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UBS House ViewMonthly Letter 18 October 2018

Chief Investment Office GWM

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

An alternative appears

Rising bond yields mean investors have more choice in their search for real returns, but it’s too early to underweight equities in our view.

Equities’ attraction

Stocks still have relative appeal with the US economy strong, Europe offering attractive valuations, and Chinese equities oversold.

Upside risks

Investors need to watch for downside risks, but also shouldn’t discount upside risks.

Asset allocation

US equities are no longer immune to sell-offs. We see a better opportunity to overweight global equities.

From TINA to TIARAWe’re moving from a TINA (There is no alternative) market to a TIARA (There is a real alternative) one. What does this mean for equities and your portfolio?

For much of the past decade, growing wealth has largely been about buying equities and staying invested. Central bank stimulus held cash and bond yields firmly below rates of inflation, while revenue growth from technology giants, falling tax burdens, and low borrowing costs supported stocks. Global equities have returned an annu-alized 9.3% above inflation, versus –0.8% for cash (in US dollars). It’s been a TINA market.

But we’re now entering a TIARA market. Central bank balance sheets are peaking as stimulus is withdrawn amid strong economic data, and this month’s bond sell-off pushed real 10-year US yields to 1.03%, a seven-year high, while US cash rates are on track to be close to 3% by the end of next year. The existence of lower-volatil-ity alternatives to equities with positive real returns is now leading some investors to question whether stock market volatility is still worth enduring. These concerns came to a head in the recent equity sell-off, which included the worst week for global markets since February.

In this letter I address what this changing market environment should mean for your portfolio, and look at some of the key upside and downside scenarios we’re moni-toring in the months ahead.

In short, investors now have more choice in their search for real returns. But we think it is still too early to go underweight equities in portfolios. In our tactical asset allocation, we maintain our overweight position in global equities, and favor Cana-dian equities relative to Australian equities. We maintain our overweight to emerg-ing market dollar-denominated sovereign bonds. We are also overweight 10-year US Treasuries versus cash. In our FX strategy, we overweight the Japanese yen rela-tive to the Taiwanese dollar.

Mark HaefeleChief Investment OfficerGlobal Wealth Management

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From TINA to TIARA

2November 2018 – UBS House View Monthly Letter

Enter the TIARA marketAt one point this month, 10-year US Treasury yields hit 3.25%, a post-2011 high, and the Federal Reserve’s latest rate hike has brought US cash rates within touch-ing distance of inflation for the first time since 2008. Concern that the US economy could soon be running short of spare capacity, increased market conviction in the Fed’s hiking path, substantial bond issuance to fund the US fiscal deficit, and specu-lation that China might stop buying (or start selling) Treasuries all appear to have contributed to the rise. But whatever the cause, the result is clear: investors (in USD terms, at least) can now generate meaningful positive real returns in fixed income for the first time in more than seven years.

The question we need to answer today is whether investors should seize this oppor-tunity and underweight equities in favor of fixed income. It’s important to note that, in a portfolio context, the choice isn’t binary – and we stress the importance of holding a diversified portfolio including equities and fixed income alike to grow wealth over time and reliably meet financial goals. But at a tactical level, a choice needs to be made.

The case for overweighting fixed income versus equities is supported not only by improved prospective returns from bonds but also by the risks stalking the equity market. As I discussed in last month’s letter, the possibility of more rapid Fed rate hikes, a sharp economic slowdown in China, or several other risks we are monitor-ing could lead to downside for global equities. Early October’s sell-off, like Febru-ary’s, also demonstrates the volatility that can result from violent rotations in investor positioning and forced selling by trend-following or risk-targeting funds, even in the absence of a clear catalyst.

Furthermore, some factors that have supported equities over the past year or two look set to ebb. From November on, central bank balance sheets will, in aggregate, be shrinking rather than growing. US fiscal stimulus will stop having an incremental positive impact on the US economy and corporate profits in the second half of next year (see Fig. 1). And trade tariffs will soon start to hurt the US and Chinese econo-mies. We forecast slower global growth for 2019.

Holding equities and bonds is important strategically. Tactically, there is a choice.

Better prospective returns for bonds and risks facing equities make a case for fixed income.

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0FY2018 FY2019 FY2020

In 2020, the additional stimulus will decline by USD 100bnFigure 1

Increased outlays under Bipartisan Budget Act of 2018 for fiscal years 2018–2020 (ending September), in USD bn

Source: Congressional Budget Office, UBS, as of 16 October 2018

Yet, while a time to overweight bonds relative to stocks comes in every cycle, we don’t think it is here yet.

From TINA to TIARA


Why stocks still hold relative appealOur overweight in global equities remains because we think that the US – the world’s largest equity market and the driving force in recent global growth – is still in good economic shape, relative equity-bond valuations are appealing in Europe, and Chi-nese equities are oversold.

The US remains in good shapeIt’s important to remember the underlying reason that bond yields are rising: a buoyant US economy. This month’s US services ISM was close to a record high while multi-decade-low US unemployment rates should boost consumer confi-dence. Importantly, higher yields are not stemming from higher inflation expecta-tions, which could hurt stocks.

Rates are rising because the US economy is strong, not from higher inflation expectations.

“Going loco”?President Donald Trump blamed the Fed for October’s sharp equity market slide, claiming it was “going loco” by raising rates too high, too fast. So far economic data is not showing that Fed rate hikes have slowed the economy, and there is certainly some merit to the Fed moving short-term interest rates higher to reduce the risk of overheating.

But the Fed doesn’t control the administration’s tariff policy or its economic impact. Company guidance indicating that the tariffs are starting to bite will remain a source of volatility, and could lead the administration and the Fed into a standoff. If the tariffs slow the economy and/or raise inflation, investors will wonder who will blink first and act to prevent a recession. If neither change course, both tariffs and higher rates could be the result. Both institutions may claim “it wasn’t me,” but investors will lose.

We can see something of this dynamic at work in the recent sell-off. Rising rates were making equities relatively less attractive, but concerns about the impact of tariffs between the US and China, and a slowing Chinese economy, also played a role. A few companies exposed to China have highlighted pock-ets of sluggish demand, and some warned that the latest round of US/China tariffs will affect their operations. October’s sell-off was particularly acute among companies with high exposure to China (see Fig. 2).

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Recent sell-off particularly acute in S&P 500 stocks with China exposure

Source: FactSet, UBS, as of 12 October 2018

Figure 2

Performance of S&P 500 companies with high exposure to China, relative to the S&P 500, in %

From TINA to TIARA


There is also little sign that higher rates are weighing on the US economy. The Chi-cago Fed National Financial Conditions Index (currently –0.89) indicates that con-ditions remain much looser than average. In the next 12 months, corporate bond redemptions will be equivalent to only 7.4% of outstanding (index-eligible) bonds. Strong economic data is underpinning corporate profitability. While the market has reacted recently to a number of corporate profit warnings, overall the 3Q earnings season should be quite strong with earnings per share (EPS) growth of 23–24%, very similar to that of the first two quarters of this year. Yes, since the beginning of the year, 10-year yields have risen, but this has been more than offset by rising earnings, and the equity risk premium, a measure of equity valuations relative to bond valuations, still exceeds its historical average (see Fig. 3).

Lower valuations in Europe European growth is not as robust as the US’s. But neither is it bad – we expect 2.1% growth this year and 1.8% next. And given the Eurozone’s much lower interest rates and bond yields, it offers an even more compelling valuation case than in the US. Ten-year Bund yields are just 0.5%, while Eurozone cash rates remain negative, and the equity risk premium is 7.5% versus a 4.5% long-run average.

