UBS (Canada) Global Allocation Fund

Transcription

1 UBS (Canada) Global Allocation Fund Interim Management Report of Fund Performance June 30, 2014 This interim management report of fund performance contains financial highlights but does not contain the complete interim financial statement of the investment fund. You can get a copy of the interim financial statement at your request, and at no cost, by calling , by writing to us at UBS Global Asset Management (Canada) Inc., 161 Bay Street, Suite 4100, BCE Place, Box 618, or by visiting our website at or SEDAR at Unitholders may also contact us using one of these methods to request a copy of the investment fund s proxy voting policies and procedures, proxy voting disclosure record or quarterly portfolio disclosure. UBS Global Asset Management (Canada) Inc. is a subsidiary of UBS AG

2 UBS (Canada) Global Allocation Fund ( GAF or the Fund ) INTERIM MANAGER REPORT OF FUND PERFORMANCE ( MRFP ) GAF is an open-ended investment trust established under the laws of Ontario and was created as of July 5, 2005 and funded by clients on October 3, The Units of the Fund are currently divided into four series: Series A Units, Series B Units, Series D Units and Series F Units. Each series of Units is intended for a different type of investor. Series A Units are available to all investors. Series B are offered to institutional investors which pay a management fee under an agreement with the UBS Global Asset Management (Canada) Inc. ("Manager"). Series F Units typically have lower fees than Series A Units and are available for sale to investors who hold an account with dealers who have entered into a dealer agreement with us. These investors pay their dealer a fee directly for investment advice or other services. Series D Units are available to investors who have an account with discount brokers. The unitholders that were in Series A were transferred into Series B units to align the characteristics of units with other funds managed by the Manager. As of the date of this MFRP, there are no Series A, D and F Units issued. MANAGEMENT DISCUSSION OF FUND PERFORMANCE Investment Objectives and Strategies The Fund s investment objective is to maximize total return for unitholders, consisting of interest and dividend income and capital appreciation, by investing in a balanced global portfolio of equity and fixed income securities The Fund seeks to achieve its investment objectives in a diversified portfolio of assets selected by employing the following three strategies: (i) active global asset allocation across asset classes of global stocks and bonds; (ii) active security selection, based on a price/intrinsic value methodology used across all markets worldwide; and (iii) an active global currency overlay. In addition, the Fund intends to hedge substantially all of its foreign currency exposure derived from the equity and fixed income securities held by the Fund back to the Canadian dollar at all times. Risk The risk level did not materially change during the first half of The risk in the portfolio is predominately market related due to having 68% in equities. The policy to hedge most of the exposure to foreign currencies back to Canadian dollars at all times, effectively, eliminates the risk of adverse exchange rate movements. For more information on the risks of the Fund, please refer to the Fund s prospectus. Results of Operations Series B The Fund price ( NAV ) for Series B Units as at December 31, 2013 was $9.47 and ended the period (June 30, 2014) at $9.73. It had a total return of 4.63% (change in NAV plus distributions) for the 6 month period ending June 30, The total return (change in NAV) was 13.79% for the year ending June 30, The benchmark GSMI Index returned 5.47% over the same period. The Fund underperformed the benchmark due to having an underweight to US equities, which performed best, and an overweight to international equities. Security selection was a positive influence on relative returns. Asset mix changes were modest with the allocation to bonds dropping by 1% to 29% with an offsetting rise in cash holdings. Portfolio remains with a modest overweight to equities and cash and an underweight to bonds. In June 2014, the Fund accommodated redemptions of approximately $40 million. Investments were liquidated in an orderly and timely manner with the intended tactical asset mix being maintained throughout. Page 2 of 9

