial Market Supervisory Authority and banks, in an
effort at self-regulation, have focused on so-called “macroprudential” measures to dampen the real estate boom. The
Swiss Bankers Association recently announced that banks
will tighten requirements for paying off mortgage loans.
The measures that have already been implemented (e.g.
two-time increase in the anti-cyclical capital buffer for
mortgage loans for banks) are already having an impact;
the housing market is clearly cooling off. Efforts to dampen
the development of the real estate market thus appear to
be succeeding.
Of course, how the SNB will turn away from its CHF/EUR
foreign-exchange floor of 1.20 is a different story altogether. From autumn 2011 to summer 2012 it had to buy
some 440 billion Swiss francs in foreign currency to defend
its lower limit, which has inflated the SNB’s balance sheet
significantly. Nevertheless, the lower limit has held since
the summer of 2012 with no further action on the part of
the SNB. Yet the SNB cannot abandon its lower limit for the
time being. Sales of its enormous euro, US dollar and other
foreign currency reserves appear near impossible at the
moment, as such sales would push up the CHF exchange
rate. If the SNB were to explicitly abandon its lower limit
UBS House View July 2014 | 21
spotlight
and there was even a hint of a renewed escalation of the
debt crisis, the euro would likely fall below 1.20 and the
SNB would have to be prepared to accept enormous losses.
This would be anything but good news for cantonal financial directors; already, the loss of SNB distributions that cantons had previously received for many years appears to
have triggered a reversal in the trend regarding tax rates in
some cantons. Viewed this way, we Swiss taxpayers are
also paying our “solidarity contribution” to support the
euro – via the SNB, which, thanks to its promise to buy
euros at 1.20, indefinitely if necessary, de facto functions as
a euro bailout fund with no maximum limit.
It seems the only scenario in which the SNB could abandon
its foreign-exchange policy without any difficulties is one in
which Europe once again embarks on a growth course that
results in a lasting resolution to the debt crisis. In such a
situation, the ECB would soon be in a position to increase
interest rates and investors would resume their strong
demand for euros. The EUR-CHF rate could then increase in
the direction of 1.30, and the SNB, by cautiously decreasing its reserves, could, under certain circumstances, realize
considerable gains. However, everything depends on the
further course of growth and the debt crisis in Europe,
which is giving little reason for confidence. At present, we
do not see the ECB increasing interest rates until at least
2017.
Investors troubled by low interest rates
As a result, the persistently very low interest-rate environment represents an enormous challenge for investors who
are rather defensive-minded. The maturity rate on a fiveyear Confederate bond was a paltry 0.16% at the editorial
deadline. In this environment, there continues to be little
other alternative than to carefully add other sources of
return to their portfolios. One substitute for government
bonds might be, for example, corporate bonds. Alternatively, investments in alternative asset classes, such as real
estate or hedge funds, may be a possibility. However, the
premiums for Swiss real estate funds (additional charge
paid on the exchange for a unit compared to the net asset
value of the properties held in the fund) have risen again in
recent months. In other words, after diving over the course
of the last year, the valuations of many real estate funds
have climbed again and can be viewed as fair. Those who
hold real estate funds to a reasonable extent can by all
means continue to hold them in view of the attractive distribution returns compared to bonds. Those who hold a
disproportionately high concentration of real estate investments in their portfolio, on the other hand, should consider gradually cashing in and taking profits.
22 | UBS House View July 2014
Apart from the aforementioned bond alternatives, there is
little left for investors but stocks in order to achieve higher
returns in the longer term. We see further slight upside
potential for stock markets in the coming months (see also
p. 4 ff. of our Monthly Letter). In Switzerland, the upcoming reporting season on half-year results may show that the
profits of internationally active Swiss companies were still
impacted appreciably by currency losses in the second
quarter. However, we expect that this will abate in the second half of the year. Currently, the average earnings growth
expectations of analysts are 4% for 2014 and a probably
somewhat too high 12% for 2015. With above-average
earnings growth and attractive capital returns, mid caps in
particular are interesting at the moment. We therefore prefer mid-caps over large-caps. Those with long-term dividend payments and steadily rising dividends also remain
attractive.