Chinese stocks oversold Chinese equities have been hurt this year by concerns about slowing growth and tariffs on US-China trade – the Shanghai Composite is down 20%.

But history shows us that the Chinese authorities have often counteracted slowing growth effectively. The People’s Bank of China (PBoC) has already cut the reserve requirement ratio for banks by 250bps this year, and the government has autho-rized local bond issuance to fund infrastructure projects. These measures have yet to revive economic data, with fixed asset investment growth falling to 5.3% for January through August. But they could start to make themselves felt in the months ahead.

In our upside risk case, we estimate 15–20% upside in Chinese stocks if the coun-try’s GDP manages to stabilize and move back up to 6.6–6.8%. As a second-order effect, EM hard-currency sovereign bonds could return as much as 7–9% over the next six months, we believe, if credit spreads tightened to post-crisis lows of around 250 basis points. In our baseline scenario, we think emerging market (EM) hard-currency sovereign bonds could return close to 5% over the next six months as credit spreads narrow to 340 basis points.

The relative valuation case for Eurozone equities is compelling.

Historically, China has proved effective at counteracting slowing growth.

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stocks cheap vs bonds

stocks expensive vs bonds

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10-year UST yields rising but equity risk premium holding up

Source: Bloomberg, UBS, as of 15 October 2018

Figure 3

Spread between S&P 500 earnings yield (last 12m profits) and real 10-year US Treasury yields, in %

Equity risk premium for the S&P 500

Median since 1960

From TINA to TIARA


Trade upsideOur base case remains that the trade dispute will get worse before it gets better, with a significant risk that tariffs are imposed on all US-China trade. As noted in previous letters Tariff Traffic and Wasting Assets, the Trump administration’s tough stance on China appears to run deeper than trade.

But we should not totally discount the possibility that US-China tensions could de-escalate (despite the US Vice President’s 4 October speech taking a particularly tough line). This scenario is unlikely in our view, but if it proves to be more than just wishful thinking we would expect an equity rally of around 5–10% in the US and 10–15% in China, while the US dollar would probably weaken to around 1.20–1.25 against the euro.

The key upside risks we’re monitoring, along with the downside risks I discussed in last month’s letter, are summarized in table 1. These are also covered in our Global Risk Radar series.

A de-escalation of trade tensions between the US and China cannot be ruled out.

Table 1

Key investment risksSelected Scenarios Scenario Description Expected impact on select asset classes

Base case Positive outlook with increased volatility

Global economic performance remains solid, but ongoing trade tensions and uncertainty about Eurozone growth keep volatility high.

US equities +0–5% due to strong economic activity supported by tax cuts, government spending, business confidence and capital access

Eurozone equities +0–5% amid ongoing concerns in Italy, risk of US tariffs on autos and a stable ECB outlook

EURUSD between 1.15 and 1.20

Key upside scenarios

Trade tensions abate

Negotiations between the US and China restart, leading to actual progress and a reduction of trade barriers.

US equities +5–10% as trade–related risk premia subside

Chinese equities +10–15% due to EPS growth and re-rating

EURUSD +5–10% to around 1.20–1.25

China growth surprise

Chinese GDP growth remains in a 6.6–6.8% range as the current account balance goes back above USD 100bn.

Chinese equities +15–20% due to a combination of re-rating and a positive earnings surprise

EMBIGD +7–9% as spreads tighten back to post-crisis lows (around 250bps) while US Treasury yields are not impacted significantly

Key downside scenarios

Global trade war

US–China trade dispute induces a slowdown in China, considerable uncertainty and a rerouting of trade routes. More countries start to implement isolationist measures, leading to a global trade war.

US equities –10–15% as multiples contract and earnings drop by ~5%

Chinese equities –20–25% in case of a growth shock and a drop in exports; possibly more in case of multiple contraction

EURUSD to around 1.10

Oil supply shock

Escalating tensions disrupt energy exports, causing oil prices to spike sustainably to USD 120/bbl – a level which would hurt the global economy.

Crude oil up to USD 120/bbl

Energy equities +15–20% due to oil price increase

EURUSD to around 1.10

Accelerated Fed tightening

As US inflation rises rapidly, the Fed is forced to hike rates at each meeting. A US recession starts early 2020.

US equities –10–15% in the first six months, followed by stronger drawdowns as a US recession becomes more likely

US high yield –6–9% in the first six months as defaults start to rise and spreads start to widen

Expected total returns over a 6-month horizon Note: Upside and downside scenarios are possible events outside of CIO’s base case expectations.

Source: UBS, as of 17 October 2018

From TINA to TIARA


ConclusionThe recent rise in bond yields is moving us from a TINA to a TIARA market. While investors now have some fixed income alternatives to equities, we do not consider them attractive enough yet to warrant underweighting equities relative to fixed income. The backdrop for equities remains sufficiently supportive, valuations are favorable relative to historical norms, and upside risks at least partly offset the downside risks we continue to monitor. We are keeping our overweight position in global equities. It is important for investors to keep a global focus. While equity performance has been dominated by the US this year, risks are present around the world – diversification is the best approach to control portfolio volatility.

In the months ahead we will focus on the likely path for rates and yields, the way our risk scenarios (on trade in particular) play out, their impact on the US economy and corporate earnings, and relative equity-bond valuations. A combination of higher yields and slowing growth would indicate that we’re moving deeper into a TIARA market, and could require us to make our positioning more cautious.

Tactical Asset Allocation

At present we see the key tactical opportunities as follows:

• We hold a modest overweight position in global equities. As discussed earlier in this letter, equity markets have been volatile over the past month, with stocks undermined by a rise in the 10-year Treasury yield and concerns about trade tariffs. While we will continue to monitor developments, we believe that the rise in 10-year yields will be contained, and anticipate steady global earnings growth – led by an expected 23% rise in the US for the third quarter. While our US market outlook is positive, it is no longer immue to sell-offs. We prefer the risk-reward in global equities.

We expect Canadian equities to outperform Australian equities over the coming six months – the Canadian market is attractively valued and benefits from stronger earnings momentum. The Canadian market should also gain more from rising oil prices.

• We overweight 10-year US Treasuries. The yield on the 10-year US Treasury moved around 15bps higher over the past month to 3.17%, consistent with our forecast that Fed funds rates will peak at around 3.25–3.5% in late 2020, with a flat or slightly inverted yield curve. Markets have now largely priced in the full rate hiking cycle, so we do not expect the 10-year yield to move sig-nificantly higher from here. Recent inflation data from the US has been muted, with the core CPI stable for September.

• We are overweight in emerging market (EM) USD-denominated sovereign bonds. Despite the current uncertainty in EM, we think the 6.5% yield on emerging market USD-denominated sovereign bonds (EMBIGD index) is attractive, and the index is well-diversified across issuers. EM bonds could perform particularly well in the event of positive growth surprises from China.

• In our FX strategy, we overweight the Japanese yen relative to the Tai-wanese dollar. The yen is one of the world’s most undervalued currencies and could see upside if the Bank of Japan reduces its stimulus. Furthermore, the

We are modestly overweight global equities and favor Canadian equities relative to Australian stocks.

We overweight 10-year US Treasuries versus cash.

We are overweight in EM USD-denominated sovereign bonds.

In our FX strategy, we are overweight the Japanese yen relative to the Taiwanese dollar.

