ETF Flows - 2Q15 2 July 2015 CIO WM Research David Perlman, ETF Strategist, david.perlman@ubs.com This report highlights quarterly ETF flows by issuer and market segment. Flow estimates are obtained through Morningstar Direct. In the second quarter of 2015, ETF flows totaled USD 45 billion, bringing inflows for the first half of 2015 to USD 99 billion. New issuance has been robust with 130 ETFs already issued this year. The international developed market and emerging market equity segments exhibited the highest inflows in the second quarter at USD 36 and 6 billion, respectively. US large-cap posted outflows of USD 13 this past quarter, the most of any segment. We note that for the second straight quarter, the outflows to US large-cap were largely driven by outflows from the SPDR S&P 500 ETF. Growth of US-listed ETF market 1,545 ETFs that combine for almost USD 2.1 trillion in assets 2,500 2,000 1,500 1,000 500 0 2001 2003 2005 2007 2009 2011 2013 2015 YTD Assets (USD billions, left hand side) # of ETFs (right hand side) 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Source: Morningstar Direct, UBS CIO WMR, as of 30 June 2015. Note: Historical data does not include ETFs that have been liquidated. US-listed ETF market historical flows In USD billions 300 250 200 150 100 50 0 2011 2012 2013 2014 YTD 2Q15 Source: Morningstar Direct, UBS CIO WMR, as of 30 June 2015. Note: Historical data does not include ETFs that have been liquidated. This report has been prepared by UBS Financial Services Inc. (UBS FS). Please see important disclaimers and disclosures that begin on page 9.
ETF market overview At the end of the second quarter, there were 1,545 ETFs listed in the US from 64 issuers that total almost USD 2.1 trillion in assets. ETF asset levels have more than doubled since the end of 2011, from a combination of both asset price appreciation and flows. Despite the growth, the market remains concentrated with the top three issuers and 20 ETFs accounting for 81% and 39% of assets, respectively. Equity ETFs account for 80% of ETF assets (Fig. 1). In particular, US equity ETFs account for 55% of the assets. While the adoption of fixed income ETFs has continued, their market share has generally ranged from 14 to 20% over the past five years. New issuance remains robust with 130 ETFs issued this year following 186 launches in 2014. These new launches have contributed roughly USD 3 billion in assets. The issuance of smart beta equity ETFs has continued accounting for 41 of the 78 equity ETFs launched this year. These ETFs generally attempt to outperform traditional market cap weighted ETFs, as well as actively managed products, by using criteria other than market capitalization to select and/or weight securities. There have been 27 international developed market equity ETFs launched this year, the most of any segment. Of the 27, 21 provide currency hedged exposure. There are now 50 equity ETFs that provide currency hedged exposure and they combine for over USD 63 billion in assets. So far in 2015, there have been 36 liquidations with another 18 announced but not yet effective. We view liquidations as an inevitable, but healthy, consequence of new product innovation. The actively managed ETF market continues to expand and there are now 133 actively managed ETFs that total over USD 20 billion in assets. Of these 133 ETFs, 57 were launched in 2014 and only 12 have been launched in 2015. While active ETFs only account for roughly 1% of the total ETF assets, this remains an area of growth. Interestingly, the asset breakdown is the opposite of the breakdown for the broader ETF market. Fixed income is the dominant category accounting for 67% of active ETF assets while actively managed equity ETFs account for 19% of the assets (Fig. 2). With respect to the size of the ETF market compared to mutual funds, at the end of 1Q15, ETF assets as a percent of mutual fund assets had increased to almost 16% (Fig. 3). Fig. 1: ETF market breakdown by segment Based on assets Source: Morningstar Direct, UBS CIO WMR, as of 6/30/15. Fig. 2: Active ETF market breakdown by segment Based on assets Source: Morningstar Direct, UBS CIO WMR, as of 6/30/15. Fig. 3: ETF assets as a % of mutual fund assets In % Source: Morningstar Direct, Investment Company Institute, UBS CIO WMR, as of 3/31/15. Note: Historical data does not include ETFs that have been liquidated. UBS CIO WM Research 2 July 2015 2