Investment ideas
Recommended solutions
UBS House View July 2014 | 23
investment ideas
equities
Global giants rising in emerging
markets
Sundeep Gantori, analyst, UBS AG
Hartmut Issel, analyst, UBS AG
A select group of EM companies could
become the next global giants – due to
solid positions in home markets where
consumption is strong and market share
gains overseas.
New emerging market giants: a league of
extraordinary companies
The rise of emerging markets (EM) is not merely a GDP
growth phenomenon; it brings a wave of companies barreling into global league tables. In the Fortune Global 500
ranking of the world’s largest companies by sales, those
from EM have grown to more than a quarter in 2013 from
less than one-tenth in 2005. In other words, more than
25% of the world’s largest business enterprises are now
from EM. China dominates the list, followed by other
countries like Brazil, India and Russia.
The ranking has two groups of companies. One group
benefits from large exposure to their home country and a
strong domestic, and sometimes protected, market share.
The second group is very often dominant at home, but
also ventures abroad and proves successful there. Our
theme focuses on the latter group of companies, which
attempts to innovate and build brand and scale through
highly competitive global strategies.
24 | UBS House View July 2014
Time horizon:
Asset class:
Initiation date:
Long term
(>12 months)
Equities
24.01.2013
Recent developments and recommendation
In addition to the structural “global market share gain”
story, our EM giants benefit from other success factors
such as high corporate governance and superior pricing
power. Despite the strong recent performance, we maintain our positive view on the theme. Our stock selection
leans towards companies in the IT and consumer-related
sectors that have been more ambitious in their global
expansion plans.
See recommended solutions on next page 
Investment focus
EQUITIES
FOR MARKETING PURPOSES ONLY
Recommended solutions
All recommended solutions on this page come entirely from entities outside of
UBS Chief Investment Office WM. These entities are not subject to the legal
provisions governing the independence of financial research. It is therefore
possible that the recommended solutions do not fully reflect the views of UBS
Chief Investment Office WM. Please refer to UBS Quotes or ask your client
advisor for further information or complete documentation on these products.
UBS Emerging Markets Rising Giants Equity Fund
Valor: CHF hedged 23593045
With the Emerging Markets Rising Giants Fund our product specialists have come up with a matching solution to
the UBS CIO theme “Global giants rising in emerging
markets.”
The portfolio is well diversified, actively managed and has
50–80 holdings. It offers access to companies with the
potential to become global leaders in their industry. Apart
from growth in their home markets, they also offer additional profit potential from their expansion plans into
western markets.
“Many emerging market companies are expanding
beyond their home markets and gaining significant market share worldwide.”
Art Gresh, Portfolio Manager
According to the Fortune Global 500 ranking of the largest companies by revenue, more than 1/4th of the world’s
biggest firms are from emerging markets.
UBS Emerging Markets Rising Giants uses a quantitative
investment approach to profit from this.
Another attractive fund is the m&G Global emerging markets Fund. While this has not been developed specially in
connection with the latest UBS CIO theme like the UBS
Emerging Markets Rising Giants Equity Fund, it is one of
our favored emerging markets solutions.
M&G Global Emerging Markets Fund
Valor: USD 4815488
The fund invests in companies of all countries, sectors and
sizes in emerging markets around the world. Fund manager matthew Vaight pursues a disciplined bottom up
strategy based on fundamentals and company valuations.
The stocks in the portfolio can be split in four categories,
depending on their profitability drivers:
1) External change:
Companies with unique assets that should benefit from
long-term structural trends
2) Internal change:
Firms undergoing restructuring to optimize profits
3) Asset growth:
Companies investing in research and development to
drive future profits
4) Quality companies:
Well managed firms with sustainably high profits
The portfolio is conservatively managed, with focus on a
traditional buy-and-hold style.
Risks:
These funds invest in emerging markets. Emerging markets can normally be expected to display greater volatility and
other specific risks such as lower market transparency, regulatory burdens, weaker corporate governance and political
and social challenges.
