birmingham event

Smart beta in a portfolio

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What does smart beta mean for investors?More choice of market-type exposureExisting exposure can be sliced and diced in more precise waysMore control over risk and rewardPortfolios can be tweaked to express different views e.g. lower risk, valueMore opportunity to outperform or underperformUnderstanding how to select and combine products is key

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Products are typically tools or strategiesAllow investors to isolate a particular factor / risk premium / themeOften single factor productsDont specifically target outperformanceMay be used short-term / tacticallyMore likely to be satellite productsExamples include STOXX International Exposure indices and MSCI Europe ValueDesigned to replace traditional beta exposureTypically broad and diversifiedOften multi-factor or multi-asset May specifically target outperformance or better risk-adjusted returnsLikely to be core productsExamples include fundamental indices and multi-factor strategies (GS EFI)

ToolsStrategiesCan I use it to generate outperformance in my portfolio?Does it outperform?

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ConclusionThere is no single, accepted definition of smart betaIn practice, the term is used for a wide range of passive products with alternative filtering and/or weighting schemesThe key question is where each product fits in a portfolioA tool to isolate specific market characteristics?A broader investment strategy designed to replace beta benchmarks?Source is a pioneer in smart beta ETFsCarefully selected range of productsExpert partners

Selected Source smart beta products

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Goldman Sachs Equity Factor Indices:Efficient factor exposure can be a challengeData: Goldman Sachs InternationalSystematic factors are well-known sources of outperformanceHoweverDifferent factors perform well at different timesSome factors are negatively correlatedEfficient exposure must be diversified across factors, and consider the correlations between themBestWorst

20042005200620072008200920102011201220132014Size 4.5%Momentum 6.9%Low Beta 6.6%Momentum 22.5%Quality 11.4%Value 31.7%Momentum 4.9%Momentum 11.7%Momentum 3.5%Momentum 8.5%

Low Beta 4.7%

Low Beta 3.1%Size 1.3%Size 5.7%Quality 9.8%Low Beta 4.2%Size 20.6%Size 4.3%Quality 6.8%Low Beta 0.4%Low Beta 5.2%Quality2.2%Momentum 2.8%Value 1.1%Value 5.4%Low Beta -1.4%Momentum 2.6%Low Beta -2.0%Low Beta 1.4%Low Beta 7.6%Size 0.5%Value 3.0%Momentum1.3%Value 1.8%Low Beta -1.1%Momentum 4.3%Size -8.1%Value -0.7%Quality -7.0%Quality 0.7%Size -3.3%Quality -1.7%Size -0.3%Size-0.8%Quality -1.5%Quality -2.9%Quality 0.7%Value -16.5%Size -3.5%Momentum -28.0%Value -1.3%Value -7.4%Value -3.2%Quality -5.1%Value-2.9%

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Goldman Sachs Equity Factor Indices

Broad, long-only equity exposure, emphasising five systematic factorsLow betaSizeValueMomentumQualityEfficient portfolio construction, taking correlations between factors into account Controlled risk versus market cap-weighted benchmarksChoice of indices: World and Europe

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GS EFI World: persistent outperformanceSource: Bloomberg/Goldman Sachs International, 31 August 2015. Performance of GS EFI World prior to 21 October 2013 has been simulated by Goldman Sachs International. Simulated performance is calculated using the index rules, published at www.source.info, but has at times used different data sources and a slightly different methodology. Past performance (actual or simulated) is not a reliable indicator of future performance. Performance does not include fund costs (0.65% per annum for the Source Goldman Sachs Equity Factor Index World UCITS ETF, 0.45% per annum for a typical ETF tracking MSCI World Daily Net TR Index). * Performance of GS EFI World divided by performance of MSCI World Daily Net TR Index (adjusted so as to have similar beta).Actual performance

1y3y (ann.)5y (ann.)Sep 2004 to Aug 2015Return (ann.)VolatilitySharpe ratioMax drawdownGS EFI World NTR-0.74%13.39%13.86%9.30%14.55%0.52 -52.08%MSCI World Daily Net TR Index-4.11%10.95%11.07%6.41%16.71% 0.29 -57.82%Ratio GS EFI World NTR / MSCI World Daily Net TR Index3.52%2.20%2.52%2.72%Beta-adjusted outperformance*3.07%3.78%3.94%3.47%

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JPX-Nikkei 400Index constructionA benchmark gaining rapid acceptanceFocused on shareholder value as well as sizeUsed as a benchmark by the Japanese Government Pension Investment FundOver $1.8 billion in Europe-listed ETFs1Low cost exposure0.20% per annum management feeChoice of share classesJPY (unhedged)EUR-hedgedUSD-hedged share classes

Quantitative ranking

Return on Equity 40%Operating Profit 40%Market capitalisation 20%Qualitative factors

External directorsAdoption of IFRSEarnings disclosure in EnglishTop 400 companiesWeighted by free-float market capitalisation1 As at end of July 2015

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PIMCO EM Advantage Local Bond IndexExposure by countryGDP-weighted exposure to emerging market government debtData: PIMCO, as at 30 January 2015Weights countries by GDP rather than debt issuanceAvoids over-allocation to highly indebted countriesIncludes India and China (excluded from other major benchmarks)Uses currency forwards where local bond markets are inaccessible

Chart1

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0.087

0.075

0.069

0.042

0.034

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0.113

Sales

Sheet1

Sales

China, 15.1%15.10%China

India, 15.1%15.10%India

Brazil, 14.6%14.60%Brazil

Mexico, 10.0%10.00%Mexico

Russia, 8.7%8.70%Russia

Indonesia, 7.5%7.50%Indonesia

Turkey, 6.9%6.90%Turkey

Poland, 4.2%4.20%Poland

South Africa, 3.4%3.40%South Africa

Thailand, 3.2%3.20%Thailand

Other, 11.3%11.30%Other

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Key risks of Source smart beta ETFsNo capital protection: you may not get back the amount you investNo guarantee that smart beta indices will outperform traditional market capitalisation weighted indices