3 Recent Developments Despite the events and geopolitical conflicts in Ukraine and the Middle East, economic data continued to improve and central banks remained very supportive with policies aimed at stimulating growth. With investors continuing to see monetary policy as the prime driver of financial markets, most asset classes achieved positive returns in the first half of the year. On the face of it, the biggest economic news was the incredibly weak first quarter growth revision for the US. But with all the special factors such as the bad weather and the impacts of Obamacare, this decline is hardly representative of the strength of the economy. With the exception of Japan, which is still reeling from the effects of the sales tax increase, the thrust of data in the developed economies remains positive. The real news is in monetary policy, where the Bank of England warned markets that the possibility of a rate hike this year was being underpriced. Governor Mark Carney had to retreat from that view a bit, but the signal was still clear: the Bank of England is not afraid to hike interest rates if the economy looks like it is building up excesses. The market was left to speculate about whether Fed Chairperson Janet Yellen might "do a Carney" and warn the markets, but the Fed seems quite happy to keep to the established dovish path. In the portfolio, we remain overweight global equities on the basis that our base case of an improving global economy through 2014 remains intact. While equities in aggregate no longer have valuation support, relative to bonds, they are more favourable in our view. Within equities we retained our bias towards markets outside of the US including Europe, UK and Japan. These markets should be well positioned to benefit from an improving global economic outlook through 2014, albeit at more attractive prices than those in the US. In the eurozone, the ECB announced historic measures in early June, making further rate cuts, injecting liquidity via targeted LTROs and declaring that it had begun preparatory work for the purchase of asset backed securities. Within fixed income, we took an opportunity in June to add to our underweight position in US duration on the basis that yields may rise in a response to an improving economy. We are reducing our long standing overweight to high yield bonds as we feel that yields have narrowed to the point where the asset class looks rich. Given the very crowded nature of the trade, we do have liquidity concerns should a negative market event send investors all rushing for the exits. Investment companies that are publicly accountable enterprises or investment funds to which National Instrument Investment Fund Continuous Disclosure is applicable, were required to adopt International Financial Reporting Standards (IFRS) for the first time for interim and annual financial statements relating to annual periods beginning on or after January 1, As a result, the Fund adopted IFRS beginning January 1, 2014 and published its first financial statements, prepared in accordance with IFRS, for the semi-annual period ending June 30, The 2014 semiannual and annual financial statements include 2013 comparative financial information and an opening Statement of Financial Position as at January 1, 2013, also prepared in accordance with IFRS. The Manager continues to execute its transition plan to complete the changeover to IFRS for the Fund in 2014 and comply with the required timetable for continuous disclosure. The Manager continuously monitors any impact the changeover to IFRS may have on information technology and data systems, internal financial reporting controls, disclosure controls and procedures, and any impact these may have on the performance of the Fund. The Manager has not identified any changes that will negatively impact the net asset value of the Fund's units. Related Party Transactions Forward Contracts In the past the Fund has entered into forward contracts with UBS AG, London as counterparty. The Manager is a subsidiary of UBS AG. The Fund paid nil to UBS AG, London for the periods ended June 30, 2014 and As at June 30, 2014, there were no (December 31, ; January 1, nil) forward contracts outstanding with UBS AG, London. Commission expense The Fund paid commissions of $6,816 to UBS Securities LLC, a subsidiary investment company of UBS AG, in connection with investment portfolio transactions for the six-month period ended June 30, 2014 ( $1,155). Management fees Institutional investors that purchase Series B units negotiate a separate management fee that is paid directly by the investor and is not an expense of the Fund. Therefore, the Fund incurred no management fees for the six-month Page 3 of 9

4 period ended June 30, 2014 and As at June 30, 2014, December 31, 2013 and January 1, 2013 there were no management fees payable. The Manager provides or arranges for all general management and administrative services required by the Fund in its day-to-day operations. The Manager has engaged its affiliate, UBS Global Asset Management (Americas) Inc., to provide sub-advisory services to the Fund. Independent Review Committee ( IRC ) fees The Fund s IRC has provided a standing instruction with respect to the use of brokers or dealers by the Manager where a conflict of interest may exist. This standing instruction is dependent, among other conditions, on the Manager adhering to the applicable policies and procedures and achieving a fair and reasonable result for the Fund. Brokerage commissions on securities transactions The Fund paid $84,487 ( $45,883) in brokerage commissions and other transaction costs for portfolio transactions for the six-month period ended June 30, The Manager has received research and system usage related services in return for commissions generated with specific dealers, otherwise known as soft dollars ( Soft Dollars ). For the periods ended June 30, 2014 and 2013 the Manager has determined that the following value of Soft Dollars for the investment management services are of direct benefit to the Fund: June 30, 2014 June 30, 2013 Soft dollars $28,688 $23,721 Percentage of total transaction costs 34% 52% FINANCIAL HIGHLIGHTS The following table shows selected key financial information about the Fund and is intended to help you understand the Fund s financial performance for the period ended June 30, 2014 and the years ended December 31, as applicable. The Fund's Net Assets Attributable to Holders of Redeemable Units per Unit ($) SERIES B * Net Assets attributable to holders of redeemable units, beginning of period (1) 9.47 (4) Increase (decrease) from operations: Total revenue Total expenses (0.02) (0.02) (0.01) (0.01) - (0.01) Realized gains (losses) for the period (0.18) Unrealized gains (losses) for the period (0.90) (0.62) Total increase (decrease) from operations (2) 0.45 (4) (0.39) Distributions to holders of redeemable units: From income (excluding dividends) From dividends From return of capital Total distributions to holders of redeemable units (3) Net Assets attributable to holders of redeemable units, end of period (1) (1) This information is derived from the Fund's unaudited interim financial statements and audited annual financial statements. (2) Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase/decrease from operations is based on the weighted average number of units outstanding over the financial period. (3) Distributions were paid in cash, reinvested in additional units of the Fund, or both. (4) The difference between the ending Net Assets attributable to holders of redeemable units as at December 31, 2013 and the beginning Net Assets attributable to holders of redeemable units as at January 1, 2014 was due to revaluation of the Fund s investment at fair value through Page 4 of 9