This page is for information and marketing purposes only. It does not constitute investment research, a sales prospectus, an offer or a solicitation of an offer for investment
transactions. Please note that UBS retains the right to change the range of services, the products and the prices at any time without notice. All information contained herein,
including without limitation benchmarks, asset classes, asset allocation and investment instruments, and opinions indicated are subject to change. All recommended solutions on
this page come in their entirety from entities outside of UBS Chief Investment Office WM. These entities are not subject to the legal provisions governing the independence of
financial research. It is therefore possible that the recommended solutions do not fully reflect the views of UBS Chief Investment Office WM. The above investment ideas and
investment recommendations have not been tailored to your personal circumstances. Investment decisions should always be taken in a portfolio context and make allowance for
your personal situation and consequent risk appetite and risk tolerance. As the above investment ideas and recommended solutions may have different risk characteristics, please
read the specific product information and the brochure “Special Risks in Securities Trading” and consult your client advisor if you have any questions.
UBS House View July 2014 | 25
investment ideas
HEDGE FUNDS
Hedge Funds
Cesare Valeggia, analyst, UBS AG
Nils Beitlich, analyst, UBS AG
We expect global equity markets to appreciate further in
2014, but to a lesser extent than in previous years. Valuations (based on 12-month forward P/E multiples) are close
to long-term averages in most markets. Given this scenario, we favor equity-hedge strategies, particularly those
running moderate net exposures, generating returns more
from security selection rather than market beta.
Fundamental-based equity hedge managers are well positioned to generate returns from long and short positions
as individual valuations and share prices respond more to
company-specific fundamentals than overall market movements. The environment for short-selling has been challenging in recent years, but has improved recently.
Macro/trading strategies overall are less attractive. Managed futures strategies in particular continue to face
headwinds due to the lack of persistent trends in financial
markets outside of equities. Discretionary macro managers
should be able to capitalize on rates and currency opportunities arising from policy and growth divergences across
developed and emerging economies, but this is not
enough to offset our view on systematic strategies.
25 June 2014
Current recommendation:
Prefer equity hedge strategies
POSITIVE SCENARIO
Prefer equity hedge and event-driven strategies
Robust economies and equity markets drive an increased
return contribution from market beta, which would benefit fundamental equity-oriented strategies including
equity hedge and event-driven to an extent. A strong
economy provides corporate managers with the confidence to pursue transactions in greater volume, creating
more opportunities for event-driven managers who can
anticipate and position for the outcome of these events.
NEGATIVE SCENARIO
Prefer macro/trading (Global Macro + CTA)
The emerging market crisis escalates further; the Eurozone
crisis reignites; disinflationary trends intensify and potentially turn into deflation; and the global economic recovery proves unsustainable. Less correlated liquid strategies
like macro/trading should perform well in these situations.
See recommended solutions on next page 
26 | UBS House View July 2014
Investment focus
HEDGE FUNDS
FOR MARKETING PURPOSES ONLY
Recommended solutions
All recommended solutions on this page come entirely from entities outside of
UBS Chief Investment Office WM. These entities are not subject to the legal
provisions governing the independence of financial research. It is therefore
possible that the recommended solutions do not fully reflect the views of UBS
Chief Investment Office WM. Please refer to UBS Quotes or ask your client
advisor for further information or complete documentation on these products.
The UBS Chief Investment Office recommends investing a 15% share of assets in hedge funds to achieve a broadly
diversified CHF balanced portfolio:
CHF Balanced:
UBS (Lux) Global Alpha opportunities UCITS
Valor: ChF hedged 11202132
Liquidity 5%
Hedge Funds 15%
UBS (Lux) Global Alpha Opportunities is a fund of hedge
funds that invests in the most promising UCITS hedge
funds, which offer a high degree of liquidity and transparency.
Bonds 35%
Equities 45%
Source: UBS, July 2014
The following two products offer an attractive opportunity
to implement this allocation. The fund of funds structure
means both can offer exclusive access to hedge funds
which are already partly closed to private investors:
UBS (CH) Global Alpha Strategies
Valor: CHF hedged 1878471
UBS (CH) Global Alpha Strategies is a broadly diversified
fund of hedge funds managed by UBS. UBS selects the
promising hedge fund strategies and managers. The fund
can be subscribed on a monthly basis while redemptions
can be placed on a quarterly basis.
The investment focus is mainly on more liquid hedge fund
strategies such as equity hedged. Some 75% of the total
portfolio is presently allocated to equity hedged strategies
as preferred by the UBS Chief Investment Office. The fund
offers weekly liquidity for subscriptions and redemptions.