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Important informationInvestors in Source products should note that the price of your investment may go down as well as up. As a result you may not get back the amount of capital you invest.Investors in Source products should note that the price of your investment may go down as well as up. As a result, you may not get back the amount of capital you invest. This factsheet is intended for individuals who are familiar with investment terminology. Please contact your financial adviser if you need an explanation of the terms used. This factsheet is not for distribution to, or for the attention of, US or Canadian persons. When making an investment decision, you should rely solely on the KIID and prospectus, which can be downloaded at www.SourceETF.com . Other languages are available. The investment policy is set out in the prospectus supplement. Without limitation, this factsheet does not constitute an offer or a recommendation to enter into any transaction. Investment strategies involve numerous risks. Investors should consult their own business, tax, legal and accounting advisors with respect to this proposed transaction and they should refrain from entering into a transaction with us unless they have fully understood the associated risks and have independently determined that the transaction is appropriate for them. In no way should Source UK Services Limited be deemed to be holding itself out as a financial adviser or a fiduciary. Source ETFs are issued by Source Markets plc, an Irish domiciled company with limited liability regulated by the Central Bank of Ireland. The ETFs entitle the holder to receive a return linked to the performance of the benchmark index. Investors are therefore at risk that the level of the index may cause any amounts payable under the product to be less than the amount paid for the ETFs. The historical level of the index should not be taken as an indication of the indexs future performance during the term of the ETFs. Investment risks from market and currency losses as well as high volatility and concentration risk cannot be excluded. The performance of the ETF may differ from the performance of the index.This document has been communicated by Source UK Services Limited, 110 Cannon Street, London, EC4N 6EU, authorised and regulated by the Financial Conduct Authority. 2015 Source UK Services Limited. All rights reserved

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Important informationIndex disclaimersThe Source Goldman Sachs Equity Factor Index World UCITS ETF is not sponsored, endorsed, sold, or promoted by Goldman Sachs International or any of its affiliates (individually and collectively, Goldman). Goldman makes no representation or warranty, express or implied, regarding the advisability of investing in securities generally or in the ETF particularly, or the ability of the Index to track general market performance. The index is sponsored by Goldman Sachs International. Goldman Sachs International has contracted with Axioma, Inc. (the weight calculation agent) to determine on its behalf the component stocks of the index and their corresponding weights, based on a methodology developed by Goldman Sachs International. Axioma, Inc. does not endorse, promote or guarantee the quality, accuracy and/ or completeness of the index or any product linked to the index and shall have no liability in relation to the index or any product linked to the Index. The ETF is not issued, underwritten, offered, sponsored, endorsed, sold or promoted by the Russell Investment Group. The Russell Investment Group makes no representation or warranty, express or implied, to the owners of the ETF or any member of the public regarding the advisability of trading or investing in the ETF. The Russell Investment Groups only relationship to Goldman Sachs International with respect to the ETF is the calculation and certain servicing of the index. Russell Investment Group has no obligation to take the needs of the owners of the ETF into consideration in the calculating or servicing of the index. Russell Investment Group is not responsible for and has not participated in the determination of the timing of, prices at, or quantities of the ETF to be listed, purchased or sold, or in the determination or calculation of the equation by which the ETF is to be converted into cash. Russell Investment Group has no obligation or liability in connection with the administration, marketing, issuance, underwriting or trading of the ETF.The JPX-Nikkei Index 400 and its Total Return Index (hereinafter collectively referred to as the Index) are copyrighted materials calculated using a methodology independently developed and created by Japan Exchange Group, Inc. and Tokyo Stock Exchange, Inc. (hereinafter collectively referred to as the JPX Group) and Nikkei Inc. (hereinafter referred to as Nikkei), and the JPX group and Nikkei jointly own the copyrights and other intellectual property rights subsisting in the Index itself and the methodology used to calculate the Index. The JPX Group and Nikkei own the trademarks and other intellectual property rights with respect to the marks used to indicate the Index. The ETF is arranged, managed and sold exclusively at the risk of the manager, and the JPX Group and Nikkei do not guarantee the ETF and shall assume no obligation or responsibility with respect to the ETF. The JPX Group and Nikkei shall not be obliged to continuously publish the Index and shall not be liable for any errors, delays or suspensions of the publication of the Index. The JPX Group and Nikkei shall have the right to change the composition of the stocks included in the Index, the calculation methodology of the Index or any other details of the Index and shall have the right to discontinue the publication of the Index. The directors of the company, the manager and the investment manager together the responsible parties do not guarantee the accuracy and/or the completeness of any description relating to the Index or any data included therein and the responsible parties shall have no liability for any errors, omissions, or interruptions therein. The responsible parties make no warranty, express or implied, as to the fund, to any shareholder in the ETF, or to any other person or entity in respect of the Index described herein. The JPX Group and Nikkei make no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Index or any data included herein. Without limiting any of the foregoing, in no event shall JPX Group and Nikkei have any liability for any special, punitive, indirect, or consequential damages or for any lost profits, even if notified of the possibility of such damages.PIMCO and PIMCO Emerging Markets Advantage Local Currency Bond Index are trademarks of Pacific Investment Management Company LLC. Bank of America Merrill Lynch, Pierce, Fenner & Smith Incorporated (BofA Merrill Lynch) is acting as the calculation agent for the index, does not determine the equation for the index, has no role in the determination of the timing of, pricing of, or quantities of PIMCOs products or their redemption, or make any representation regarding the advisability of investing in PIMCOs products. The index and related data are as is. BofA Merrill Lynch makes no warranties, and does not warrant/guarantee the suitability, quality, accuracy, merchantability, fitness for a particular use, timelines and/or completeness of the index or any data included in, related to, or derived therefrom, or of the products based on or linked to the index. BofA Merrill Lynch and its affiliates have no liability in connection with PIMCOs products or services, or the composition of the index (including its ability to track the performance of market sectors or suitability as the basis for PIMCOs product), its calculation or use, and has not sponsored, endorsed, passed on, or recommended PIMCO or any of its products or services. The PIMCO EM Advantage Local Bond Index relies on information from an unaffiliated third party provider, Markit LLC. PIMCO does not make any warranty or representation as to the accuracy and/or completeness of that information and takes no responsibility for the impact of any inaccuracy of such data.

Source UK Services Limited110 Cannon Street, London EC4N 6EU

T +44 (0)20 3370 1100F +44 (0)20 3370 1101www.SourceETF.com

Authorised and regulated by the Financial Conduct Authority




UK editionFor professional investors only

September, 2015The case for currency hedged ETFsUBS ETFs ETFs how you want themAndrew Walsh, Head of UBS ETF Sales UK & Ireland

*ContentsSection 1UBS ETFs A leading provider in Europe

Section 2Background and impact of currency movements

Section 3Currency hedging in fixed income

Section 4 Comparison of Hedging options

Section 5UBS ETFs currency hedged ETFs

Section 6UBS ETFs currency hedging methodology

Section 7Conclusion

Section 8Appendix

UBS ETFs A leading provider in EuropeSection 1

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UBS Global Asset Management offers a variety of investment styles and strategies backed by our global resources and know-how. Our investment capabilities cover equities, fixed income, global investment solutions, fund services, alternative and quantitative investments, global real estate, as well as infrastructure and private equity.For over 30 years, the management of index-linked portfolios has been one of the core competencies of UBS Global Asset Management.With assets under management of approximately GBP 458 billion and 3,900 employees in 24 countries, we rank as one of the leading fund providers.1A leadingfund house in Europe, the largest mutual fund manager in Switzerland2 andone of the largest fund of hedge funds and real estate investment managers in the world.UBS Global Asset Management At a Glance1 Source: UBS, 31 March 20152 Source: Morningstar/Swiss Fund Data Swiss Promoters report (as of 31 March 2015)


UBS Global Asset Management Passive AssetsPassively managed assets: 148bn1Source: UBS Global Asset Management. Data as at 30 June 2015.1AuM reported in official UBS financial statements CHF 206bn. Difference to above quoted AuM largely due to exclusion of index element in multi-assets. Above quoted AuM includes CHF 0.8bn of basket strategies.