From TINA to TIARA


position provides a partial portfolio hedge against a global market shock. Both countries are heavily exposed to global trade, but the yen would be expected to appreciate in a sell-off, as Japanese investors tend to repatriate funds in times of global uncertainty.

Mark HaefeleChief Investment OfficerGlobal Wealth Management

UBS Investor Forum Insights• At this month’s UBS Investor Forum, participants discussed key risks including inflation, a trade war, and populism:

• • Consensus among this month’s delegates was that inflation should remain contained, but it was an area that should be monitored carefully. Generally speaking, most participants are cautiously risk-on in the short term, but have a bearish longer-term view.

• • With respect to the trade war, everyone agreed that any further esca-lation, which is seen as more likely than not, will have a considerable nega-tive economic impact.

• • All participants are very concerned about Italy. One participant believed that Italy will be the first EU member to have their budget rejected and that Italy’s access to the market is at stake.

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In context Perspective from the Regional Chief Investment Office – US

Justin WaringInvestment Strategist AmericasGlobal Wealth Management

The next bear market

With recent market volatility, the sharp rise in interest rates, and the threat of ongoing trade tensions, many investors are beginning to shift their attention from trying to take advantage of the next opportunity to trying to safeguard their bull market gains and gird them-selves for the next bear market.

Bear markets are difficult to predict, but in our view, we're in the mid-to-late stage of the current cycle. This means that while we are likely closer to the next recession than we are to the last one, we don't see the type of conditions that would suggest an economic down-turn in the next 12 to 18 months. This also suggests that while we are in the mature phase of the bull market, we're not yet at the terminal phase. And that's an important distinction, because stay-ing invested and managing through risks during the latter stages of a bull market is preferable to prematurely de-risking portfolios and forgoing potential returns.

Moreover, the next bear market is un-likely to be nearly as severe as the last two. Recessions and bear markets are largely defined by the excesses that are built up during the prior bull market. Right now, we see few signs of large imbalances or excesses in either the real economy or the financial markets.

In particular, we don't see evidence of the conditions that made the last two market downturns much worse than the average bear market. US stocks are no longer cheap, but they aren't excessively valued either, as they were in the late 1990s. In addition, the banking sector

is now very well-capitalized and private debt burdens look quite manageable suggesting very little risk of another fi-nancial crisis.

So we think that the next equity bear market—when it occurs—is more likely to be an average one, with a 25–30% drop from the eventual market peak. It's important to note that if the current slow-but-steady economic expansion re-mains intact for an extended period of time, investors may not have the oppor-tunity to buy at current market prices, even in the teeth of the next bear mar-ket.

With all of this in mind, how should in-vestors begin to prepare for the risk of a bear market, while still benefitting from the fundamentally strong environment today? In the words of one of the mem-bers of UBS's Research Advisory Board - Dr. David Kelly of JP Morgan Asset Man-agement - we need to "make hay while the sun is shining, but also fix the roof." Here's how we're thinking about doing precisely that:

1. StrategicallyAlthough we often focus on stocks when discussing downturns, diversified port-folios face much less stress during bear markets. Of the last seven bear markets, only two resulted in greater-than-20% drops for a 60/40 of stocks and bonds portfolio, and diversified portfolios are designed to recover much more quickly. So most investors—simply through the virtue of owning a balanced portfolio—are already fairly well-protected against the worst aspects of bear markets.

Mike Ryan, CFAChief Investment Officer Americas,Global Wealth Management

https://www.ubs.com/global/en/wealth-management/chief-investment-office/our-research/discover-more/2018/bull-market-monitor.html

https://www.ubs.com/global/en/wealth-management/chief-investment-office/our-research/discover-more/2018/bull-market-monitor.html


In context Perspective from the Regional Chief Investment Office – US

Figure 2

Diversified portfolios are designed to protect against the most painful parts of equity bear marketsComparative statistics for equity bear markets since World War II

Peak year 1946 1961 1968 1972 1987 2000 2007 Average

US large-cap stocks

Length of prior bull market* 169 184 78 31 157 155 62 119

Time between market cycles** 204 190 84 50 179 158 87 136

Peak 31/05/1946 31/12/1961 30/11/1968 31/12/1972 31/08/1987 31/08/2000 31/10/2007

Trough 30/11/1946 30/06/1962 30/06/1970 30/09/1974 30/11/1987 30/09/2002 28/02/2009

Recovery date 31/10/1949 30/04/1963 31/03/1971 30/06/1976 31/05/1989 31/10/2006 31/03/2012

Max drawdown –21.8% –22.3% –29.4% –42.6% –29.6% –44.7% –51.0% –34.5%

Time to full recovery (new all-time high) 41 16 28 42 21 74 53 39

Drawdown time 6 6 19 21 3 25 16 14

Recovery time 35 10 9 21 18 49 37 26

Months of prior gains 'erased' 15 36 66 118 18 64 141 65

60/40 stock/bond portfolio

Peak 31/05/1946 31/12/1961 30/11/1968 31/12/1972 31/08/1987 31/08/2000 31/10/2007

Trough 30/11/1946 30/06/1962 30/06/1970 30/09/1974 30/11/1987 30/09/2002 28/02/2009

Recovery date 31/10/1948 31/03/1963 31/12/1970 31/01/1976 31/01/1989 31/10/2004 31/12/2010

Max drawdown –13.4% –13.0% –17.6% –26.4% –17.4% –21.7% –29.9% –19.9%

Time to full recovery (new all-time high) 29 15 25 37 17 50 38 30

Drawdown time 6 6 19 21 3 25 16 14

Recovery time 23 9 6 16 14 25 22 16

Months of prior gains 'erased' 14 17 19 25 5 35 21 20

Source: Source: UBS, Morningstar Direct, R: PerformanceAnalytics, as of 18 October 2018

* Months from previous trough to this cycle peak

** Months between previous peak and this cycle peak

2. TacticallyTime in the market is more important than timing the market, but there are still steps that we can take to manage portfolios around cyclical risks. Tactical positioning means that we will actively seek to lower our risk profile when we see signs that the business cycle is turning, policy risks are elevated, and/or valuations have reached unsustainable levels.

As the risks of a downturn continue to rise we will intentional-ly "lean into" more defensive assets such as Treasuries, which are the only asset class that have provided consistently above-average returns during bear markets. We may also look to cash and shorter-term high-quality bonds, which tend to hold their value.

Investors should also use sell-offs as opportunities to harvest capital losses—a strategy that we estimate can add about 0.5% to after-tax annual portfolio returns.

And while every recovery period is different than the last, there is one constant: There are always market dislocations that can provide opportunities to enhance returns by "leaning back in" to risk assets at the appropriate time.

3. StructurallyBear market drawdowns are typically over quickly, with the peak-to-trough timeframe lasting just 14 months on average. More importantly, equity markets generally start making new all-time highs about three years after the previous peak. That's why a Liquidity strategy—assets and borrowing facilities to help you meet the next few years of cash flow needs—can be so effective at helping get through bear markets. This strategy can help investors maintain discipline during those stressful and turbulent periods of market sell-offs. Even in the most severe bear markets, this would help you avoid selling—and enable buying financial assets—at bear market prices.

Conclusion: be preparedWhile few can accurately and consistently forecast impending bear markets, all investors can take prudent steps to prepare for those inevitable periods of material and sustained draw-downs in risk assets. This includes not only understanding the nature, frequency and duration of bear markets but also the approaches that can minimize the impact, capitalize on the opportunities, and allow investors to maintain discipline – even during the most stressful periods.

https://ubswma.bluematrix.com/docs/pdf/56c16dd8-faba-4bdb-a912-29010bf4c87b.pdf?