5 profit or loss. Prior to January 1, 2014, the Fund was required to measure the fair values of its investments using bid prices for long positions and ask prices for short positions under Canadian generally accepted accounting principles. Effective January 1, 2014, the Fund adopted IFRS and used mid-market prices as a practical expedient for fair value measurements within a bid-ask spread. * Series A units were converted into Series B units as of February 19, 2014 Ratios and Supplemental Data SERIES B Total net asset value ($) (1) 38,826,090 98,419,472 82,435, ,233, ,005, ,849,645 Number of units outstanding (1) 3,990,246 10,396,239 9,897,592 18,566,149 38,527,732 39,138,698 Management expense ratio (2) 0.29% 0.33% 0.17% 0.13% 0.14% 0.21% Management expense ratio before waivers or absorptions (2) 0.29% 0.33% 0.17% 0.13% 0.14% 0.21% Portfolio turnover rate (3) 60.18% 98.11% % % % % Trading expense ratio (4) 0.21% 0.12% 0.16% 0.15% 0.12% 0.16% Net asset value per unit ($) Supplementary information to the Financial Highlights calculation is based on the following : (1) The information is provided as at June 30, 2014 and December 31 of the other years shown. (2) Management expense ratio is based on total expenses (excluding commissions and other portfolio transaction costs) before income taxes for the period and is expressed as an annualized percentage of daily average net asset value during the period. (3) The Fund's portfolio turnover rate indicates how actively the Fund's portfolio advisor manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the period. The higher a fund's portfolio turnover rate in a period, the greater the trading costs payable by the Fund in the period, and the greater the chance of an investor receiving taxable capital gains in the period. There is not necessarily a relationship between a high turnover rate and the performance of a Fund. (4) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the period. Management Fees UBS Global Asset Management (Canada) Inc. is the manager of the Fund. Management fees paid by each series of the Fund are calculated on the annual percentages, before GST/HST, of the daily net asset value of each series of the Fund. The breakdown of the services received in consideration of the management fees for each series, as a percentage of the management fees, is as follows: Breakdown of Services Management Fees Distribution Other* Series A % 47% Series D % 78% Series F % 100% Series B no management fees are paid by the Fund in respect of Series B units. Series B unitholders pay a negotiated fee directly to UBS Global Asset Management (Canada) Inc. for investment-counselling services. * Includes all costs related to management, investment advisory services, general administration and profit. Page 5 of 9

6 PAST PERFORMANCE Sales commissions, trailing commissions, management fees and expenses all may be associated with Fund investments. The indicated rates of return are the historical annual compounded total returns including changes in Fund value (NAV) and distributed income and do not take into account income taxes payable by any investor that would have reduced returns. Funds are not guaranteed investments. Their value changes frequently and past performance may not be repeated. The Fund s performance numbers represent the change in NAV and distributions of income and net realized gains. Performance is gross of the fees and net of expenses charged to the Fund. If you hold this Fund outside of a registered plan, income and capital gains distributions that are paid to you increase your income for tax purposes. The performance information does take into account sales, redemption, distribution or other optional charges that would have reduced returns. The past performance of the Fund is set out in the following charts and the compound return tables. Year-by-Year Returns The bar chart below shows the Fund s annual performance (change in NAV plus distributions) in past years ended December 31. The chart shows in percentage terms how an investment made on January 1 of that year would have increased or decreased by December 31 of that year % 11.81% 1.75% 25.74% 8.66% -5.24% 14.12% 16.50% 4.63% January 1 to June 30, % GAF * 2005 performance data is from inception (October 3, 2005) to December 31, 2005 Benchmark The GAF s relative performance objective is to outperform the Global Securities Market Index ( GSMI ), hedged to Canadian dollars, over moving 4 year periods. The GSMI is produced internally from generally available indices and is a blended index incorporating percentages of various indices across certain capital markets. Currently, the GSMI is constructed as follows: 65% MSCI All Country World Index 15% Citigroup World Government bond ex-us Index 15% Citigroup World Government Bond US Index 3% Merrill Lynch High Yield Cash Pay Constrained Index 2% J.P. Morgan Emerging Market Bond Index Global GSMI returns are only calculated from month-end dates; hence, the benchmark return since inception (funded as of October 3, 2005) is not available. Page 6 of 9