UBS ETFs A Leading Provider in EuropeETFs the way you want them1 Source: ETFGI, 28 August 2015.2 Source: UBS Global Asset Management, September 2015. Listings include share classes in various currencies

14 years of ETF experienceIn 2001 UBS Global Asset Management launched the first four ETFs (EURO STOXX 50, FTSE, USA, Japan) UBS ETF benefits from the expertise of UBS Global Asset Management (team with over 30 years of experience in indexed portfolio management)#4 in Europe1UBS ETF has 17.1bn in ETFs under management1Net inflows of 4.2bn in 20151One of Europe's leading providers of physically replicated ETFs1 UBS offers GBP-hedged ETFs and is the largest provider of currency hedged ETFs (>50 ETFs) in Europe1 A suite of seven SRI ETFs tracking a selection of MSCI indices5 Core markets / exchangesUK London Stock Exchange (LSE) (84 listings)2CHSIX Swiss Exchange (229 listings)2DE Deutsche Brse AG (Xetra) (73 listings)2IT Borsa Italiana (69 listings)2JP Tokyo Stock Exchange (TSE) (10 listings)2Broad selection Overall 179 ETFs are offered: equities, fixed income, commodities, precious metals, hedge funds, real estate and multi asset portfolioBroad range of physically (88%) and synthetically (12%) replicated ETFs (accumulating and distributing share classes)


UBS ETFs European ETF MarketUBS ETFs One of Europe's leading providers of physically replicated ETFs Source: UBS Global Asset Management, ETFGI, 28 August 2015As of end August 2015, the European ETF industry had 1,516 ETFs from 45 providers on 25 exchanges.Inflows in August 2015 amounted to 7,132m. Assets under management increased to 309.2bn.UBS ETFs ranks fourth in Europe, with 17.1bn in assets under management. UBS ETFs had inflows in 2015 until end August of 4.2bn.From all providers, 75% of European ETF assets under management were invested in physically replicated ETFs, and 25% in synthetically replicated ETFs.UBS ETFs is the third-biggest provider of physically replicated ETFs in Europe, and the seventh-largest provider of synthetically replicated ETFs (relating to UCITS conform ETFs).

Background and impact of Currency movementsSection 2

*Global equity portfolios example of foreign currency holdingsTypical globally diversified equity portfoliosGlobal equitiesSource: UBS Global Asset Management* SEK 1.37%, HKD 1.25%, SGD 0.64%, DKK 0.47%, NOK 0.34%, ILS 0.19%, NZD 0.34% MSCI World IndexForeign currency riskPortfolios with global equities are exposed to several currency risks at the same time.Exchange rate fluctuations primarily have a major impact on the investment returns of GBP, EUR, CHF, and JPY investors.GBP investors are exposed to foreign currency risks of 90.80%.For USD investors, almost half of the portfolio is exposed to foreign currencies.

*Past trends in currency marketsExchange-rate developments against the GBPCurrency trends versus the GBP (Sep.'10 Sep.'15; 28 Sep. 2010 = 100)The key currencies, Japanese yen (JPY) and Euro (EUR), have significantly fallen in value against the British pound (GBP) over the last 5 years. Only the Swiss Franc (CHF) and the US dollar yielded marginally positive performances against the GBP over this period.Clients with home currency GBP and foreign equity, benefit from currency hedging when foreign currencies are getting weaker.

Source: Bloomberg, data as of 25/09/2015JPY/GBP: -28 % USD/GBP: +4%EUR/GBP : -14% CHF/GBP: +3%Total ReturnAbeonomicsUS Hike? ECB QECHF floor removal

*Numerical example Eurozone equities Impact of currency hedging on portfolio returns: MSCI EMU (Sep. '10 Sep. '15)Performance of MSCI EMU Indices and the EURGBP exchange rateCurrency fluctuations have a major impact on the investment returns, due to currency volatility (weakening EUR due to ECB monetary stimulus - > asset purchase program running over Mar. '15 to Sep. 16')The MSCI EMU unhedged GBP has delivered an annualized return of 3.45% compared to an annual return of 6.38% for the MSCI EMU in its base currency (EUR).If the MSCI EMU GBP hedged exposure had been chosen the annual return would have been 6.72%.The hedge ratio (kept constant intra-month) of the currency hedge as well as interest rate differential (cost of currency hedge) can have a negative or positive impact on the performance -> positive in case of EURGBP in the last few years

Source: Bloomberg, data as of 25/09/2015. Performance based on the period: 28/09/2010 25/09/2015Estimated index annualized returncurrency hedged return

Section 3Currency hedging in fixed income

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Return components the role of exchange rate*Local Currency Fixed Income(Valuation Change + Accrued Interest)Foreign Fixed Income(Valuation Change + Accrued Interest + Currency P&L)Source: Barclays POINT, UBS Global Asset Management. Data as of 31 August 2015.Past performance is not a reliable indicator of future results.


Foreign investment performance vs. currency "wars"*Currency movements now more important than ever before- one exposure, different funding currencies Source: Barclays POINT, UBS Global Asset Management. Data as of 31 August 2015.Past performance is not a reliable indicator of future results.