DETAILED ASSET ALLOCATION

Investor risk profile

Conservative Moderately conservative

Moderate Moderately aggressive

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Cash 5.0 –1.0 4.0 5.0 –1.5 3.5 5.0 –2.0 3.0 5.0 –2.0 3.0 5.0 –2.0 3.0

Fixed Income 69.0 +0.5 69.5 50.0 +0.5 50.5 33.0 +1.0 34.0 17.0 +1.0 18.0 5.0 +1.0 6.0

US Fixed Income 67.0 –1.5 65.5 48.0 –1.0 47.0 31.0 –1.5 29.5 15.0 –1.5 13.5 5.0 –1.5 3.5

US Gov‘t FI 17.0 –2.5 14.5 2.0 –2.0 0.0 2.0 –2.0 0.0 2.0 –2.0 0.0 2.0 –2.0 0.0

US 10-yr Treasury 0.0 +1.0 1.0 0.0 +1.0 1.0 0.0 +0.5 0.5 0.0 +0.5 0.5 0.0 +0.5 0.5

US Municipal FI 46.0 +0.0 46.0 42.0 +0.0 42.0 27.0 +0.0 27.0 11.0 +0.0 11.0 3.0 +0.0 3.0

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

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

Int‘l Fixed Income 2.0 +2.0 4.0 2.0 +1.5 3.5 2.0 +2.5 4.5 2.0 +2.5 4.5 0.0 +2.5 2.5

Int‘l Developed FI 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

EM FI 2.0 +0.0 2.0 2.0 +0.0 2.0 2.0 +0.0 2.0 2.0 +0.0 2.0 0.0 +0.0 0.0

EM FI - Hard Currency 0.0 +2.0 2.0 0.0 +1.5 1.5 0.0 +2.5 2.5 0.0 +2.5 2.5 0.0 +2.5 2.5

Equity 13.0 +0.5 13.5 27.0 +1.0 28.0 44.0 +1.0 45.0 64.0 +1.0 65.0 85.0 +1.0 86.0

Global Equity 0.0 +0.5 0.5 0.0 +1.0 1.0 0.0 +1.0 1.0 0.0 +1.0 1.0 0.0 +1.0 1.0

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

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

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

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

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

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

Int‘l Developed Markets 5.0 +0.0 5.0 8.0 +0.0 8.0 13.0 +0.0 13.0 19.0 +0.0 19.0 28.0 +0.0 28.0

Emerging Markets 0.0 +0.0 0.0 3.0 +0.0 3.0 6.0 +0.0 6.0 8.0 +0.0 8.0 11.0 +0.0 11.0

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

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

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

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

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

CIO GWM tactical deviation legend: Overweight Underweight Neutral. Change legend: p Upgrade q Downgrade for moderate risk profile 1 Change is the difference between the tactical deviation column in the previous month and the current month.2 The current allocation column is the sum of the strategic asset allocation and the tactical deviation columns.Source: UBS and WMA AAC, 18 October 2018. See the Performance Measurement and Appendix sections of the UBS House View Investment Strategy Guide for performance measurement details and information regarding sources of strategic asset allocations and their suitability, investor risk profiles, and the interpretation of the suggested tactical deviations from the strategic asset allocations.

Taxable investor Taxable investor with non-traditional assets






Aggressive

Dir

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Cash 5.0 –1.0 4.0 5.0 –1.5 3.5 5.0 –2.0 3.0 5.0 –2.0 3.0 5.0 –2.0 3.0

Fixed Income 79.0 +0.5 79.5 63.0 +0.5 63.5 46.0 +1.0 47.0 27.0 +1.0 28.0 10.0 +1.0 11.0

US Fixed Income 77.0 –1.5 75.5 61.0 –1.0 60.0 44.0 –1.5 42.5 25.0 –1.5 23.5 10.0 –2.5 7.5

US Gov't FI 17.0 –2.5 14.5 2.0 –2.0 0.0 2.0 –2.0 0.0 2.0 –2.0 0.0 5.0 –4.5 0.5

US 10-yr Treasury 0.0 +1.0 1.0 0.0 +1.0 1.0 0.0 +0.5 0.5 0.0 +0.5 0.5 0.0 +2.0 2.0

US Municipal FI 56.0 +0.0 56.0 55.0 +0.0 55.0 40.0 +0.0 40.0 21.0 +0.0 21.0 5.0 +0.0 5.0

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

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

Int'l Fixed Income 2.0 +2.0 4.0 2.0 +1.5 3.5 2.0 +2.5 4.5 2.0 +2.5 4.5 0.0 +3.5 3.5

Int'l Developed FI 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

EM FI 2.0 +0.0 2.0 2.0 +0.0 2.0 2.0 +0.0 2.0 2.0 +0.0 2.0 0.0 +0.0 0.0


Equity 16.0 +0.5 16.5 32.0 +1.0 33.0 49.0 +1.0 50.0 68.0 +1.0 69.0 85.0 +1.0 86.0

Global Equity 0.0 +0.5 0.5 0.0 +1.0 1.0 0.0 +1.0 1.0 0.0 +1.0 1.0 0.0 +1.0 1.0

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



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

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


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


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


Taxable investor without non-traditional assets






Aggressive

Dir

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Str

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a

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a

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Str

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a

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Str

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a

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Cash 3.0 –1.0 2.0 3.0 –1.0 2.0 3.0 –1.0 2.0 3.0 –1.0 2.0 3.0 –1.0 2.0

Fixed Income 65.0 +0.5 65.5 56.0 +0.0 56.0 43.0 +0.0 43.0 30.0 +0.5 30.5 12.0 +0.5 12.5

US Fixed Income 61.0 –1.5 59.5 48.0 –2.0 46.0 32.0 –2.5 29.5 22.0 –1.0 21.0 10.0 –1.0 9.0

US Gov't FI 25.0 –2.5 22.5 15.0 –3.5 11.5 6.0 –4.5 1.5 3.0 –3.0 0.0 3.0 –3.0 0.0

US 10-yr Treasury 0.0 +1.0 1.0 0.0 +1.5 1.5 0.0 +2.0 2.0 0.0 +2.0 2.0 0.0 +2.0 2.0

US Municipal FI 23.0 +0.0 23.0 14.0 +0.0 14.0 6.0 +0.0 6.0 3.0 +0.0 3.0 3.0 +0.0 3.0

US IG Corp FI 4.0 +0.0 4.0 4.0 +0.0 4.0 4.0 +0.0 4.0 0.0 +0.0 0.0 0.0 +0.0 0.0

US HY Corp FI 9.0 +0.0 9.0 15.0 +0.0 15.0 16.0 +0.0 16.0 16.0 +0.0 16.0 4.0 +0.0 4.0


EM FI - Local Currency 0.0 +0.0 0.0 3.0 +0.0 3.0 6.0 +0.0 6.0 6.0 +0.0 6.0 2.0 +0.0 2.0


Equity 12.0 +0.5 12.5 21.0 +1.0 22.0 34.0 +1.0 35.0 47.0 +0.5 47.5 62.0 +0.5 62.5

