UBS Bonds Article
UBS Bonds Article
Partners Conference
21 September 2011
For Professional
Clients Only
SECTION 1
Introduction
Japan
Italy
Greece
Belgium
USA
India
Germany
Canada
France
Austria
Netherlands
UK
Brazil
Ireland
Argentina
Spain
Sweden
Turkey
Mexico
Denmark
Finland
Korea
Indonesia
South Africa
China
Australia
Saudi Arabia
Russia
50
35%
80%
70%
60%
50%
40%
30%
20%
10%
30%
25%
20%
15%
10%
5%
0%
0%
World
US
Europe
UK
Emerging Emerging
Asia
Markets
Note: For illustration purpose only. Source: UBS Securities, data as of 12 January 2011
72.2%
44.7%
45.4%
47.6%
37.7%
22.1%
World
US
Europe
UK
23.5%
Note: For illustration purpose only. Source: UBS Securities, data as of 12 January 2011
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011 YTD
15.1%
19.3%
9.2%
10.4%
5.7%
13.3%
8.2%
1.0%
31.7%
12.2%
8.6%
8.5%
15.6%
8.1%
7.3%
4.3%
5.8%
6.1%
-3.7%
28.9%
11.9%
7.3%
7.7%
14.5%
7.0%
5.4%
2.0%
4.8%
4.8%
-12.9%
6.3%
10.9%
3.1%
This chart represents the different market sector categories within Asia, ranked by returns, 2001 2011.
Note: Past performance is not indicative of future results. For illustrative purposes only. JP Morgan Asia Credit Index data before January 2006 sourced from the discontinued JP Morgan Asia
Credit Total Return Index series.
Source: Bloomberg (Data as of 31 August 2011)
SECTION 2
Corp
3,000
2,500
2,000
1,500
1,000
Vietnam
Thailand
Taiwan
Singapore
Philippines
Malaysia
Korea
Indonesia
India
Hong kong
China
500
Note: For illustrative purposes only. Data for Asian local currency universes are as of 30 June 2010, excepting India and Indonesia which are as of 31 December 2010.
Source: BIS, ADB AsianBondsOnline, HSBC, Bloomberg
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Asia
1 Asia representation includes China, Hong Kong, India, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand in the Barclays Capital Global Aggregate index.
Source: Population data from US Census Bureau (2010 estimates), Foreign reserves data from Bloomberg (as of 25 June 2010), 009), GDP data from IMF (2010 estimates)
JPM
EMBI
Global
HSBC
Asian
Local
Currency
Bond
1.0
0.9
0.8
1.0
0.9
1.0
0.8
0.9
0.7
1.0
-0.2
0.1
0.2
0.0
1.0
0.5
0.2
0.8
0.4
0.8
0.4
0.6
0.3
0.5
0.7
1.0
0.7
1.0
0.3
0.4
0.4
0.3
0.4
0.5
0.5
1.0
10.0%
9.0%
Reward for risk
8.0% compared to typical
broad aggregate
benchmarks in
7.0%
traditional bond
markets
6.0%
5.0%
4.0%
2%
4%
6%
8%
Risk (in %)
HSBC Asian Local Currency Bond Index
Barclays Global Agg (USD; hedged)
Barclays US Agg Treasuries (USD)
Barclays Global Agg Corporates (USD; hedged)
Barclays EUR Agg (EUR, unhedged)
10%
12%
14%
10
HK
EU
US
Thailand Malaysia
Korea
China
Philippines Indonesia
India
11
-2%
0%
2%
4%
6%
8%
Source: Bloomberg (as of 29 July 2011). ADXY is the Bloomberg-JP Morgan Asia Dollar Index (a trade and liquidity weighted basket of Asian currencies).
12
135
130
125
Index Value
120
115
1 year
7.21%
3 years p.a.
2.20%
5 years p.a.
2.34%
10 years p.a.
2.07%
15 years p.a.
-0.35%
110
105
100
95
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
90
For illustrative purposes only. Calculations are unaudited. Past performance is not indicative of future results.