Performance (share class A; basis CHF, net of fees)
Indexed on the basis of month-end data
in %
112
110
108
106
104
102
100
98
96
94
+12
+10
+8
+6
+4
+2
0
–2
–4
–6
2010
2011
2012
Indexed performance (lhs)
Performance (share class A; basis CHF, net of fees)
in %
150
140
130
120
110
100
90
80
70
+50
+40
+30
+20
+10
0
–10
–20
–30
Indexed performance (lhs)
2014
Source: UBS Global Asset Management, as of May 2014
Indexed on the basis of month-end data
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2013
Performance per year in % (rhs)
Past performance is not a reliable indicator of future results.
Risks:
It is a feature of hedge funds that they seek to boost
returns by using leverage, derivatives and short positions.
They therefore involve additional potential risks beyond
the market, credit and liquidity risk in traditional investments.
Performance per year in % (rhs)
Source: UBS Global Asset Management, as of May 2014
Past performance is not a reliable indicator of future results.
This page is for information and marketing purposes only. It does not constitute investment research, a sales prospectus, an offer or a solicitation of an offer for investment
transactions. Please note that UBS retains the right to change the range of services, the products and the prices at any time without notice. All information contained herein,
including without limitation benchmarks, asset classes, asset allocation and investment instruments, and opinions indicated are subject to change. All recommended solutions on
this page come in their entirety from entities outside of UBS Chief Investment Office WM. These entities are not subject to the legal provisions governing the independence of
financial research. It is therefore possible that the recommended solutions do not fully reflect the views of UBS Chief Investment Office WM. The above investment ideas and
investment recommendations have not been tailored to your personal circumstances. Investment decisions should always be taken in a portfolio context and make allowance for
your personal situation and consequent risk appetite and risk tolerance. As the above investment ideas and recommended solutions may have different risk characteristics, please
read the specific product information and the brochure “Special Risks in Securities Trading” and consult your client advisor if you have any questions.
UBS House View July 2014 | 27
investment ideas
CURRENCIES
Buy the tightening bias in
Europe, while the ECB eases
Daniel Trum, analyst, UBS AG
Constantin Bolz, analyst, UBS AG
Jonas David, analyst, UBS AG
We advise entering positions likely to
profit from an appreciation of the British
pound, Swedish krona, Norwegian
krone, and Polish zloty relative to the
euro and the Swiss franc, since they enjoy
stronger growth than the Eurozone.
We expect the Bank of England (BoE) to be the first major
central bank to start the tightening cycle with a first rate
hike in 4Q 2014. Furthermore, the Swedish Riksbank, Norwegian Norges Bank, and Polish central bank should start
hiking interest rates in 2015, whereas we do not see any
rate hikes coming from the European Central Bank (ECB)
until at least the end of 2016. This difference is due to the
UK, Sweden, Norway, and Poland enjoying stronger economic growth than the Eurozone. Higher growth also
tends to increase price pressures in an economy and thus
forces central banks to become more hawkish at some
point. Ultimately, this should lead to higher interest rate
levels, making the respective currency more attractive.
The solid growth of the abovementioned four countries
should enable them to pursue a tighter monetary policy
compared to the Eurozone and Switzerland over the coming quarters. This should unlock value in each of the chosen currencies, even if the ECB does not ease monetary
policy further. Moreover, low inflation and high unemployment will likely force the European Central Bank (ECB) to
keep an easing bias in its monetary policy. We expect the
Swiss National Bank (SNB) to respond by reinforcing the
importance of the exchange rate floor. Easy ECB monetary
policy should not only support Eurozone growth, but also
the growth of its neighbors, while weakening the EUR
and the CHF.
28 | UBS House View July 2014
Time horizon:
Asset class:
Initiation date:
Medium term
(6–12 months)
Currencies
19.06.2014
Recent developments and recommendation
The BoE has signaled a potential first rate hike already in
2014. Swedish and Norwegian household consumption is
improving. Poland’s exports are improving due to the
Eurozone recovery. Eurozone growth is consolidating and
low inflation has prompted the ECB to cut interest rates.
Thus, the monetary policy divergence between the Eurozone and Switzerland and the other European countries
has intensified.