Global Equity 0.0 +0.5 0.5 0.0 +1.0 1.0 0.0 +1.0 1.0 0.0 +0.5 0.5 0.0 +0.5 0.5

US Equity 6.0 +0.0 6.0 11.0 +0.0 11.0 16.0 +0.0 16.0 21.0 +0.0 21.0 24.0 +0.0 24.0




Int’l Developed Value 6.0 +0.0 6.0 10.0 +0.0 10.0 15.0 +0.0 15.0 21.0 +0.0 21.0 29.0 +0.0 29.0


Yield Assets 20.0 +0.0 20.0 20.0 +0.0 20.0 20.0 +0.0 20.0 20.0 +0.0 20.0 23.0 +0.0 23.0

Senior Loans 6.0 +0.0 6.0 4.0 +0.0 4.0 2.0 +0.0 2.0 0.0 +0.0 0.0 0.0 +0.0 0.0

Preferreds 10.0 +0.0 10.0 7.0 +0.0 7.0 7.0 +0.0 7.0 5.0 +0.0 5.0 2.0 +0.0 2.0

MLPs 4.0 +0.0 4.0 7.0 +0.0 7.0 9.0 +0.0 9.0 12.0 +0.0 12.0 16.0 +0.0 16.0

US Real Estate 0.0 +0.0 0.0 2.0 +0.0 2.0 2.0 +0.0 2.0 3.0 +0.0 3.0 5.0 +0.0 5.0


Taxable investor yield-focused






Aggressive

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Cash 5.0 –1.0 4.0 5.0 –1.0 4.0 5.0 –1.0 4.0 5.0 –1.0 4.0 5.0 –1.0 4.0

Fixed Income 79.0 +0.0 79.0 57.0 +0.0 57.0 41.0 +0.0 41.0 22.0 +0.0 22.0 10.0 +0.0 10.0

MDB Bonds 25.0 +0.0 25.0 10.0 +0.0 10.0 10.0 +0.0 10.0 8.0 +0.0 8.0 5.0 +0.0 5.0

Sustainable munis 40.0 +0.0 40.0 31.0 +0.0 31.0 21.0 +0.0 21.0 9.0 +0.0 9.0 5.0 +0.0 5.0

Green bonds 4.0 +0.0 4.0 6.0 +0.0 6.0 4.0 +0.0 4.0 2.0 +0.0 2.0 0.0 +0.0 0.0

ESG corporate bonds 10.0 +0.0 10.0 10.0 +0.0 10.0 6.0 +0.0 6.0 3.0 +0.0 3.0 0.0 +0.0 0.0

Equity 16.0 +1.0 17.0 38.0 +1.0 39.0 54.0 +1.0 55.0 73.0 +1.0 74.0 85.0 +1.0 86.0

ESG thematic equities 6.0 +0.0 6.0 12.0 +0.0 12.0 18.0 +0.0 18.0 23.0 +0.0 23.0 24.0 +0.0 24.0

ESG leaders equities (US)

5.0 +0.5 5.5 8.0 +0.5 8.5 11.0 +0.5 11.5 15.0 +0.5 15.5 19.0 +0.5 19.5

ESG leaders equities (ex-US)

5.0 +0.5 5.5 6.0 +0.5 6.5 9.0 +0.5 9.5 14.0 +0.5 14.5 17.0 +0.5 17.5

ESG improvers equities 0.0 +0.0 0.0 4.0 +0.0 4.0 6.0 +0.0 6.0 8.0 +0.0 8.0 9.0 +0.0 9.0

ESG engagement equities

0.0 +0.0 0.0 8.0 +0.0 8.0 10.0 +0.0 10.0 13.0 +0.0 13.0 16.0 +0.0 16.0


For more information on the sustainable investment asset allocation tables, read the CIO publication: Sustainable Investing Portfolios: Investing for returns and for good, or the Wealth Management US Asset Allocation Committee report: Introducing the House View Sustainable Investing Strategic Asset Allocations.

Taxable investor sustainable investment






Aggressive

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Cash 5.0 –1.0 4.0 5.0 –1.5 3.5 5.0 –2.0 3.0 5.0 –2.0 3.0 5.0 –2.0 3.0

Fixed Income 69.0 +0.5 69.5 50.0 +0.5 50.5 33.0 +1.0 34.0 17.0 +1.0 18.0 5.0 +1.0 6.0

US Fixed Income 64.0 –1.5 62.5 45.0 –2.5 42.5 29.0 –2.5 26.5 14.0 –2.5 11.5 5.0 –2.5 2.5

US Gov't FI 35.0 –2.5 32.5 25.0 –4.0 21.0 16.0 –4.5 11.5 7.0 –4.5 2.5 5.0 –4.5 0.5

US 10-yr Treasury 0.0 +1.0 1.0 0.0 +1.5 1.5 0.0 +2.0 2.0 0.0 +2.0 2.0 0.0 +2.0 2.0

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

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

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



EM FI 5.0 +0.0 5.0 5.0 +0.0 5.0 4.0 +0.0 4.0 3.0 +0.0 3.0 0.0 +0.0 0.0


Equity 10.0 +0.5 10.5 25.0 +1.0 26.0 42.0 +1.0 43.0 62.0 +1.0 63.0 85.0 +1.0 86.0

Global Equity 0.0 +0.5 0.5 0.0 +1.0 1.0 0.0 +1.0 1.0 0.0 +1.0 1.0 0.0 +1.0 1.0

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



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

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


Int'l Developed Markets 4.0 +0.0 4.0 8.0 +0.0 8.0 14.0 +0.0 14.0 21.0 +0.0 21.0 29.0 +0.0 29.0


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

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

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

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

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


Non-taxable investor with non-traditional assets






Aggressive

Dir

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All figures in %

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Cash 5.0 –1.0 4.0 5.0 –1.5 3.5 5.0 –2.0 3.0 5.0 –2.0 3.0 5.0 –2.0 3.0

Fixed Income 79.0 +0.5 79.5 63.0 +0.5 63.5 46.0 +1.0 47.0 27.0 +1.0 28.0 10.0 +1.0 11.0

US Fixed Income 74.0 –1.5 72.5 58.0 –2.5 55.5 42.0 –2.5 39.5 24.0 –2.5 21.5 10.0 –2.5 7.5

US Gov't FI 35.0 –2.5 32.5 25.0 –4.0 21.0 16.0 –4.5 11.5 7.0 –4.5 2.5 5.0 –4.5 0.5

US 10-yr Treasury 0.0 +1.0 1.0 0.0 +1.5 1.5 0.0 +2.0 2.0 0.0 +2.0 2.0 0.0 +2.0 2.0

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

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

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



EM FI 5.0 +0.0 5.0 5.0 +0.0 5.0 4.0 +0.0 4.0 3.0 +0.0 3.0 0.0 +0.0 0.0


Equity 16.0 +0.5 16.5 32.0 +1.0 33.0 49.0 +1.0 50.0 68.0 +1.0 69.0 85.0 +1.0 86.0

Global Equity 0.0 +0.5 0.5 0.0 +1.0 1.0 0.0 +1.0 1.0 0.0 +1.0 1.0 0.0 +1.0 1.0

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



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

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


Int’l Developed Markets 6.0 +0.0 6.0 10.0 +0.0 10.0 17.0 +0.0 17.0 24.0 +0.0 24.0 29.0 +0.0 29.0


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


Non-taxable investor without non-traditional assets






Aggressive

Dir

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All figures in %

Str

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Cash 3.0 –1.0 2.0 3.0 –1.0 2.0 3.0 –1.0 2.0 3.0 –1.0 2.0 3.0 –1.0 2.0