Second quarter flows Inflows into US-listed ETFs totaled USD 45 billion in the second quarter bringing inflows for the first half of 2015 to USD 99 billion. This follows a record year in 2014 in which ETFs posted inflows of over USD 238 billion. Fig. 4 breaks down the second quarter flows by market segment while Fig. 5 highlights ETFs with the highest inflows/outflows this past quarter. This past quarter, the international developed market segment led all ETF segments with inflows of USD 36 billion. A major driver of the growth has been the adoption of currency hedged ETFs. These ETFs accounted for four of the five international developed ETFs with the highest inflows. The Deutsche X-trackers MSCI EAFE Hedged Equity ETF (DBEF) exhibited the highest inflows of all US-listed ETFs this part quarter with inflows of USD 5 billion. Interestingly, based on the ETF flows, investors seem to be split on whether or not to hedge the currency. The ishares MSCI EAFE ETF (EFA), which tracks the same equity index as DBEF but doesn't hedge the currency, had the second highest inflows at USD 4 billion. International EM equity ETFs had inflows of USD 6 billion this past quarter, the second most of any segment. Within the top 10 EM equity ETFs to post the highest inflows were the two largest China ETFs and India ETFs. Conversely, there were also two China ETFs that were among the top five EM equity ETFs with the highest outflows. These two ETFs focused on the more volatile A-share market. US fixed income ETFs posted inflows of USD 1 billion. Fixed income ETFs focusing on US high yield had outflows of almost USD 4 billion while those focusing on investment grade credit had inflows of just USD 200 million. Senior loan ETFs posted modest inflows of USD 141 million. Notably, among the fixed income ETFs with the highest inflows, was the ishares TIPS Bond ETF (TIP). TIP had exhibited outflows in each of the past three years but posted inflows of USD 900 million this past quarter. The US large cap segment exhibited outflows of USD 13 billion this past quarter, the most of any segment. This was largely driven by the SPDR S&P 500 ETF (SPY), which had outflows of USD 13 billion. Within US sectors, health care and financial sector ETFs led the way this past quarter, each with inflows of USD 2 billion. Within US style, there was not a significant difference in flows between growth and value ETFs. Additional assets and flows data is included in figures 6-12 on the following pages. Fig. 4: Second quarter 2015 ETF flows Number Current % of ETF Segment of ETFs Assets Assets April May June Total US Broad Market 34 78,059 3.7 964 396 767 2,127 US Large-Cap 75 389,339 18.6-13,177 2,236-2,292-13,233 US Mid-Cap 18 79,699 3.8 1,759 41 1,773 3,573 US Small-Cap 29 68,959 3.3-624 -1,651 3,153 878 US Style 88 202,050 9.7 384 690 2,126 3,199 US Sector & Industry 178 260,122 12.4-1,808-24 3,744 1,912 US Dividend 29 74,194 3.5-1,123-465 -711-2,299 International DM & EM 41 43,583 2.1 2,096 1,597 645 4,338 International DM 185 277,581 13.3 16,696 9,209 9,911 35,817 International EM 161 143,959 6.9 4,960 2,363-1,094 6,228 Global Equity 130 52,678 2.5 405 509 392 1,307 US Fixed Income 209 306,007 14.6 4,276-1,524-1,532 1,220 Intl. Fixed Income 39 19,271 0.9 274 779 113 1,166 Global Fixed Income 12 1,712 0.1 44 21 6 71 Asset Allocation 37 6,101 0.3 216 112 37 365 Commodity 42 51,199 2.4-251 -1,381-169 -1,802 Currency 19 3,107 0.1 184 25-154 55 Alternatives 33 2,111 0.1 73 103 67 244 Leveraged / Inverse 186 32,176 1.5-395 -91 199-288 Totals 1,545 2,091,907 100.0 14,952 12,946 16,981 44,879 