Source: Bloomberg (Data as of 31 August 2011). Bloomberg-JP Morgan Asia Dollar Index (ADXY) is a trade and liquidity weighted index. (China 36%, Korea 14%, HK 10%, Singapore 9%, India
8%, Taiwan 8%, Malaysia 5%, Thailand 5%, Indonesia 3%, Philippines 2%)
13
SECTION 3
In USD bn
50
40
30
20
10
China
Hong
Kong
India
Quasi-Sov
Korea
Sovereign
Malaysia
Singapore
Taiwan
Thailand
Corporates
Note: Estimated by using JP Morgan Asian Credit Index. For illustrative purposes only.
Source: Morgan Markets
15
In USD bn
30
25
20
15
10
5
Quasi-Sov
Sovereign
Vietnam
Thailand
Taiwan
Sri lanka
Singapore
Philippines
Pakistan
Malaysia
Macau
Korea
Indonesia
India
Hong Kong
China
Corporates
Note: Estimated by using JP Morgan Asian Credit Index. For illustrative purposes only.
Source: Morgan Markets
16
13%
11%
1,400
1,200
7%
5%
3%
Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar05 06 06 07 07 08 08 09 09 10 10 11
In USD bn
9%
1,000
800
150
600
100
400
200
In USD bn
50
0
0
2000 2001taken
2002based
20032004
20052006 2007 20082009 2010
Barclays Capital Global Aggregate is compromised of IG only instruments. HSBC Asian Bond index market capitalization
on data availability.
1
Source: UBS Global Asset Management, Bloomberg, Barclays Capital. (Data as of 30 June 2011)
17
70
60
50
40
30
20
10
0
US
Asia Pacific
9.9%
12.2%
US & Canada
8.5%
13.7%
All Region
8.6%
13.2%
Europe
UK
Japan EM Asia LATAM World
Interest Cover
Netdebt/Equity(%)
Source: UBS Quantitative Research, MSCI, Worldscope; data as at end Jun 2011
Source: Moodys
Note: All figures show the percentage of the total number of rated issuers
Data: As of 31 December 2010
18
900
800
700
600
500
400
300
Spread compression
200
100
0
2005
2006
2007
2008
2009
2010
19
30/03/2011
30/12/2010
30/09/2010
30/06/2010
30/03/2010
30/12/2009
30/09/2009
30/06/2009
30/03/2009
30/12/2008
30/09/2008
30/06/2008
30/03/2008
30/12/2007
30/09/2007
30/06/2007
30/03/2007
30/12/2006
30/09/2006
30/06/2006
30/03/2006
30/12/2005
30/09/2005
bp
800
700
600
500
400
300
200
100
US IG Corp Spread
20
10.0%
9.0%
4%
6%
8%
Risk (in %)
10%
12%
14%
21
SECTION 4
Why UBS?
Benchmark
Currency Exposure
Sector Tilt
Sovereign
Corporate
Positioning
For clients seeking Asian local currency appreciation For clients seeking opportunities in the improving
Asian credit market
Invests primarily into Asian currency government
bonds with relatively lower yield than corporate
bonds
24
Three alpha sources provide broad opportunity set across various market cycles
Local currency
Duration and yield curve
Sector/credit
Fund characteristics
UBS Asian Local Currency Bond Fund
Average credit rating: A- (benchmark A-)
Modified duration: 3.8 years (benchmark 5.28 years)
Theoretical Yield to Maturity (gross of fees)^
In USD: 4.24%
In EUR-hedged: 4.68%
Benchmark 3.98%
Top 10 Issuers
Korea Government
Singapore Government
Malaysia Government
Indonesia Government
Philippines Government
Thailand Government
Bank Negara
Agricultural Bank of China
China Resources Land
New World Development
Top 10 Issues
Korea Treasury Bond 4% 03/10/16
Korea Treasury Bond 4% 09/10/15
Singapore Govt Bond 2.25% 06/01/21
Malaysia Government Bond 4.262% 9/15/16
Singapore Govt Bond 3.25% 09/01/20
Indonesia Govt Bond 9.5% 07/15/31
Philippine Govt Intl Bond 4.95% 01/15/21
Singapore Govt 11/03/11
Malaysia Government Bond 3.835% 08/12/15
Korea Monetary Stabilization Bond 4.64% 10/04/11
%
20.2
14.8
10.4
9.9
6.5
6.2
1.6
1.1
1.0
0.9
%
6.8
5.3
5.0
4.8
3.5
3.4
3.0
2.4
2.2
2.1
^ Theoretical YTM is gross of fees p.a. Please note that returns can deviate substantially from the theoretical YTM given pricing volatility.