Fixed Income 65.0 +0.5 65.5 56.0 +0.0 56.0 43.0 +0.0 43.0 30.0 +0.0 30.0 12.0 +0.0 12.0

US Fixed Income 60.0 –1.5 58.5 46.0 –2.0 44.0 32.0 –2.5 29.5 22.0 –3.0 19.0 10.0 –3.0 7.0

US Gov't FI 30.0 –2.5 27.5 16.0 –3.5 12.5 10.0 –4.5 5.5 5.0 –5.0 0.0 5.0 –5.0 0.0

US 10-yr Treasury 0.0 +1.0 1.0 0.0 +1.5 1.5 0.0 +2.0 2.0 0.0 +2.0 2.0 0.0 +2.0 2.0

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

US IG Corp FI 18.0 +0.0 18.0 16.0 +0.0 16.0 6.0 +0.0 6.0 2.0 +0.0 2.0 0.0 +0.0 0.0

US HY Corp FI 12.0 +0.0 12.0 14.0 +0.0 14.0 16.0 +0.0 16.0 15.0 +0.0 15.0 5.0 +0.0 5.0


EM FI - Local Currency 2.0 +0.0 2.0 5.0 +0.0 5.0 6.0 +0.0 6.0 6.0 +0.0 6.0 2.0 +0.0 2.0


Equity 12.0 +0.5 12.5 21.0 +1.0 22.0 34.0 +1.0 35.0 47.0 +1.0 48.0 62.0 +1.0 63.0

Global Equity 0.0 +0.5 0.5 0.0 +1.0 1.0 0.0 +1.0 1.0 0.0 +1.0 1.0 0.0 +1.0 1.0

US Equity 6.0 +0.0 6.0 10.0 +0.0 10.0 15.0 +0.0 15.0 19.0 +0.0 19.0 24.0 +0.0 24.0



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

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


Int’l Developed Value 6.0 +0.0 6.0 11.0 +0.0 11.0 16.0 +0.0 16.0 22.0 +0.0 22.0 29.0 +0.0 29.0


Yield Assets 20.0 +0.0 20.0 20.0 +0.0 20.0 20.0 +0.0 20.0 20.0 +0.0 20.0 23.0 +0.0 23.0

Senior Loans 6.0 +0.0 6.0 4.0 +0.0 4.0 2.0 +0.0 2.0 0.0 +0.0 0.0 0.0 +0.0 0.0

Preferreds 10.0 +0.0 10.0 7.0 +0.0 7.0 6.0 +0.0 6.0 4.0 +0.0 4.0 2.0 +0.0 2.0

MLPs 4.0 +0.0 4.0 7.0 +0.0 7.0 10.0 +0.0 10.0 13.0 +0.0 13.0 16.0 +0.0 16.0

US Real Estate 0.0 +0.0 0.0 2.0 +0.0 2.0 2.0 +0.0 2.0 3.0 +0.0 3.0 5.0 +0.0 5.0


Non-taxable investor yield-focused





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Cash 5.0 –1.0 4.0 5.0 –1.0 4.0 5.0 –1.0 4.0 5.0 –1.0 4.0 5.0 –1.0 4.0

Fixed Income 79.0 +0.0 79.0 57.0 +0.0 57.0 41.0 +0.0 41.0 22.0 +0.0 22.0 10.0 +0.0 10.0

MDB Bonds 40.0 +0.0 40.0 21.0 +0.0 21.0 13.0 +0.0 13.0 8.0 +0.0 8.0 5.0 +0.0 5.0

Sustainable munis 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

Green bonds 14.0 +0.0 14.0 13.0 +0.0 13.0 10.0 +0.0 10.0 6.0 +0.0 6.0 0.0 +0.0 0.0

ESG corporate bonds 25.0 +0.0 25.0 23.0 +0.0 23.0 18.0 +0.0 18.0 8.0 +0.0 8.0 5.0 +0.0 5.0

Equity 16.0 +1.0 17.0 38.0 +1.0 39.0 54.0 +1.0 55.0 73.0 +1.0 74.0 85.0 +1.0 86.0

ESG thematic equities 6.0 +0.0 6.0 12.0 +0.0 12.0 18.0 +0.0 18.0 23.0 +0.0 23.0 24.0 +0.0 24.0

ESG leaders equities (US) 5.0 +0.5 5.5 8.0 +0.5 8.5 11.0 +0.5 11.5 15.0 +0.5 15.5 19.0 +0.5 19.5

ESG leaders equities (ex-US)

5.0 +0.5 5.5 6.0 +0.5 6.5 9.0 +0.5 9.5 14.0 +0.5 14.5 17.0 +0.5 17.5

ESG improvers equities 0.0 +0.0 0.0 4.0 +0.0 4.0 6.0 +0.0 6.0 8.0 +0.0 8.0 9.0 +0.0 9.0

ESG engagement equities

0.0 +0.0 0.0 8.0 +0.0 8.0 10.0 +0.0 10.0 13.0 +0.0 13.0 16.0 +0.0 16.0



Non-taxable investor sustainable investment




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

In the All Equity portfolio, tactical tilts will be based on the corresponding tilts to the Equity asset classes in our balanced port-folio (moderate risk profile, taxable with-out alternative investments). The amount of cash in the All Equity portfolio will vary one-for-one with the overall overweight/underweight on equities in the balanced portfolio, subject to a 3% maximum tilt from the 5% cash allocation. This allows us to use the cash allocation to express a tac-tical preference between stocks and fixed income. A special feature of the All Equity portfolio is that it includes “carveouts”: 3% allocations to our preferred sectors within US large-caps as well as our preferred coun-tries within both international developed markets and the emerging markets. A maxi-mum of two sectors/countries of each type may be selected for carve-outs.

The All Fixed Income portfolios include both taxable and non-taxable versions. In addition to the fixed income asset classes in the balanced portfolios, the non-taxable version incorporates an additional alloca-tion to Mortgage Backed Securities. Tacti-cal tilts will be based on the correspond-ing tilts to the Fixed Income asset classes in our balanced portfolios (moderate risk profile without alternative investments, tax-able or non-taxable respectively), but only when there is a preference between the fixed income asset classes. For example, an overweight on high yield corporate bonds offset by an underweight on government bonds in the balanced portfolio would be applied to the All Fixed Income portfolios. However, an overweight on US equities ver-sus US government bonds in the balanced portfolio would not be reflected in the All Fixed Income portfolios. Further, the tilts in the All Fixed Income portfolios will typically be scaled up to twice the size of the tilts in the balanced portfolio.