See recommended solutions on next page 
Investment focus
CUrreNCIeS
FOR MARKETING PURPOSES ONLY
Recommended solutions
All recommended solutions on this page come entirely from entities outside of
UBS Chief Investment Office WM. These entities are not subject to the legal
provisions governing the independence of financial research. It is therefore
possible that the recommended solutions do not fully reflect the views of UBS
Chief Investment Office WM. Please refer to UBS Quotes or ask your client
advisor for further information or complete documentation on these products.
CHF BLoC on CHF/SEK (1mth)
CHF BLoC on CHF/NoK (1mth)
Scenario 2: The currency pair exceeds the cap level:
7.5925 for CHF/SEK and 6.9970 for CHF/NOK.
The CIO Office is forecasting that the pound sterling
(GBP), Swedish krona (SEK), Norwegian krone (NOK) and
Polish zloty (PLN) will appreciate against the euro (EUR)
and the Swiss franc (CHF).

Investors can profit from these uptrends using CHF BLOCs
(Buy Low or Cash) on CHF/SEK and CHF/NOK. The
investment can go in two directions:
Scenario 1: The currency pair does not rise above the cap
level 7.5925 for CHF/SEK and 6.9970 for CHF/NOK. This
is in line with the CIO forecasts for CHF/SEK to move
towards 7.00 and CHF/NOK towards 6.4271 on a six
month view.
 In this case, investors enjoy an annualized return of
3.5%.
Investors again receive an annualized 3.5% coupon. In
this instance, though, investors are converted at the
rate of the cap level and receive Swedish krona or
Norwegian krona in exchange for their Swiss francs
(including the coupon).
retaining this position gives exposure to the potential
upside of SeK and NOK against the ChF. Alternatively,
the SeK and NOK can be reinvested immediately in a
reverse BLOC (ideally at the same cap level).
If you are interested in these solutions (which are also
available in EUR), please contact your client advisor.
Payout scenario on expiry with an initial investment of CHF 100 000
CHF/SEK
exchange rate
Repayment
7.6180
Cap level
7.5925
7.5670
Spot today
7.5436
Trade date
Ø 1 Month tenor
S2: SEK 761 612
100 000 CHF + 3.5% Coupon
p.a. in CHF, converted at
cap level 7.5925
S1: CHF 100 311
100 000 CHF + 3.5% Coupon
p.a. in CHF
Expiry
Source: UBS, July 2014
Umtausch ab
This page is for information and marketing purposes only. It does not constitute investment research, a sales prospectus, an offer or a solicitation of an offer for investment
transactions. Please note that UBS retains the right to change the range of services, the products and the prices at any time without notice. All information contained herein,
HF + 3.5including
% Couponwithout limitation benchmarks, asset classes, asset allocation and investment instruments, and opinions indicated are subject to change. All recommended solutions on
this page come in their entirety from entities outside of UBS Chief Investment Office WM. These entities are not subject to the legal provisions governing the independence of
p.a. in CHF
financial research. It is therefore possible that the recommended solutions do not fully reflect the views of UBS Chief Investment Office WM. The above investment ideas and
investment recommendations have not been tailored to your personal circumstances. Investment decisions should always be taken in a portfolio context and make allowance for
your personal situation and consequent risk appetite and risk tolerance. As the above investment ideas and recommended solutions may have different risk characteristics, please
read the specific product information and the brochure “Special Risks in Securities Trading” and consult your client advisor if you have any questions.
UBS House View July 2014 | 29
Investment focus
OVERVIEW
FOR MARKETING PURPOSES ONLY
Recommended solutions
All recommended solutions on this page come entirely from entities outside of
UBS Chief Investment Office WM. These entities are not subject to the legal
provisions governing the independence of financial research. It is therefore
possible that the recommended solutions do not fully reflect the views of UBS
Chief Investment Office WM. Please refer to UBS Quotes or ask your client
advisor for further information or complete documentation on these products.
Valor
GloBal Giants RisinG in EMERGinG MaRKEts
UBS Emerging Markets Rising Giants Equity Fund
M&G Global Emerging Markets Fund
Performance in % 1
1 year
3 years
5 years
CHF
USD
23593045
4815488
n.a.
19.15
n.a.
9.62
n.a.