"Global" monetary easing programs (Fed, BoE, BoJ, ECB,)


Foreign investment the latest example (QE ECB) *The ECB QE results in weaker EUR (unhedged GBP investor has FX loss) Source: Barclays POINT, UBS Global Asset Management. Data as of 31 August 2015.Past performance is not a reliable indicator of future results. Unhedged GBP investor Hedged GBP investor


Tracking quality example (live track since May 30, 2014) *Local Currency Currency Hedged Source: Barclays POINT, UBS Global Asset Management. Data from 30 May 2014 to 31 March 2015.Past performance is not a reliable indicator of future results. Benchmark: 4.82%ETF: 4.78%Benchmark: 4.78%ETF: 4.78%Average TE = 0.15% Average TE = 0.16%


Operational framework monthly hedging process *Hedge frequency driven by trade-off between tracking error and trading costs Annualized Tracking ErrorCurrency hedging accuracy is defined by.the frequency a profit or loss resulted of a currency hedge transaction is rolled and,the ratio between the Hedge Nominal on t-1 and the Total Net Assets of the foreign currency portfolio on t

Hedge Ratiot:proportion of Hedge Nominal on t-1 and the Total Net Assets on t Hedge Nominalfc,t-1:the amount in foreign currency sold forward on t-1 Total Net Assetsfc,t:the total net assets in foreign currency on t t:the current business day t-1:last business day of the previous month (hedge frequency = monthly), previous business day ( hedge frequency = daily) fc:foreign currency is the local currency of the portfolioTrade-off between Hedge Frequency and Tracking Error / Trading CostsThe Hedge Ratio is defined as the nominal amount to be hedged relative to the ETF's asset under managementPredefined (by index provider) hedging methodology decides about the ETFs' hedging qualityThe higher the hedge frequency and the closer the hedge ratio to 100%, the lower the Tracking ErrorThe higher the hedge frequency, the higher the turnover and hence the higher portfolio trading costs

Avg. spread between Libor USD 12m and Libor EUR 12m 36bpsSource: Barclays POINT, UBS Global Asset Management. Data from 08 April 2014 to 31 March 2015.Past performance is not a reliable indicator of future results. For illustrative purpose only.

Comparison of hedging optionsSection 4

*Comparison of hedging optionsCurrency exposure can be hedged in a number of waysUBS currency hedged ETFsUnhedgedCertificatesForwardsBenefitsReduced foreign currency riskSimple access and transparencyOne-time transactionCurrency hedging in fund formatCan positively impact performance compared to unhedged ETFCan positively influence performanceLower feesCan positively impact performance compared to a hedge portfolio/productVarious hedging methods possible, e.g. daily hedgeQuicker tradingPossibly lower costsVarious hedging methods and products available on the marketQuicker tradingDisadvantagesHigher fees than for non-hedged indexCan negatively impact performance compared to unhedged ETFAdditional foreign currency riskCan negatively impact performance compared to a hedge portfolio/productExact hedge only through short intervalsHigh minimum investmentGreater risk due to use of OTC derivativesCounterparty and operational riskLess transparencyOnly suitable for professional investorsPortfolio management resources requiredIssuer riskLess transparencyOnly suitable for professional investorPortfolio management resources requiredCurrenciesE.g. CHF, EUR, GBP, USD-Various currenciesVarious currenciesTER0.3 - 0.45% p.a.from 0.15% p.a.n.a.n.a.Transaction costsOne-timeOne-timeMultipleMultipleCertificates included: currency certificates, warrants and mini-futures. One-off transaction cost for the product, the monthly transaction cost (spread ) for the hedge impacts fund performance.Source: UBS Global Asset ManagementHedging on portfolio level

UBS ETFs currency hedged ETFsSection 5

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*UBS ETFs currency hedged equity ETFsSuite of sterling-hedged equity ETFs listed on the LSESource: UBS Global Asset ManagementThe most recent trends on the international currency markets, brought about in no small part by the massive central bank intervention, represent major challenges for investors, in particular as regards currency management.UBS Global Asset Management now offers currency hedged share classes on a selection of its physically replicated ETFs on equity indices. With this transparent currency hedging strategy, it is possible to reduce currency risk and optimize portfolio returns.

Currency hedged UBS ETFsGBP EURUSD CHFSGDMSCI JapanMSCI JapanMSCI JapanMSCI JapanMSCI JapanMSCI CanadaMSCI CanadaMSCI CanadaMSCI CanadaMSCI Canadan/aMSCI United KingdomMSCI United KingdomMSCI United KingdomMSCI United KingdomMSCI EMUn/aMSCI EMUMSCI EMUMSCI EMUMSCI USAMSCI USAn/aMSCI USAMSCI USAMSCI SwitzerlandMSCI SwitzerlandMSCI Switzerlandn/aMSCI SwitzerlandMSCI AustraliaMSCI AustraliaMSCI AustraliaMSCI Australian/a

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*UBS ETFs currency hedged ETFsETFs hedged to the GBP

dis=distributing, acc = accumulating

Source: UBS Global Asset Management, 2014

Fund nameDistribution1TERISIN TradingLSEBloombergcurrencycodetickerUBS ETF (LU) MSCI Canada hedged GBP UCITS ETFdis0.43 %LU0937838836GBpUC57UC57 LNUBS ETF (LU) MSCI Canada hedged GBP UCITS ETFacc0.43%LU0950673797GBpUC58UC58 LNUBS ETF (LU) MSCI EMU hedged GBP UCITS ETFdis0.33%LU0937835733GBpUC59UC59 LNUBS ETF (LU) MSCI EMU hedged GBP UCITS ETFacc0.33%LU0950669688GBpUC60UC60 LNUBS ETF (LU) MSCI Japan hedged GBP UCITS ETFdis0.45%LU0969638401GBpUC61UC61 LNUBS ETF (LU) MSCI Japan hedged GBP UCITS ETFacc0.45%LU0969638583GBpUC62UC62 LNUBS ETF (LU) MSCI Switzerland hedged GBP UCITS ETFdis0.30%LU0977261246GBpUC70UC70 LNUBS ETF (LU) MSCI Switzerland hedged GBP UCITS ETFacc0.30%LU0977261162GBpUC69UC69 LNUBS ETF (IE) MSCI Australia hedged GBP UCITS ETF dis0.50%IE00BD4TY907GBpUC71UC71 LNUBS ETF (IE) MSCI Australia hedged GBP UCITS ETF acc0.50%IE00BD4TYB29GBpUC72UC72 LNUBS ETF (IE) MSCI USA hedged GBP UCITS ETFdis0.30%IE00BD4TYH80GBpUC73UC73 LNUBS ETF (IE) MSCI USA hedged GBP UCITS ETF acc0.30%IE00BD4TYJ05GBpUC74UC74 LN


UBS Fixed Income ETFs sovereign and corporate range *The benchmark indices include Barclays, Markit and SBI and UBS ETFs trade on the key European exchanges Source: UBS Global Asset Management. Data as of 31 March 2015.CorporatesGovernments BI - Borsa Italiana; DB Deutsche Brse XETRA; LSE London Stock Exchange; SIX - SIX Swiss Exchange