All equity All fixed income, taxable

All fixed income, non-taxable

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Cash 5.0 –1.0 4.0 5.0 –3.0 2.0 5.0 –3.0 2.0

Fixed Income 0.0 +0.0 0.0 95.0 +3.0 98.0 95.0 +3.0 98.0

US Fixed Income 0.0 +0.0 0.0 92.5 –4.0 88.5 89.0 –4.0 85.0

US Gov't FI 0.0 +0.0 0.0 19.0 –8.0 11.0 33.0 –8.0 25.0

US 10-yr Treasury 0.0 +0.0 0.0 0.0 +4.0 4.0 0.0 +4.0 4.0

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

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

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

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

Int’l Fixed Income 0.0 +0.0 0.0 2.5 +7.0 9.5 6.0 +7.0 13.0

Int'l Developed FI 0.0 +0.0 0.0 0.0 +0.0 0.0 0.0 +0.0 0.0

EM FI 0.0 +0.0 0.0 2.5 +0.0 2.5 6.0 +0.0 6.0

EM FI - Hard Currency 0.0 +0.0 0.0 0.0 +7.0 7.0 0.0 +7.0 7.0

Equity 95.0 +1.0 96.0 0.0 +0.0 0.0 0.0 +0.0 0.0

Global Equity 0.0 +1.0 1.0 0.0 +0.0 0.0 0.0 +0.0 0.0

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

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

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

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

Financials 0.0 +3.0 3.0 0.0 +0.0 0.0 0.0 +0.0 0.0

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

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

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

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

Emerging Markets 12.0 –3.0 9.0 0.0 +0.0 0.0 0.0 +0.0 0.0

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

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


All equity and all fixed income models



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

In the All Equity portfolio, tactical tilts will be based on the corresponding tilts to the Equity asset classes in our balanced port-folio (moderate risk profile, taxable yield-focused). The amount of cash in the All Equity portfolio will vary one-for-one with the overall overweight/underweight on equities in the balanced portfolio, subject to a 1% maximum tilt from the 3% cash allocation. This allows us to use the cash allocation to express a tactical preference between stocks and fixed income. A special feature of the All Equity portfolio is that it includes “carveouts”: 3% allocations to our preferred sectors within US large-caps as well as our preferred countries within both international developed markets and the emerging markets. A maximum of two sec-tors/countries of each type may be selected for carve-outs.

The All Income portfolios include both taxable and non-taxable versions. In ad-dition to the fixed income asset classes in the balanced portfolios, the non-taxable version incorporates an additional alloca-tion to Mortgage Backed Securities. Tacti-cal tilts will be based on the correspond-ing tilts to the Fixed Income asset classes in our balanced portfolios (moderate risk profile yield-focused, taxable or non-tax-able respectively), but only when there is a preference between the fixed income asset classes. For example, an overweight on high yield corporate bonds offset by an underweight on government bonds in the balanced portfolio would be applied to the All Income portfolios. However, an overweight on US equities versus US gov-ernment bonds in the balanced portfolio would not be reflected in the All Income portfolios. Further, the tilts in the All In-come portfolios will typically be scaled up to twice the size of the tilts in the balanced portfolio.

All equity All income, taxable All income, non-taxable

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Cash 3.0 –1.0 2.0 3.0 –1.0 2.0 3.0 –1.0 2.0

Fixed Income 0.0 +0.0 0.0 77.0 +1.0 78.0 77.0 +1.0 78.0

US Fixed Income 0.0 +0.0 0.0 58.0 –6.0 52.0 58.0 –6.0 52.0

US Gov't FI 0.0 +0.0 0.0 13.0 –10.0 3.0 18.0 –10.0 8.0

US 10-yr Treasury 0.0 +0.0 0.0 0.0 +4.0 4.0 0.0 +4.0 4.0

US MBS 0.0 +0.0 0.0 0.0 +0.0 0.0 5.0 +0.0 5.0

US Municipal FI 0.0 +0.0 0.0 30.0 +0.0 30.0 0.0 +0.0 0.0

US IG Corp FI 0.0 +0.0 0.0 0.0 +0.0 0.0 20.0 +0.0 20.0

US HY Corp FI 0.0 +0.0 0.0 15.0 +0.0 15.0 15.0 +0.0 15.0

Int’l Fixed Income 0.0 +0.0 0.0 19.0 +7.0 26.0 19.0 +7.0 26.0

EM FI - Local Currency 0.0 +0.0 0.0 10.0 +0.0 10.0 11.0 +0.0 11.0

EM FI - Hard Currency 0.0 +0.0 0.0 9.0 +7.0 16.0 8.0 +7.0 15.0

Equity 77.0 +1.0 78.0 0.0 +0.0 0.0 0.0 +0.0 0.0

Global Equity 0.0 +1.0 1.0 0.0 +0.0 0.0 0.0 +0.0 0.0

US Equity 39.0 +0.0 39.0 0.0 +0.0 0.0 0.0 +0.0 0.0

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

US Large cap Value 32.0 +1.0 33.0 0.0 +0.0 0.0 0.0 +0.0 0.0

International Equity 38.0 +0.0 38.0 0.0 +0.0 0.0 0.0 +0.0 0.0

Int'l Developed Value 28.0 +0.0 28.0 0.0 +0.0 0.0 0.0 +0.0 0.0

Emerging Markets 10.0 –3.0 7.0 0.0 +0.0 0.0 0.0 +0.0 0.0

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

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

Yield Assets 20.0 +0.0 20.0 20.0 +0.0 20.0 20.0 +0.0 20.0

Senior Loans 0.0 +0.0 0.0 15.0 +0.0 15.0 15.0 +0.0 15.0

Preferreds 0.0 +0.0 0.0 5.0 +0.0 5.0 5.0 +0.0 5.0

MLPs 16.0 +0.0 16.0 0.0 +0.0 0.0 0.0 +0.0 0.0

US Real Estate 4.0 +0.0 4.0 0.0 +0.0 0.0 0.0 +0.0 0.0


All equity and all income, yield-focused


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

In the All Equity portfolio, tactical tilts will be based on the corresponding tilts to the Equity asset classes in our balanced port-folio (moderate risk profile, taxable with-out alternative investments). The amount of cash in the All Equity portfolio will vary one-for-one with the overall overweight/underweight on equities in the balanced portfolio, subject to a 3% maximum tilt from the 5% cash allocation. This allows us to use the cash allocation to express a tactical preference between stocks and fixed income.

The All Fixed Income portfolios include both taxable and non-taxable versions. Tac-tical tilts will be based on the correspond-ing tilts to the Fixed Income asset classes in our balanced portfolios (moderate risk profile without alternative investments, tax-able or non-taxable respectively), but only when there is a preference between the fixed income asset classes. For example, an overweight on high yield corporate bonds offset by an underweight on government bonds in the balanced portfolio would be applied to the All Fixed Income portfolios. However, an overweight on US equities ver-sus US government bonds in the balanced portfolio would not be reflected in the All Fixed Income portfolios. Further, the tilts in the All Fixed Income portfolios will typically be scaled up to twice the size of the tilts in the balanced portfolio.

All equity All fixed income, taxable

All income, non-taxable

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Cash 5.0 –1.0 4.0 5.0 +0.0 5.0 5.0 +0.0 5.0

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

MDB Bonds 0.0 +0.0 0.0 30.0 +0.0 30.0 25.0 +0.0 25.0

Sustainable munis 0.0 +0.0 0.0 0.0 +0.0 0.0 45.0 +0.0 45.0

Green bonds 0.0 +0.0 0.0 25.0 +0.0 25.0 10.0 +0.0 10.0

ESG corporate bonds 0.0 +0.0 0.0 40.0 +0.0 40.0 15.0 +0.0 15.0

Equity 75.0 +1.0 76.0 0.0 +0.0 0.0 0.0 +0.0 0.0

ESG thematic equities 28.0 +0.0 28.0 0.0 +0.0 0.0 0.0 +0.0 0.0

ESG leaders equities (US) 20.0 +0.5 20.5 0.0 +0.0 0.0 0.0 +0.0 0.0

ESG leaders equities (ex-US) 18.0 +0.5 18.5 0.0 +0.0 0.0 0.0 +0.0 0.0

ESG improvers equities 9.0 +0.0 9.0 0.0 +0.0 0.0 0.0 +0.0 0.0

ESG engagement equities 20.0 +0.0 20.0 0.0 +0.0 0.0 0.0 +0.0 0.0



All equity and all income, sustainable investing




Additional asset allocation models

International developed markets (non-US) fixed income module, in %

Benchmark CIO GWM tactical deviation2 Current allocation3

allocation1 Previous CurrentEMU / Eurozone 42.0 +0.0 +0.0 42.0

UK 9.0 +0.0 +0.0 9.0

Japan 32.0 +0.0 +0.0 32.0

Other 17.0 +0.0 +0.0 17.0

Source: UBS, as of 18 October 2018.