Benchmark: HSBC Asian Local Bond Index
This information should not be considered as a recommendation to purchase or sell any bond.
Past performance is not indicative of future results
Source: UBS Global Asset Management, Bloomberg (Data as of end August 2011)
26
6.92
9.70
Value added
(2.82)
Tracking error
n/a
Information ratio
n/a
Std deviation2
n/a
n/a
The returns shown above are based on currently available information and are subject to revision. Past performance is no guarantee of future results. Performance figures are gross of
fees. Disclosures available on request.
1 Inception as of January 31, 2011
2 For periods greater than 1 year, the annualized standard deviation is based on monthly logarithmic returns.
27
Fund features
UBS Asian Local Currency Bond Fund
Fund name:
Legal structure:
Fund domicile:
Launch date:
Portfolio management:
Currency of account:
Benchmark:
Dealing / NAV calculation
Settlement
Accounting year ends:
Distribution:
Flat fee:
Swing pricing:
ISIN:
28
29
Fund characteristics
UBS Full Cycle Asia Bond Fund
Average credit rating: BBB- (benchmark
BBB)
Top 10 Issuers
Philippines Government
Sovereign
4.41
Majapahit Holding
Utilities
2.97
Woori Bank
Financials
2.82
Indonesia Government
Bumi Investment Pte
Sovereign
Metal & Mining
2.43
2.25
Shinhan Bank
Hutchison Whampoa
Financials
Conglomerates
2.05
1.98
Property Development
Metal & Mining
Property Development
1.95
1.83
1.77
Top 10 Issues
In EUR*-hedged: 6.32%
Benchmark: 4.95%
Fund Size: USD 1,124.26mn
Benchmark: JP Morgan Asia Credit Index
^ Theoretical YTM is gross of fees p.a. Please note that returns can deviate substantially
from the theoretical YTM given pricing volatility.
* 12 month hedging cost is applied.
Past performance is not indicative of future results. This information should not be
considered as a recommendation to purchase or sell any bond.
Source: UBS Global Asset Management, Bloomberg (Data as of end August 2011)
Sector
Sector
Metal & mining
%
2.25
Sovereign
Utilities
2.21
2.20
Property Development
1.95
1.83
Financials
Financials
1.77
1.50
Financials
1.31
Financials
1.31
Financials
1.26
30
Since Inception1
% pa
4.14
9.63
4.43
8.93
Value added
(0.29)
0.70
Tracking error
3.70
3.42
(0.08)
0.20
Std deviation2
5.42
5.98
3.04
3.67
Information ratio
The returns shown above are based on currently available information and are subject to revision. Past performance is no guarantee of future results. Performance figures are gross of
fees. Disclosures available on request.
1 Inception as of January 31, 2010
2 For periods greater than 1 year, the annualized standard deviation is based on monthly logarithmic returns.
31
APPENDIX
UBS HANA
Portfolio Management
Research
Credit, Economics, Quantitative
Capabilities Management
UBS SDIC
Ad-hoc support on policy changes or
China-specific events
33
3,500
3,000
USD m
2,500
2,000
1,500
1,000
Jun 11
Mar 11
Dec 10
Sep 10
Jun 10
Mar 10
Dec 09
Sep 09
Jun 09
Mar 09
Dec 08
Sep 08
Jun 08
Mar 08
Dec 07
Sep 07
Jun 07
Mar 07
Dec 06
Sep 06
Jun 06
500
34
Investment philosophy
Fixed Income, currency and credit each offer opportunities to generate
incremental return
Diversification of alpha sources is critical to generating consistency of returns
We diversify through a blend of tactical, thematic and strategic views
Our process is further diversified using a blend of judgement and models
Where credit is part of the opportunity set we combine top down and bottom up
security selection to generate greater consistency of credit alpha
Risk control an eye to the future combined with stress tests of the past
We live in an integrated world and a global approach in combination with regional
specialists is appropriate
35
Seek to identify discrepancies between market price and long run value
36
Investment process
Strategy and monitoring across multiple levels
Macro Strategy
Performance evaluation
Implementation
Portfolio Level
research
37
Top-Down Strategies
Duration
Yield
Curve
Sector
Credit
Currency
Quality
Risk Management
Client Portfolio
Credit
Analysis
Bottom-Up Strategies
38
Fund structure