UBS ETF Barclays share classesFund currencyAuM in GBP MnTERInception dateExchangeReplicationISINUBS ETF (LU) Barclays Capital US Treasury 1-3 UCITS ETF (USD) A-disUSD910.21%02.02.2012BI, XETRA, LSE, SIXPhysicalLU0721552544UBS ETF (LU) Barclays Capital US Treasury 3-5 UCITS ETF (USD) A-disUSD130.22%26.01.2012BI, XETRA, LSE, SIXPhysicalLU0721552627UBS ETF (LU) Barclays Capital US Treasury 5-7 UCITS ETF (USD) A-disUSD120.21%26.01.2012BI, XETRA, LSE, SIXPhysicalLU0721552890UBS ETF (LU) Barclays Capital US Treasury 7-10 UCITS ETF (USD) A-disUSD180.22%02.02.2012BI, XETRA, LSE, SIXPhysicalLU0721552973UBS ETF (LU) Barclays Euro Area Liquid Corporates 1-5 UCITS ETF (EUR) A-disEUR870.18%30.05.2014BI, XETRAPhysicalLU1048314196UBS ETF (LU) Barclays Euro Area Liquid Corporates 1-5 UCITS ETF (hedged to CHF) A-accCHF0.23%31/03/2015SIXPhysicalLU1048314865UBS ETF (LU) Barclays Euro Area Liquid Corporates 1-5 UCITS ETF (hedged to USD) A-accUSD0.23%30.01.2015SIXPhysicalLU1048314436UBS ETF (LU) Barclays US Liquid Corporates 1-5 UCITS ETF (USD) A-disUSD1980.18%01.12.2014BI, XETRA, LSE, SIXPhysicalLU1048314949UBS ETF (LU) Barclays US Liquid Corporates 1-5 UCITS ETF (hedged to CHF) A-accCHF0.23%30.01.2015SIXPhysicalLU1048315755UBS ETF (LU) Barclays US Liquid Corporates 1-5 UCITS ETF (hedged to EUR) A-accEUR0.23%31/03/2015XETRA, SIXPhysicalLU1048315243UBS ETF (LU) Barclays US Liquid Corporates 1-5 UCITS ETF (hedged to GBP) A-disGBP0.23%01.12.2014LSE, SIXPhysicalLU1048315326UBS ETF (LU) Barclays US Liquid Corporates UCITS ETF (USD) A-disUSD1900.18%30.05.2014BI, XETRA, LSE, SIXPhysicalLU1048316647UBS ETF (LU) Barclays US Liquid Corporates UCITS ETF (hedged to CHF) A-accCHF0.23%30.09.2014SIXPhysicalLU1048317538UBS ETF (LU) Barclays US Liquid Corporates UCITS ETF (hedged to EUR) A-accEUR0.23%30.05.2014BI, XETRAPhysicalLU1048317025UBS ETF (LU) Barclays US Liquid Corporates UCITS ETF (hedged to GBP) A-disGBP0.23%31.10.2014LSE, SIXPhysicalLU1048317298

UBS ETF Markit share classesFund currencyAuM in GBP MnTERInception dateExchangeReplicationISINUBS ETF (LU) Markit iBoxx Germany 1-3 UCITS ETF (EUR) A-disEUR210.17%24.01.2012BI, XETRA, LSE, SIXPhysicalLU0721553351UBS ETF (LU) Markit iBoxx Germany 3-5 UCITS ETF (EUR) A-disEUR30.17%24.01.2012BI, XETRA, LSE, SIXPhysicalLU0721553435UBS ETF (LU) Markit iBoxx Germany 5-10 UCITS ETF (EUR) A-disEUR80.17%24.01.2012BI, XETRA, LSE, SIXPhysicalLU0721553518UBS ETF (LU) Markit iBoxx Germany 7-10 UCITS ETF (EUR) A-disEUR30.17%24.01.2012BI, XETRA, LSE, SIXPhysicalLU0721553609UBS ETF (LU) Markit iBoxx Liquid Corporate UCITS ETF (EUR) A-disEUR570.22%24.01.2012BI, XETRA, LSE, SIXPhysicalLU0721553864

UBS ETFs currency hedging methodologySection 6

*UBS ETFs currency hedging methodologyUBS ETF hedge the foreign currencies of the standard indices in the selected home currency by selling each foreign currency forward at the one-month forward rate. The sum of the sold forwards as at the last trading day of the month corresponds to the market capitalization weighting of the securities contained in the standard index. These are valued in both of the respective currencies two trading days before the first calendar day of the following month. The hedged value remains constant over the entire month.Currency hedging methodology of UBS ETFThe securities contained in the index are valued.Foreign currency forwards are sold at the one-month forward rate.Hedged amount remains constant over the entire month.

123Hedging of foreign currency in the desired home currencyThe return of the non-currency hedged indices in the selected home currency.The profit or loss arising from the forward contract in the selected home currency. The two components of currency-hedged index returnsValuation of securities contained in index12Sale of foreign currency forward at one-month forward rate3Source: UBS Global Asset Management

Month 2123456728293031

Month 11234567282930

*Impact on currency hedged ETF performancePerformance is impacted by direct and indirect costsDirect costsA reliable estimate of cost in advance for the currency hedge is almost impossible.Indirect costsHigher TER due to currency hedging management (physical replication)Spread on currency forwardsThese costs deteriorate the performanceDescriptionPerformance impactPotential inaccuracy of the currency hedge, due to intra-monthly changes of the underlying (e.g. unhedged equity index)Over- / underinvestment in equitiesOver- / underhedge, due to market volatilityPositive or negative effect on performance (example of a positive effect: The underlying index is decreasing while gaining a positive return out of the currency hedge at the same time)Higher drag-level for swap based ETFs (synthetic replication). Currency hedging management costs and spread for currency forwards are included in the drag-level.

Currency hedged UBS ETFs conclusionSection 7

*Currency hedged UBS ETFs conclusionMitigate foreign currency risk.Currency hedging in a single transaction.Transparent currency hedging methodology.No use of futures or other derivative instruments.Simple access and transparency.Products replicated physically.

Why buy UBS currency hedged ETFs?


UBS ETFs Further InformationFactsheetswww.ubs.com/etfWebsitewww.ubs.com/etfBrochureswww.ubs.com/etfMarket data: Bloomberg: UETF Reuters: ETFVFor illustration purpose only


UBS ETFs AwardsPast performance is not a reliable indicator for future performance.