1 For the first table on this page, the benchmark allocation is based on S&P 500 weights. For the second and third tables on this page, the benchmark allocation refers to a moderate risk profile and represents the relative market capitalization weights of each country or region.

2 See “Deviations from strategic asset allocation or benchmark allocation” in the appendix for an explanation regarding the interpretation of the suggested tactical deviations from benchmark. The “current” column refers to the tactical deviation that applies as of the date of this publication. The “previous” column refers to the tactical deviation that was in place at the date of the previous edition of UBS House View or the last UBS House View Update.

3 The current allocation column is the sum of the CIO GWM tactical deviation columns and (the S&P 500 benchmark allocation for the first table on this page) (the benchmark allocation for the second and third tables on this page).

US equity sector allocation, in %

S&P 500 CIO GWM tactical deviation2 CurrentBenchmark Numeric Symbol allocation3

allocation1 Previous Current Previous CurrentCommunication Services 10.1 +0.0 +0.0 n n 10.1

Consumer Discretionary 10.0 +0.0 +0.0 n n 10.0

Consumer Staples 6.9 –1.0 –1.0 – – 5.9

Energy 5.9 +1.0 +1.0 + + 6.9

Financials 13.5 +2.0 +2.0 ++ ++ 15.5

Health Care 15.3 –1.0 +0.0 – n 15.3

Industrials 9.6 –1.0 –1.0 – – 8.6

Information Technology 20.7 +0.0 +0.0 n n 20.7

Materials 2.4 +0.0 +0.0 n n 2.4

Real Estate 2.7 +0.0 +0.0 n n 2.7

Utilities 3.0 +0.0 –1.0 n – 2.0


International developed markets (non-US) equity module, in %

Benchmark CIO GWM tactical deviation2 Current allocation3

allocation1 Previous CurrentEMU / Eurozone 28.0 +0.0 +0.0 28.0

UK 17.0 +0.0 +0.0 17.0

Japan 22.0 +0.0 +0.0 22.0

Australia 7.0 –7.0 –7.0 0.0

Canada 9.0 +10.0 +10.0 19.0

Switzerland 8.0 +0.0 +0.0 8.0

Other 9.0 –3.0 –3.0 6.0


Notes: For US equity sub-sector recommendations please see the “Equity Preference List” for each sector. These reports are published on a monthly basis and can be found on the Online Services website in the Research > Equities section.The benchmark allocation, as well as the tactical deviations, are intended to be applicable to the US equity portion of a portfolio across investor risk profiles.1 The benchmark allocation is based on S&P 500 weights.2 See "Deviations from strategic asset allocation" in the Appendix of UBS House View for an explanation regarding the interpretation of the suggested tactical devia-

tions from benchmark. The “current” column refers to the tactical deviation that applies as of the date of this publication. The “previous” column refers to the tactical deviation that was in place at the date of the previous edition of the previous edition of UBS House View or the last UBS House View Update.

3 The current allocation column is the sum of the S&P 500 benchmark allocation and CIO GWM tactical deviation columns.


Investment Committee

Cautionary statement regarding forward-looking statements

Global Investment Process and Committee descriptionThe UBS investment process is designed to achieve replicable, high-quality results through applying intellectual rigor, strong process governance, clear responsibility, and a culture of chal-lenge.

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

Global Investment Committee compositionThe GIC is comprised of 9 members, representing top market and investment expertise from across all divisions of UBS:

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

WMA Asset Allocation Committee descriptionWe recognize that a globally derived house view is most effec-tive when complemented by local perspective and application. As such, UBS has formed a Wealth Management Americas As-set Allocation Committee (WMA AAC). WMA AAC is respon-sible for the development and monitoring of UBS WMA’s stra-tegic asset allocation models and capital market assumptions. The WMA AAC sets parameters for the CIO Americas, WM Investment Strategy Group to follow during the translation process of the GIC’s House Views and the incorporation of US-specific asset class views into the US-specific tactical asset al-location models.

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

• Mike Ryan• Michael Crook• Brian Rose• Jeremy Zirin• Jason Draho• Tom McLoughlin• Leslie Falconio• Laura Kane• David Lefkowitz

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

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

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


Explanations about asset classes

Statement of risk

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

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

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

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

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

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

Equities - Stock market returns are difficult to forecast because of fluctua-tions in the economy, investor psychology, geopolitical conditions and other important variables.

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

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

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

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

Scale for tactical deviation charts

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

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

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

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

Source: UBS


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

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

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

Nontraditional AssetsNontraditional asset classes are alternative investments that include hedge funds, private equity, real estate, and managed futures (collectively, alternative investments). Interests of alternative investment funds are sold only to qualified investors, and only by means of offering documents that include information about the risks, perfor-mance and expenses of alternative investment funds, and which clients are urged to read carefully before subscribing and retain. An investment in an alternative investment fund is speculative and involves significant risks. Specifically, these investments (1) are not mutual funds and are not sub-ject to the same regulatory requirements as mutual funds; (2) may have performance that is volatile, and investors may lose all or a substantial amount of their investment; (3) may engage in leverage and other specu-lative investment practices that may increase the risk of investment loss; (4) are long-term, illiquid investments; there is generally no secondary market for the interests of a fund, and none is expected to develop; (5) interests of alternative investment funds typically will be illiquid and sub-ject to restrictions on transfer; (6) may not be required to provide periodic pricing or valuation information to investors; (7) generally involve complex tax strategies and there may be delays in distributing tax information to investors; (8) are subject to high fees, including management fees and other fees and expenses, all of which will reduce profits.

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

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

Hedge Fund Risk: There are risks specifically associated with investing in hedge funds, which may include risks associated with investing in short sales, options, small-cap stocks, “junk bonds,” derivatives, distressed securities, non-US securities and illiquid investments.Managed Futures: There are risks specifically associated with investing in managed futures programs. For example, not all managers focus on all strategies at all times, and managed futures strategies may have material directional elements. Real Estate: There are risks specifically associated with investing in real estate products and real estate investment trusts. They involve risks associ-ated with debt, adverse changes in general economic or local market con-ditions, changes in governmental, tax, real estate and zoning laws or regulations, risks associated with capital calls and, for some real estate products, the risks associated with the ability to qualify for favorable treat-ment under the federal tax laws. Private Equity: There are risks specifically associated with investing in private equity. Capital calls can be made on short notice, and the failure to meet capital calls can result in significant adverse consequences including, but not limited to, a total loss of investment. Foreign Exchange/Currency Risk: Investors in securities of issuers located outside of the United States should be aware that even for securi-ties denominated in US dollars, changes in the exchange rate between the US dollar and the issuer’s “home” currency can have unexpected effects on the market value and liquidity of those securities. Those securities may also be affected by other risks (such as political, economic or regulatory changes) that may not be readily known to a US investor.

From TINA to TIARA


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

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

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Version as per April 2018.

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