UBS Asian Local Currency Bond Fund
Credit Structure
Sector Exposure
Others
3.9%
BB
25.3%
Fund
90%
AAA
14.8%
AA
1.1%
B
3.1%
Maturity Structure
BM
80%
70%
Fund
BM
0-1Y
14%
1%
1-3Y
9%
29%
60%
3-5Y
29%
18%
50%
5-10Y
37%
30%
40%
10-15Y
2%
10%
30%
15Y+
10%
13%
20%
A
41.6%
BBB
11.2%
10%
0%
Quasi-Sov
Sovereign
Currency Exposure
Financials
Industrials
Utilities
Others
Country Exposure
20%
18%
16%
25%
14%
20%
12%
10%
15%
8%
10%
6%
4%
5%
2%
0%
CNY
HKD
IDR
INR
KRW MYR
Fund BM
PHP
SGD
THB
TWD
0%
China
HK
Indonesia
India
SG
Thailand
Taiwan
Others
39
40
10%
HSBC ALBI
8%
6%
4%
2%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
41
Fund structure
UBS Full Cycle Asian Bond Fund
Credit Structure
Currency Exposure
40%
34.4%
35%
34.2%
30.9%
29.3%
30%
25%
19.1%
20%
10.7%
CNY
17.8%
15%
PHP
0.0%
THB
0.0%
KRW
0.0%
10.0%
10%
5%
0.0%
SGD
6.2%
1.6%
0.0%
5.5%
0.6%
6.9%
3.5%
89.3%
USD
0%
AAA
AA
A
Fund
BBB
BB
Benchmark
Others*
Sector Exposure
Others
Utilities
4.9%
2.4%
5.1%
3.8%
China
21.0%
South Korea
13.4%
18.0%
Financials
29.9%
25.1%
Industrials
10%
Fund
20%
Malaysia
6.7%
Singapore
3.9%
23.6%
7.3%
0%
80%
Philippines
9.9%
20.5%
9.8%
Sovereign
40%
Country Exposure
3.0%
5.0%
Quasi Sovereign
0%
30%
Benchmark
41.7%
40%
50%
Others
13.1%
Indonesia
14.6%
Hong Kong
17.5%
42
43
Annualized Return
12%
UBS Full Cycle
Asia Bond
10%
JACI: 8.8%
8%
6%
4%
2%
0
500
1,000
1,500
2,000
2,500
3,000
44
Disclaimer
UBS Global Asset Management (UK) Ltd is a subsidiary of UBS AG.
Registered in England, authorised and regulated by the Financial Services Authority: UBS Global Asset Management (UK) Ltd, UBS Global Asset
Management Funds Ltd, UBS Global Asset Management Life Ltd.
Telephone calls may be recorded.
UBS 2011. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.
This document is for Professional Clients only. It is not to be distributed to or relied upon by Retail Clients under any circumstances.
This material supports the presentation(s) given. It is not intended to be read in isolation and may not provide a full explanation of all the topics that were
presented and discussed. Care has been taken to ensure the accuracy of the content, but no responsibility is accepted for any errors or omissions.
Please note that past performance is not a guide to the future. The value of investments and the income from them may go down as well as up, and
investors may not get back the original amount invested.
This document is a marketing communication. Any market or investment views expressed are not intended to be investment research. The document has
not been prepared in line with the FSA requirements designed to promote the independence of investment research and is not subject to
any prohibition on dealing ahead of the dissemination of investment research.
The information contained in this document should not be considered a recommendation to purchase or sell any particular security and the opinions
expressed are those of UBS Global Asset Management and are subject to change without notice. Furthermore, there can be no assurance that any trends
described in this document will continue or that forecasts will occur because economic and market conditions change frequently.
This document does not create any legal or contractual obligation with UBS Global Asset Management.
The recipient agrees that this information shall remain strictly confidential where it relates to the Investment Manager's business. The prior consent of UBS
Global Asset Management (UK) Ltd should be obtained prior to the disclosure of commercially sensitive information to a third party (excluding the
professional advisors of the recipient).
Information reasonably deemed to be commercially sensitive and obtained from UBS Global Asset Management (UK) Ltd should not be disclosed.
This information is supplied with a reasonable expectation that it will not be made public. If you receive a request under the Freedom of Information Act
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obtained from UBS Global Asset Management (UK) Ltd in your possession is destroyed as soon as it is no longer required.
45