Source: Morningstar Direct, UBS CIO WMR, as of 6/30/15. Note: Historical data does not include ETFs that have been liquidated. Fig. 5: 20 ETFs with highest inflows/outflows Inflows: 2Q15 Ticker Name flows YTD flows DBEF Deutsche X-trackers MSCI EAFE Hedged Equity ETF 5,464 10,728 EFA ishares MSCI EAFE ETF 4,152 5,939 HEDJ WisdomTree Europe Hedged Equity Fund 3,818 14,192 VEA Vanguard FTSE Developed Markets ETF 2,472 2,589 EWJ ishares MSCI Japan ETF 2,443 3,275 VTI Vanguard Total Stock Market ETF 1,817 4,794 DXJ WisdomTree Japan Hedged Equity Fund 1,725 4,232 FXI ishares China Large-Cap ETF 1,695 1,499 VOO Vanguard S&P 500 ETF 1,625 4,493 VGK Vanguard FTSE Europe ETF 1,542 2,827 VEU Vanguard FTSE All-World ex-us ETF 1,517 1,579 AGG ishares Core U.S. Aggregate Bond ETF 1,494 1,975 IJH ishares Core S&P Mid-Cap ETF 1,286 1,892 SHY ishares 1-3 Year Treasury Bond ETF 1,179 773 EWG ishares MSCI Germany ETF 1,080 2,791 VWO Vanguard FTSE Emerging Markets ETF 1,032 657 FV First Trust Dorsey Wright Focus 5 ETF 1,019 2,243 IEMG ishares Core MSCI Emerging Market ETF 943 1,487 TIP ishares TIPS Bond ETF 939 1,461 XLV Health Care Select Sector SPDR Fund 838 2,391 Outflows: 2Q15 Ticker Name flows YTD flows SPY SPDR S&P 500 ETF -12,775-44,147 SHV ishares Short Treasury Bond ETF -2,558-882 HYG ishares iboxx $ High Yield Corporate Bond ETF -2,291-136 VNQ Vanguard REIT Index ETF -1,859-1,208 JNK SPDR Barclays High Yield Bond ETF -1,487 148 IYR ishares U.S. Real Estate ETF -1,417-1,593 TLT ishares 20+ Year Treasury Bond ETF -1,374-1,381 IWM ishares Russell 2000 ETF -1,305-1,807 USO United States Oil Fund, LP -1,017 744 IVV ishares Core S&P 500 ETF -1,007-2,105 GLD SPDR Gold Shares Trust -974 309 XLY Consumer Discretionary Select Sector SPDR Fund -962 84 FTSM First Trust Enhanced Short Maturity ETF -799 17 DIA SPDR Dow Jones Industrial Average ETF -797-2,078 XLP Consumer Staples Select Sector SPDR Fund -717-2,575 IYE ishares U.S. Energy ETF -666 354 DVY ishares Select Dividend ETF -648-897 XLU Utilities Select Sector SPDR Fund -589-896 SDY SPDR S&P Dividend ETF -560-737 IYT ishares Transportation Average ETF -551-1,216 Source: Morningstar Direct, UBS CIO WMR, as of 6/30/15. UBS CIO WM Research 2 July 2015 3
Fig. 6: ETF issuer asset growth Number Current % of ETF Assets Issuer of ETFs Assets Assets 2014 2013 2012 2011 BlackRock 330 810,750 38.8 759,101 660,379 556,223 447,555 Vanguard 67 470,072 22.5 426,665 333,867 245,648 170,859 SSgA 146 409,714 19.6 455,240 391,553 329,163 266,438 Invesco PowerShares 136 97,439 4.7 96,764 96,818 69,974 56,300 WisdomTree 75 61,302 2.9 39,276 34,879 18,281 12,139 First Trust 94 43,347 2.1 33,202 19,715 8,186 6,268 Charles Schwab 21 34,256 1.6 26,922 16,896 8,553 5,034 Guggenheim 72 31,120 1.5 28,459 20,750 11,322 9,975 ProShares 146 25,355 1.2 24,966 27,175 21,053 22,995 Van Eck 56 22,632 1.1 20,461 22,065 27,505 23,441 Deutsche Bank 24 17,788 0.9 4,275 921 32 44 PIMCO 17 11,320 0.5 11,682 13,197 8,970 3,902 ALPS 16 11,241 0.5 11,480 8,816 4,741 2,186 Direxion 70 9,120 0.4 8,087 6,769 5,923 6,657 Northern Trust 17 8,862 0.4 8,389 6,740 2,294 483 Global X 50 3,999 0.2 3,706 2,829 1,492 1,104 US Commodity Funds 12 3,810 0.2 2,792 2,082 3,137 2,886 Fidelity 15 3,530 0.2 2,742 641 178 154 Exchange Traded Concepts 13 2,454 0.1 2,171 916 106 0 ETF Securities 11 2,268 0.1 2,532 2,947 4,072 3,486 Emerging Global Shares 10 1,519 0.1 1,634 1,503 1,018 448 Absolute Shares 10 1,511 0.1 1,154 0 0 0 IndexIQ 13 1,425 0.1 1,338 916 580 429 AdvisorShares 23 1,319 0.1 1,260 1,027 593 413 Factor Advisor 2 1,210 0.1 112 1 2 0 RevenueShares 8 1,098 0.1 948 698 422 448 Cambria 5 426 0.0 354 209 0 0 Highland Capital Management 4 354 0.0 312 128 32 0 GreenHaven 2 280 0.0 267 320 475 581 Arrow Investment Advisors 3 233 0.0 155 90 27 0 Compass EMP 5 230 0.0 135 0 0 0 J.P. Morgan 3 196 0.0 58 0 0 0 KraneShares 5 189 0.0 268 25 0 0 Pacer Financial 3 148 0.0 0 0 0 0 Teucrium 5 132 0.0 147 63 53 78 Janus 3 113 0.0 127 41 0 0 Lattice Strategies 4 85 0.0 0 0 0 0 ETF Issuer Solutions 3 81 0.0 7 0 0 0 Horizons 2 80 0.0 37 27 0 0 CSOP Asset Management 1 78 0.0 0 0 0 0 Franklin ETF Trust 1 77 0.0 27 28 0 0 Alpha Architect 2 75 0.0 26 0 0 0 Precidian 1 69 0.0 86 138 201 164 Academy Asset Management 1 68 0.0 0 0 0 0 Merk Investments 1 61 0.0 59 0 0 0 Other providers (19 total) 37 473 0.0 199 106 69 52 Total 1,545 2,091,907 100.0 1,977,625 1,675,273 1,330,324 1,044,518 Source: Morningstar Direct, UBS CIO WMR, as of 6/30/15. Note: Historical data does not include ETFs that have been liquidated. UBS CIO WM Research 2 July 2015 4