UBS Global Asset Management (UK) Ltd.Global Asset Management21 Lombard StreetLondon EC3V 9AH

Contact InformationUBS ETF Sales Team UK & IrelandInternetwww.ubs.com/etf [email protected]

Market dataReuters, Bloomberg (UETF)Andrew WalshUBS Global Asset Management (UK) Ltd.Global Asset Management

UBS Exchange Traded FundsExecutive DirectorHead UBS ETF Sales UK & Ireland

21 Lombard StreetEC3V 9AH LondonUnited Kingdom

Tel. +44 20790 15901Mobile +44 78180 [email protected] CisanaUBS Global Asset Management (UK) Ltd.Global Asset Management

UBS Exchange Traded FundsDirectorUBS ETF Sales UK & Ireland

21 Lombard StreetEC3V 9AH LondonUnited Kingdom

Tel. +44 20790 15398Mobile +44 78800 [email protected]

AppendixSection 8


UBS ETFs Product Range (1/7)Equities1 Data Source: UBS Global Asset Management as of 28 August 2015. All UBS ETFs mentioned in this product overview are UCITS compliant, have UK Reporting Fund status and are SIPP and ISA eligible.








UBS ETFs Product Range (5/7)Fixed Income1 Data Source: UBS Global Asset Management as of 28 August 2015. All UBS ETFs mentioned in this product overview are UCITS compliant, have UK Reporting Fund status and are SIPP and ISA eligible.


UBS ETFs Product Range (6/7)Fixed Income1 Data Source: UBS Global Asset Management as of 28 August 2015. All UBS ETFs mentioned in this product overview are UCITS compliant, have UK Reporting Fund status and are SIPP and ISA eligible.


UBS ETFs Product Range (7/7)Commodities and Alternatives1 Data Source: UBS Global Asset Management as of 28 August 2015. All UBS ETFs mentioned in this product overview are UCITS compliant, have UK Reporting Fund status and are SIPP and ISA eligible.


UBS ETFs investing in equities UBS Exchange Traded Funds invest in equities and may therefore be subject to high fluctuations in value. For this reason, an investment horizon of at least five years and corresponding risk tolerance and capacity are required. All investments are subject to market fluctuations. Every fund has specific risks, which can significantly increase under unusual market conditions. The funds assets are passively managed. As a result, the net asset value of the funds assets is directly dependent on the performance of the underlying equities. Losses that could be avoided via active management will not be offset.UBS ETFs investing in Real Estate Funds The funds invest in real estate funds under Swiss law that are denominated in CHF and invest exclusively in Swiss properties. The price of the underlying fund units is not determined by estimates of market value but by investor supply and demand. All investments are subject to market fluctuations. Every fund has specific risks, which may increase considerably in unusual market conditions. Please contact your client advisor if you wish to receive further information on the investment risks associated with this product.UBS ETFs investing in Metals The UBS Exchange Traded Fund investing in metals may be subject to considerable fluctuations in value. Investors therefore require an investment horizon of at least five years and corresponding risk tolerance and capacity. All investments are subject to market fluctuations. All funds have specific risks, which may significantly increase under unusual market conditions. The funds assets are passively managed. As a result, the net asset value of the funds assets is directly dependent on the performance of the underlying equities. Losses that could be avoided via active management will not be offset.UBS ETFs investing in Agriculture, Oil and CommoditiesThe Fund delivers the returns of a broadly diversified commodity index and may therefore be subject to high fluctuations in value. For this reason, an investment horizon of at least five years and corresponding risk tolerance and capacity are required. The returns payable on the Fund are dependant on payments received by the Fund from the Swap Counterparty under the terms of the Relevant Swap and, therefore, are subject to the credit risk of the Swap Counterparty. In the event that the Swap Counterparty defaults under the terms of the Relevant Swap, the Fund may suffer a loss. Assets are passively managed meaning losses that could be avoided via active management will not be offset. The net asset value of the Funds assets are materially dependent on the performance of the underlying investments. In case the currency of the product is different from your reference currency, the return may increase or decrease as a result of currency fluctuations. All investments are subject to market fluctuations. Every fund has specific risks, which can significantly increase under unusual market conditions.UBS ETFs investing in HFR The Fund delivers the returns of a broadly diversified hedge fund index and may therefore be subject to high fluctuations in value. For this reason, an investment horizon of at least five years and corresponding risk tolerance and capacity are required. The returns payable on the Fund are dependant on payments received by the Fund from the Swap Counterparty under the terms of the Relevant Swap and, therefore, are subject to the credit risk of the Swap Counterparty. In the event that the Swap Counterparty defaults under the terms of the Relevant Swap, the Fund may suffer a loss. Assets are passively managed meaning losses that could be avoided via active management will not be offset. The net asset value of the Funds assets are directly dependent on the performance of the underlying investments. In case the currency of the product is different from your reference currency, the return may increase or decrease as a result of currency fluctuationsUBS ETFs investing in Fixed Income This UBS Exchange Traded Fund invests in government bonds of a single country and may therefore be subject to fluctuations in value. For this reason, an investment horizon of at least five years and corresponding risk tolerance and capacity are required. All investments are subject to market fluctuations. Every fund has specific risks, which can significantly increase under unusual market conditions. As a result, the net asset value of the funds assets is directly dependent on the performance of the underlying index. Losses that could be avoided via active management will not be offset.UBS ETFs Risk Information


UBS Global Asset Management (UK) Ltd is a subsidiary of UBS AG. Registered in England. UBS Global Asset Management (UK) Ltd and UBS Global Asset Management Funds Ltd are authorised and regulated by the Financial Conduct Authority. UBS Global Asset Management Life Ltd is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Telephone calls may be recorded.This document is for Professional Clients only. It is not to be distributed to or relied upon by Retail Clients under any circumstances.The document has not been prepared in line with the FCA requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.The Luxembourg and Irish domiciled funds are recognised scheme under section 264 of the Financial Services and Markets Act 2000. They seek UK Reporting Fund Status. The protections offered by the UKs regulatory system, and compensation under the Financial Services Compensation Scheme, will not be available.The Switzerland domiciled funds are not recognised under section 264 of the Financial Services and Markets Act and are therefore subject to the restrictions on promotion in section 238 of the Financial Services and Markets Act.The returns payable to the fund are dependent on payments received by the fund from the swap counterparty under the terms of the relevant swap and, therefore are subject to credit risk of the swap counterparty. In the event that the swap counterparty defaults under the terms of the relevant swap, the funds may suffer a loss.This material supports the presentation(s) given. It is not intended to be read in isolation and may not provide a full explanation of all the topics that were presented and discussed. Care has been taken to ensure the accuracy of the content, but no responsibility is accepted for any errors or omissions. Please note that past performance is not a guide to the future. The value of investments and the income from them may go down as well as up, and investors may not get back the original amount invested. This document is a marketing communication. Any market or investment views expressed are not intended to be investment research.The document has not been prepared in line with the FCA requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The information contained in this document should not be considered a recommendation to purchase or sell any particular security and the opinions expressed are those of UBS Global Asset Management and are subject to change without notice. Furthermore, there can be no assurance that any trends described in this document will continue or that forecasts will occur because economic and market conditions change frequently. This document does not create any legal or contractual obligation with UBS Global Asset Management. The recipient agrees that this information shall remain strictly confidential where it relates to the Investment Manager's business. The prior consent of UBS Global Asset Management (UK) Ltd should be obtained prior to the disclosure of commercially sensitive information to a third party (excluding the professional advisors of the recipient). Information reasonably deemed to be commercially sensitive and obtained from UBS Global Asset Management (UK) Ltd should not be disclosed. This information is supplied with a reasonable expectation that it will not be made public. If you receive a request under the Freedom of Information Act 2000 for information obtained from UBS Global Asset Management (UK) Ltd we ask that you consult with us. We also request that any information obtained from UBS Global Asset Management (UK) Ltd in your possession is destroyed as soon as it is no longer required. This document may not be reproduced, redistributed or republished for any purpose without the written permission of UBS AG.This document is issued by [UBS Global Asset Management (UK) Ltd] and is intended for limited distribution to the clients and associates of UBS Global Asset Management. Use or distribution by any other person is prohibited. Copying any part of this publication without the written permission of UBS Global Asset Management is prohibited. Care has been taken to ensure the accuracy of its content, but no responsibility is accepted for any errors or omissions herein. UBS 2015. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved. E3