69.53
CHF
CHF
1878471
11202132
7.43
6.28
13.21
8.80
32.66
n.a.
hEDGE FunDs
UBS (CH) Global Alpha Strategies
UBS (Lux) Global Alpha Opportunities UCITS
UBS Asset Allocation Funds
UBS offers a broad range of multi asset funds with varying equity and bond components and corresponding risk/return characteristics. Our investment
funds are well-diversified and actively managed with the aim to increase return potential. The portfolio management teams taking care of the funds are
globally integrated and interlink investment specialists who are highly experienced in their respective fields of top-down and bottom-up research and risk
management. They also leverage the UBS Wealth Management investment process which combines the expertise of more than 900 investment experts
from around the globe, covering all key markets and asset classes. This integrated and systematic process enables clients to profit from the CIO House View
in a straightforward way through the UBS Strategy and the UBS Strategy Xtra Funds.
Valor
uBs stRatEGY & uBs stRatEGY XtRa FunDs
UBS (Lux) Strategy Xtra SICAV – Fixed Income (CHF) P-acc
UBS (Lux) Strategy Xtra SICAV – Yield (CHF) P-acc
UBS (Lux) Strategy Xtra SICAV – Balanced (CHF) P-acc
UBS (Lux) Strategy Xtra SICAV – Growth (EUR) P-acc
UBS (Lux) Strategy Fund – Fixed Income (CHF) P-acc
UBS (Lux) Strategy Fund – Income (CHF) P-acc
UBS (Lux) Strategy Fund – Yield (CHF) P-acc
UBS (Lux) Strategy Fund – Balanced (CHF) P-acc
UBS (Lux) Strategy Fund – Growth (CHF) P-acc
UBS (Lux) Strategy Fund – Equity (CHF) P-acc
Performance in % 1
1 year
3 years
5 years
CHF
CHF
CHF
EUR
CHF
CHF
CHF
CHF
CHF
CHF
3637327
1796535
1796537
1796526
618669
22821930
601322
239657
601320
529255
2.37
5.94
8.21
11.80
2.17
n.a.
6.38
8.74
11.00
14.19
5.67
13.94
20.14
20.49
6.48
n.a.
14.92
21.53
27.90
38.05
10.76
23.63
32.05
46.50
12.06
n.a.
24.42
34.08
42.71
53.92
CHF
CHF
CHF
10973898
10973899
10973900
7.45
10.13
13.26
15.44
22.36
30.05
n.a.
n.a.
n.a.
uBs suissE FunDs
UBS (CH) Suisse – 25 P-dist
UBS (CH) Suisse – 45 P-dist
UBS (CH) Suisse – 65 P-dist
1
Data as of 28 June 2014 (or latest available)
Source: Morningstar
Past performance is not an indication of future returns.
This page is for information and marketing purposes only. It does not constitute investment research, a sales prospectus, an offer or a solicitation of an offer for investment
transactions. Please note that UBS retains the right to change the range of services, the products and the prices at any time without notice. All information contained herein,
including without limitation benchmarks, asset classes, asset allocation and investment instruments, and opinions indicated are subject to change. All recommended solutions on
this page come in their entirety from entities outside of UBS Chief Investment Office WM. These entities are not subject to the legal provisions governing the independence of
financial research. It is therefore possible that the recommended solutions do not fully reflect the views of UBS Chief Investment Office WM. The above investment ideas and
investment recommendations have not been tailored to your personal circumstances. Investment decisions should always be taken in a portfolio context and make allowance for
your personal situation and consequent risk appetite and risk tolerance. As the above investment ideas and recommended solutions may have different risk characteristics, please
read the specific product information and the brochure “Special Risks in Securities Trading” and consult your client advisor if you have any questions.
30 | UBS House View July 2014
IMPORTANT INFORMATION FOR RECOMMENDED SOLUTIONS
UBS funds established under Luxembourg and Swiss law. Representative in Switzerland for UBS funds under foreign law: UBS Fund Management (Switzerland) AG, P.O. Box, CH-4002 Basel. Paying
agent: UBS AG. Prospectuses and simplified prospectuses, articles of association or contractual terms as well as annual and semi-annual reports for UBS funds are available free of charge from UBS
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Version March 2014.
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UBS House View July 2014 | 31
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