Fig. 7: ETF issuer historical flows Number Current Flows Issuer of ETFs Assets 2Q15 YTD 2014 2013 2012 2011 BlackRock 330 810,750 17,857 43,362 82,526 40,786 60,780 29,402 Vanguard 67 470,072 18,047 40,039 75,751 55,060 52,745 36,154 SSgA 146 409,714-14,508-44,016 34,447 13,447 39,865 15,937 Invesco PowerShares 136 97,439-300 -700-6,789 12,374 7,930 5,972 WisdomTree 75 61,302 6,556 19,871 5,113 14,330 4,685 3,910 First Trust 94 43,347 4,804 9,040 11,478 8,240 1,152 1,610 Charles Schwab 21 34,256 3,508 7,028 8,769 6,100 2,884 2,514 Guggenheim 72 31,120 1,112 2,650 6,735 6,796 486 272 ProShares 146 25,355-784 366 1,123 5,566 701 5,866 Van Eck 56 22,632 76 2,115 1,303 1,561 4,348 7,052 Deutsche Bank 24 17,788 6,423 13,546 3,101 757-14 47 PIMCO 17 11,320-68 -288-1,467 4,449 4,733 1,644 ALPS 16 11,241 297 790 2,789 3,426 2,676 1,355 Direxion 70 9,120 657 897 2,296 1,189-964 2,683 Northern Trust 17 8,862 44 240 1,944 4,405 1,761 475 Global X 50 3,999 234 480 1,301 1,535 340 354 US Commodity Funds 12 3,810-987 807 1,430-1,129 671-1,215 Fidelity 15 3,530 409 744 1,866 316-1 0 Exchange Traded Concepts 13 2,454 118 367 1,339 802 111 0 ETF Securities 11 2,268-13 -114-304 -230 370 226 Emerging Global Shares 10 1,519-144 -122 225 541 466 203 Absolute Shares 10 1,511 313 366 1,152 0 0 0 IndexIQ 13 1,425 87 82 419 327 124 186 AdvisorShares 23 1,319 6 46 337 420 205 306 Factor Advisor 2 1,210 639 1,018 113 1 0 0 RevenueShares 8 1,098 31 134 184 107-88 -66 Cambria 5 426 12 79 116 192 0 0 Highland Capital Management 4 354 27 14 193 94 4 0 GreenHaven 2 280 20 20-14 -105-79 121 Arrow Investment Advisors 3 233 19 89 77 65 23 0 Compass EMP 5 230 45 98 116 0 0 0 J.P. Morgan 3 196 38 135 45 0 0 0 KraneShares 5 189-14 -121 252 19 0 0 Pacer Financial 3 148 148 0 0 0 0 0 Teucrium 5 132 13-12 95 30-29 29 Janus 3 113 0-6 74 38 0 0 Lattice Strategies 4 85 6 0 0 0 0 0 ETF Issuer Solutions 3 81 60 13 5 0 0 0 Horizons 2 80 0 44 10 24 0 0 CSOP Asset Management 1 78-179 0 0 0 0 0 Franklin ETF Trust 1 77 47 50 0 28 0 0 Alpha Architect 2 75 23 49 23 0 0 0 Precidian 1 69-30 -30-45 -91 20 151 Academy Asset Management 1 68 67 0 0 0 0 0 Merk Investments 1 61-1 4 21 0 0 0 Other providers (19 total) 37 473 164 127 37 13 12 13 Total 1,545 2,091,907 44,879 99,300 238,186 181,482 185,916 115,201 Source: Morningstar Direct, UBS CIO WMR, as of 6/30/15. Note: Historical data does not include ETFs that have been liquidated. UBS CIO WM Research 2 July 2015 5
Fig. 8: ETF market segment asset growth and historical flows Number Current % of ETF Assets Segment of ETFs Assets Assets 2014 2013 2012 2011 US Broad Market 34 78,059 3.7 71,004 54,599 32,837 26,077 US Large-Cap 75 389,339 18.6 432,311 348,415 234,437 181,533 US Mid-Cap 18 79,699 3.8 70,347 61,053 37,811 29,769 US Small-Cap 29 68,959 3.3 63,791 57,994 31,983 27,011 US Style 88 202,050 9.7 189,170 149,719 98,181 80,284 US Sector & Industry 178 260,122 12.4 256,014 191,285 124,800 96,400 US Dividend 29 74,194 3.5 78,170 62,319 42,074 33,000 International DM & EM 41 43,583 2.1 35,786 30,090 20,986 14,443 International DM 185 277,581 13.3 197,244 185,475 107,360 82,947 International EM 161 143,959 6.9 136,145 140,740 162,612 115,707 Global Equity 130 52,678 2.5 48,086 45,494 39,244 33,487 US Fixed Income 209 306,007 14.6 287,289 232,639 232,141 176,878 Intl. Fixed Income 39 19,271 0.9 18,376 15,222 19,184 10,657 Global Fixed Income 12 1,712 0.1 1,092 557 194 30 Asset Allocation 37 6,101 0.3 