UBS ETFs Disclaimer




This document is directed at investment professionals and should not be distributed to, or relied upon by retail investors. The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Myths and misconceptions of indexing with Exchange Traded Funds (ETF)s

Todd Schlanger, CFAInvestment Strategy GroupVanguard Asset Management, Limited

*

"The best way in my view is to just buy a low-cost index fund and keep buying it regularly over time, because you'll be buying into a wonderful industry...People ought to sit back and relax and keep accumulating over time. - Warren Buffett, Chairman, Berkshire Hathaway"The long-term data repeatedly document that investors would benefit by switching from active performance investing to low-cost indexing."- Charles Ellis, Ph.D.Unless an investor has access to incredibly high-qualified professionals, they should be 100 percent passive - that includes almost all individual investors and most institutional investors."- David Swensen, chief investment officer, Yale University Endowment FundVanguard becomes largest mutual fund family(Globally)

*

Passive is gaining traction in the UKFunds under management (FUM) in passively-managed funds (GBP millions, %)Source: Investment Association, data as at 31 December 2014. UK-domiciled funds under management. Market data includes money invested in the underlying funds in which funds of funds invest, but excludes money invested in fund of funds themselves (other than funds of overseas funds) to avoid double-counting.

*

Active tends to underperform on averagePercentage of active equity managers underperforming their benchmark, 2000 to 2014EquitiesFixed incomePast performance is not a reliable indicator of future results. Sources: Vanguard calculations, using data from Morningstar, Inc.Notes: Fund universe includes funds available for sale in the UK, filtered according to the description above, from the following Morningstar categories: UK equity flex cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap; Europe equity Europe OE: flex-cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap; Euro zone equity flex-cap, large-cap, mid-cap, small-cap; Global flex-cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap; US equity flex-cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap; Emerging markets equity emerging markets; Europe bond EUR diversified; US bond USD diversified; Global bond global un-hedged bond; UK bonds UK diversified, UK government. Performance is for periods ending on 31 December 2014. Performance is calculated relative to prospectus benchmark. Fund performance is shown in GBP terms, net of fees, gross of withholding tax, with income reinvested, based on closing NAV prices.

Chart1

0.64341085270.1769016473

0.37869822490.2724645658

0.51111111110.2688888889

0.3750.2916666667

0.54929577460.2688860435

0.75555555560.0698412698

0.86666666670.0424242424

0.77777777780.1313131313

0.81818181820.1048951049

0.960.0182608696

0.79166666670.1102941176

Surviving funds

Surviving + "dead" funds

Sheet1

Surviving fundsSurviving + "dead" funds

Global equity64.3%17.7%15YR:

U.K. equity37.9%27.2%

European equity51.1%26.9%CategoryMedian excess returnSurviving fundsSurviving + "dead" funds

Eurozone equity37.5%29.2%Global equity-69.49%64.34%17.69%

U.S. equity54.9%26.9%U.K. equity55.47%37.87%27.25%

Emerging market equity75.6%7.0%European equity-17.56%51.11%26.89%

Global bonds86.7%4.2%Eurozone equity56.27%37.50%29.17%

GBP diversified bonds77.8%13.1%U.S. equity-29.39%54.93%26.89%

GBP government bonds81.8%10.5%Emerging market equity-110.66%75.56%6.98%

EUR diversified bonds96.0%1.8%Global bonds-38.81%86.67%4.24%

USD diversified bonds79.2%11.0%GBP diversified bonds-67.99%77.78%13.13%

To resize chart data range, drag lower right corner of range.GBP government bonds-87.36%81.82%10.49%

EUR diversified bonds-82.11%96.00%1.83%

USD diversified bonds-75.11%79.17%11.03%

*

After costs, more than half of all assets underperformSource: The Vanguard Group Inc.Investing as a zero-sum game

*

Myths and misconceptions of indexingActive works best in inefficient markets

Active can outperform in bull/bear markets

Returns matter more than costs

I dont invest in average funds

Active managers can better manage risks in a portfolio

*

Indexing only works in efficient markets?Percentage of active equity managers underperforming their benchmark, 2005 to 2014Past performance is not a reliable indicator of future results. Source: Vanguard calculations, using data from Morningstar, Inc.Notes: Fund universe includes funds available for sale in the UK, filtered according to the description above, from the following Morningstar categories: High yield; Small-cap; Emerging markets. Performance is for periods ending on 31 December 2014. Performance is calculated relative to prospectus benchmark. Fund performance is shown in GBP terms, net of fees, gross of withholding tax, with income reinvested, based on closing NAV prices.

Chart1

0.930.02

0.780.07

0.380.27

Surviving funds

Surviving + "dead" funds

Sheet1

Surviving fundsSurviving + "dead" funds

High Yield93.0%2.0%

Emerging78.0%7.0%

Small-Cap38.0%27.0%

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Debunking the market cycle mythPercentage of active equity funds underperforming prospectus benchmarkPast performance is not a reliable indicator of future results. Source: Vanguard calculations, based on data from Morningstar, Inc to 31 December 2014Notes: Displays the percentage of surviving funds that underperform their prospectus benchmark over the time period shown. Bull and bear markets are the local peak or trough in the global equity market, defined as the MSCI All Country World IMI. The fund universe and categories are as defined slide 4. Returns are calculated in GBP net of fees, gross of tax, with income reinvested. Past performance is not a reliable indicator of future results.