7 SUMMARY OF INVESTMENT PORTFOLIO The major portfolio categories and top 25 holdings of the Fund at the end of the period are indicated in the following summary tables. The summary of investment portfolio may change due to ongoing portfolio transactions of the Fund and a quarterly update is available. Top 25 Holdings As at June 30, 2014 Rank Security Description Percentage of Total Net Asset Value (%) 1 ishares MSCI Emerging Markets Index Fund 8.81% 2 UBS (Canada) High Yield Debt Fund, Series A 5.98% 3 SPDR S&P 500 ETF Trust 5.63% 4 Cash and Cash Equivalents 3.49% 5 ishares 7-10 Year Treasury Bond ETF 2.77% 6 ishares iboxx $ Investment Grade Corporate Bond ETF 2.01% 7 ishares J.P. Morgan USD Emerging Markets Bond ETF 1.93% 8 Bundesrepublik Deutschland Government Bond % 1.81% 9 Government of Sweden, Series '1047' Bond % 1.64% 10 ishares MSCI EAFE ETF 1.46% 11 Novartis AG 1.29% 12 Nestle SA, Registered, Series B 1.17% 13 Bundesrepublik Deutschland Government Bond % 1.05% 14 BP PLC 1.02% 15 Federal Republic of Germany Government Bond % 0.98% 16 Shire PLC 0.89% 17 Bayer AG 0.86% 18 Banco Satander AG 0.86% 19 Australia Government Bond % 0.86% 20 Belgium Government Bond % 0.85% 21 United Kingdom Treasury Bond % 0.84% 22 Ireland Government Bond % 0.84% 23 Netherlands Government Bond % 0.84% 24 Government of Australia Bond % 0.83% 25 Imperial Tobacco Group PLC 0.83% Total Top 25 Holdings 49.54% Total Net Asset Value $38,826,090 Portfolio by Asset & Sector Mix As at June 30, 2014 Asset & Sector Description Percentage of Portfolio (%) Foreign Fixed Income 16.48% Australia 1.75% Belgium 0.88% Finland 0.82% France 0.68% Germany 4.25% Ireland 0.87% Italy 1.72% Netherlands 0.86% Spain 1.67% Sweden 1.70% United Kingdom 1.28% Equity 53.90% Page 7 of 9

8 Energy 4.31% Materials 3.39% Industrials 6.51% Consumer Discretionary 7.51% Consumer Staples 5.44% Health Care 6.51% Financials 12.33% Information Technology 4.97% Telecommunication Services 2.01% Utilities 0.92% Funds 29.62% Total Investments 100% Portfolio by Credit Rating As at June 30, 2014 Credit Rating* Percentage of Portfolio (%) AAA 9% AA 3% A 1% BBB 3% Total 16% * Utilizing DBRS credit rating scoring system Prospectus and other information about some of the underlying funds are available on the internet at Page 8 of 9

9 UBS Global Asset Management (Canada) Inc. Commissions, trailing commissions, management fees and expenses may be applicable to mutual fund investments. Please refer to the prospectus and annual information form and speak to your financial advisor before investing in the Fund. You can get a copy of these documents, at your request and at no cost, by calling us toll-free at UBS-9300, or by writing to us at UBS Global Asset Management (Canada) Inc., Brookfield Place, 161 Bay Street, Suite 4100, Box 618, Toronto, Ontario M5J 2S1. These documents and other information about the Fund are available at our website at or through SEDAR (the System for Electronic Document Analysis and Retrieval) at UBS Global Asset Management (Canada) Inc. Brookfield Place P.O. Box Bay Street Suite 4100 Toronto, Ontario M5J 2S1 Page 9 of 9