5,454 3,675 2,279 1,396 Commodity 42 51,199 2.4 51,596 58,009 112,908 98,439 Currency 19 3,107 0.1 2,687 3,428 3,642 6,192 Alternatives 33 2,111 0.1 1,839 1,519 991 849 Leveraged / Inverse 186 32,176 1.5 31,222 33,041 26,659 29,417 Totals 1,545 2,091,907 100.0 1,977,625 1,675,273 1,330,324 1,044,518 Number Current Flows Segment of ETFs Assets 2Q15 YTD 2014 2013 2012 US Broad Market 34 78,059 2,127 6,196 10,265 10,199 3,113 US Large-Cap 75 389,339-13,233-43,455 43,107 39,018 34,143 US Mid-Cap 18 79,699 3,573 6,969 4,398 10,174 3,072 US Small-Cap 29 68,959 878 2,639 3,997 11,811 1,277 US Style 88 202,050 3,199 9,415 24,003 17,595 6,581 US Sector & Industry 178 260,122 1,912 4,262 40,457 35,996 16,220 US Dividend 29 74,194-2,299-1,524 9,899 8,694 6,339 International DM & EM 41 43,583 4,338 6,947 7,622 7,308 3,957 International DM 185 277,581 35,817 72,632 29,160 55,276 12,197 International EM 161 143,959 6,228 5,092 3,326-10,217 30,017 Global Equity 130 52,678 1,307 3,819 5,059 9,706 5,236 US Fixed Income 209 306,007 1,220 21,107 50,652 9,907 47,938 Intl. Fixed Income 39 19,271 1,166 1,431 3,433-2,114 7,095 Global Fixed Income 12 1,712 71 614 531 319 120 Asset Allocation 37 6,101 365 781 1,862 1,226 762 Commodity 42 51,199-1,802 939-1,770-30,211 10,510 Currency 19 3,107 55 395-671 -34-2,562 Alternatives 33 2,111 244 290 325 777 445 Leveraged / Inverse 186 32,176-288 752 2,530 6,051-544 Totals 1,545 2,091,907 44,879 99,300 238,186 181,482 185,916 Source: Morningstar Direct, UBS CIO WMR, as of 6/30/15. Note: Historical data does not include ETFs that have been liquidated. UBS CIO WM Research 2 July 2015 6
Fig. 9: Smart beta ETF assets by segment 406 ETFs that combine for USD 277 billion in assets Source: Morningstar Direct, UBS CIO WMR, as of 6/30/15. Note: Based upon internal classifications. Fig. 10: Smart beta ETF asset growth In USD billions Fig. 12: 2015 New ETF issuance breakdown Number Current % of Segment of ETFs Assets Assets U.S. Broad Market 3 12 0.4 U.S. Large-Cap 12 222 6.9 U.S. Mid-Cap 1 40 1.2 U.S. Small-Cap 2 4 0.1 U.S. Style 1 68 2.1 U.S. Sector & Industry 2 49 1.5 U.S. Dividend 4 37 1.1 International DM & EM 5 17 0.5 International DM 27 368 11.4 International EM 8 175 5.4 Global Equity 13 784 24.2 U.S. Fixed Income 13 960 29.7 Intl. Fixed Income 1 6 0.2 Global Fixed Income 2 32 1.0 Asset Allocation 4 70 2.2 Commodity 1 1 0.0 Currency 0 0 0.0 Alternatives 8 55 1.7 Leveraged / Inverse 23 337 10.4 Totals 130 3,236 100.0 Source: Morningstar Direct, UBS CIO WMR, as of 6/30/15. Source: Morningstar Direct, UBS CIO WMR, as of 6/30/15. Note: Historical data does not include ETFs that have been liquidated. Fig. 11: Smart beta ETF Historical flows In USD billions Source: Morningstar Direct, UBS CIO WMR, as of 6/30/15. Note: Historical data does not include ETFs that have been liquidated. UBS CIO WM Research 2 July 2015 7
Statement of Risk Exchange Traded Funds (ETFs) Disclosure For purposes of this report, ETFs include index-linked funds regulated under the Investment Company Act of 1940 that trade on US securities exchanges under exemptive relief from the Securities and Exchange Commission. The shares of all of the ETF issuers discussed in this Report are listed on U.S. securities exchanges. The ETFs are either open-end, registered investment companies (including UITs) operating under an exemptive order from the SEC, or collective investment vehicles, formed as grantor trusts, limited partnerships or similar structures that offer pass-through tax treatment to investors. The different structures provide different rights for investors. For example, ETFs registered under the Investment Company Act of 1940 must stand ready at all times to redeem shares (albeit only in creation unit size) whereas those ETFs that are not subject to registration under the Investment Company Act of 1940 may suspend redemptions at any time. We refer to ETFs registered with the SEC under the Investment Company Act of 1940 as 40 Act ETFs and to nonregistered ETFs as 33 Act ETFs. Most of the ETFs discussed in this Report track an index of financial instruments or provide exposure to a single commodity type. ETFs are subject to the same risks as the underlying securities and commissions may be charged on every trade, if applicable. This definition does not imply that ETFs are endorsed by the Securities and Exchange Commission. Any discussion contained herein regarding future performance is not intended to guarantee future performance or to suggest that past performance will reoccur. Moreover, target returns are not intended to be projections but to provide a range within which price levels may move assuming current market conditions as well as the other assumptions mentioned in the Report are met. Performance of an index is not illustrative of any particular investment. It is not possible to invest directly in an index. ETFs are sold by prospectus, which contains details about ETFs, including investment objectives, risks, charges and expenses. Clients should read the prospectus and consider this information carefully before investing. US-registered, open-ended index-linked funds are redeemable only in Creation Unit size aggregations through an Authorized Participant, and may not be individually redeemed. Many ETFs are redeemable only on an "in-kind" basis. The public trading price of a redeemable lot of ETFs may be different from their net asset value, and ETFs could trade at a premium or discount to the net asset value. UBS AG or its affiliates act as authorized participant for many of the ETFS discussed in this Report. In addition, UBS is a regular issuer of traded financial instruments and privately-issued financial products that may be linked to the ETFs mentioned in this Report. UBS regularly trades in ETFs. Through these and other activities, UBS may engage in transactions involving ETFs that are inconsistent with the strategies in this Report. Clients may obtain more information about the ETFs cited in this report, including copies of prospectuses or summary, from their UBS FS financial advisor or by referencing the corresponding link following each ETF ticker in each fact sheet. UBS CIO WM Research 2 July 2015 8
Appendix Exchange Traded Funds (ETFs) - For purposes of this report, ETFs include index-linked funds regulated under the Investment Company Act of 1940 that trade on US securities exchanges under exemptive relief from the Securities and Exchange Commission. The shares of all of the ETF issuers discussed in this Report are listed on U.S. securities exchanges. The ETFs are either open-end, registered investment companies (including UITs) operating under an exemptive order from the SEC, or collective investment vehicles, formed as grantor trusts, limited partnerships or similar structures that offer pass-through tax treatment to investors. The different structures provide different rights for investors. For example, ETFs registered under the Investment Company Act of 1940 must stand ready at all times to redeem shares (albeit only in creation unit size) whereas those ETFs that are not subject to registration under the Investment Company Act of 1940 may suspend redemptions at any time. We refer to ETFs registered with the SEC under the Investment Company Act of 1940 as 40 Act ETFs and to nonregistered ETFs as 33 Act ETFs. Most of the ETFs discussed in this Report track an index of financial instruments or provide exposure to a single commodity type. ETFs are subject to the same risks as the underlying securities and commissions may be charged on every trade, if applicable. This definition does not imply that ETFs are endorsed by the Securities and Exchange Commission. Any discussion contained herein regarding future performance is not intended to guarantee future performance or to suggest that past performance will reoccur. Moreover, target returns are not intended to be projections but to provide a range within which price levels may move assuming current market conditions as well as the other assumptions mentioned in the Report are met. Performance of an index is not illustrative of any particular investment. It is not possible to invest directly in an index. ETFs are sold by prospectus, which contains details about ETFs, including investment objectives, risks, charges and expenses. Clients should read the prospectus and consider this information carefully before investing. US-registered, open-ended index-linked funds are redeemable only in Creation Unit size aggregations through an Authorized Participant, and may not be individually redeemed. Many ETFs are redeemable only on an "in-kind" basis. The public trading price of a redeemable lot of ETFs may be different from their net asset value, and ETFs could trade at a premium or discount to the net asset value. UBS AG or its affiliates act as authorized participant for many of the ETFS discussed in this Report. In addition, UBS is a regular issuer of traded financial instruments and privately-issued financial products that may be linked to the ETFs mentioned in this Report. UBS regularly trades in ETFs. Through these and other activities, UBS may engage in transactions involving ETFs that are inconsistent with the strategies in this Report. Clients may obtain more information about the ETFs cited in this report, including copies of prospectuses or summary, from their UBS FS financial advisor or by referencing the corresponding link following each ETF ticker in each fact sheet. Commodities Disclosure: An allocation to commodities may not be appropriate for all investors. The information presented here is provided for general informational purposes only and is not intended to suggest a particular course of action for investors. Prior to considering an investment, investors should be mindful of the different types of risks associated with the different investment types of commodities listed and also that the risks of investing indirectly may be different than the risks of a direct investment. Disclaimer Chief Investment Office (CIO) Wealth Management (WM) Research is published by UBS Wealth Management and UBS Wealth Management Americas, Business Divisions of UBS AG (UBS) or an affiliate thereof. CIO WM Research reports published outside the US are branded as Chief Investment Office WM. In certain countries UBS AG is referred to as UBS SA. This publication is for your information only and is not intended 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 (including 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 disclosures relating to UBS and its affiliates). All information and opinions as well as any prices indicated are currently 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 business areas or divisions of UBS as a result of using different assumptions and/or criteria. At any time, UBS CIO WM Research 2 July 2015 9
Appendix investment decisions (including whether to buy, sell or hold securities) made by UBS AG, its affiliates, subsidiaries and employees may differ from or be contrary to the opinions expressed 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 receive 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., a subsidiary of UBS AG. UBS Securities LLC is a subsidiary of UBS AG and an affiliate of UBS Financial Services Inc. UBS Financial Services Incorporated of Puerto Rico is a subsidiary of UBS Financial Services Inc. UBS Financial Services Inc. accepts responsibility 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 investment authority in the United States or elsewhere. UBS specifically prohibits the redistribution or reproduction of this material in whole or in part without the prior written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect. Version as per April 2015. UBS specifically prohibits the redistribution or reproduction of this material in whole or in part without the prior written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect. UBS 2015. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved. UBS CIO WM Research 2 July 2015 10