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Low cost investments tend to outperform higher cost investmentsAverage annual returns over the ten years to 31 December 2014Average annualised return (%)Past performance is not a reliable indicator of future results. Source: Vanguard calculations, using data from calculations using Morningstar, Inc. Notes: All mutual funds in each Morningstar category were ranked by their expense ratios as of 31 December 2014. They were then divided into four equal groups, from the lowest-cost to the highest-cost funds. The chart shows the ten-year annualised returns for the median funds in the lowest cost and highest cost quartiles. Returns are in sterling terms with income reinvested, net of expenses, excluding loads and taxes. Both actively managed and indexed funds are included. For funds with both income and accumulation share classes, we use only accumulation share classes to avoid double counting.

Chart1

10.84083678948.1701005947

9.41568569257.7680599088

8.34817042567.0777071325

7.46218374157.2651566587

7.14919203387.1768802965

6.8919894135.2700490405

6.04849920265.3892206898

5.79615176264.7350528107

5.62458049424.6330849592

5.45471873374.9606062535

5.25919254464.6913119805

Low cost median

High cost median

Sheet1

Column1Low cost medianHigh cost median

Emerging market equity10.848.17

U.S. equity9.427.77

Global equity8.357.08

U.K. equity7.467.27

European equity7.157.18

USD diversified bonds6.895.27

Eurozone equity6.055.39

GBP diversified bonds5.804.74

EUR diversified bonds5.624.63

Global bonds5.454.96

GBP government bonds5.264.69

To resize chart data range, drag lower right corner of range.

*

Fund leadership is quick to changeRank persistence of UK active equity fundsPast performance is not a reliable indicator of future results. Source: Vanguard calculations, using data from Morningstar, Inc. Performance is relative to prospectus benchmark. The first period was the 5-years ending 2009 and the second period was the 5-years ending 2014. The fund universe includes all UK active equity funds available for sale in the UK. Returns are in GBP, net of fees, gross of tax, with income reinvested.

*

Actively managed portfolios tend to increase volatilityPast performance is no guarantee of future results.Source: Vanguard calculations, using data from Morningstar, Inc. Data to 31 December, 2014.Notes: The fund universe includes all active equity funds available for sale in the UK, investing in the equity classes as defined from the following Morningstar categories: UK equity flex cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap; Global flex-cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap; Global bond global un-hedged bond; GBP diversified UK diversified, Returns are in GBP terms, calculated net of fees, gross of tax withholding, with income reinvested.

Oram,Michael - Please delete this duplicate past performance

*

Myths and misconceptions of indexingActive works best in inefficient markets- Relative performance often weaker as a result of higher costs

Active can outperform in bull/bear markets- Timing market cycles is difficult and no evidence to support

Returns matter more than costs- Costs reduce returns pound for pound

I dont invest in average funds- Little performance persistence makes selection difficult

Active managers can better manage risks in a portfolio- Active funds tend to have higher volatility

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Investing as a zero sum gameRelevance to mutual fund investorsThe record of active managementPerformanceCyclicalitySurvivorship biasPersistenceComparing active to passiveThe role of costRelative performance

Key takeawaysMyths and misconceptionsInefficient marketsBull/bear market Returns over costsAverage fundActive is less riskyOther benefits of indexingMore control over risksGreater diversificationPortfolio consistency

*

Appendix

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Active performance can be cyclicalPercentage of UK active equity managers underperforming their benchmarks5-year periods10-year periodsPast performance is not a reliable indicator of future results. Sources: Vanguard calculations, using data from Morningstar, Inc. Data to 31 December 2014. Notes: Fund universe includes funds available for sale in the UK, filtered according to the description above, from the following Morningstar categories: UK equity flex cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap.

*

Survivorship bias can impact resultsExcess return of dead funds over broad market benchmark From January 2000 to fund closure date

Past performance is not a reliable indicator of future results. Source: Vanguard calculations, using data from Morningstar, Inc., FTSE and Barclays. Displays the cumulative annualised performance of those equity funds that were merged or liquidated within our sample, relative to the prospectus benchmark most commonly used within that funds Morningstar Category. We measure performance from 1 January 2000 or the funds inception, whichever is later, and continue each funds measurement period up until the month-end prior to it being merged or liquidated. Fund universe is as described in slide 4, limited to those funds that were merged or liquidated from January 2000 to December 2014. Figure displays the middle 50% distribution of these funds returns prior to dying. Performance is measured in sterling terms, net of fees, gross of tax withholding, with income reinvested.

*

The role of costsOngoing charges by fund categoryNotes: The average expense ratio quoted for each category of funds represents the asset-weighted average expense ratio based on information in latest available annual report at 31 December 2014. Fund expenses are weighted by the share-class AUM, reflecting the typical investors experience in that fund. Fund universe includes funds available for sale in the UK, filtered according to the description above, from the following Morningstar categories: UK equity flex cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap; Europe equity Europe OE: flex-cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap; Euro zone equity flex-cap, large-cap, mid-cap, small-cap; Global flex-cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap; US equity flex-cap, large-cap blend, large-cap growth, large-cap value, mid-cap, small-cap; Emerging markets equity emerging markets; Europe bond EUR diversified; US bond USD diversified; Global bond global un-hedged bond; UK bonds UK diversified, UK government. Performance is for periods ending on 31 December 2014. Performance is calculated relative to prospectus benchmark. Source: Vanguard calculations, based on data from Morningstar, Inc. Data as of 31 December 2014. Past performance is not a reliable indicator of future results.

CategoryActiveIndexDifferenceGlobal equity1.310.231.08U.K. equity0.970.510.45European equity1.690.291.40Eurozone equity1.350.321.03U.S. equity1.310.211.10Emerging market equity1.340.261.07Global bonds0.860.190.66GBP Diversified bonds0.63--n/aGBP Government bonds0.560.310.25EUR Diversified bonds0.800.650.15USD Diversified bonds 0.900.650.25

*

Lower costs tend to equate to higher returnsPerformance of UK active equity funds relative to ongoing chargesPast performance is not a reliable indicator of future results. Source: Vanguard calculations , using data from Thompson Reuters Datastream and Morningstar, Inc. Returns on the vertical axis are the 10-year annualised excess return over each funds prospectus benchmark, through December 31 2014. Total expense ratio on the horizontal axis is from the latest available annual report as at 31 December 2012. Fund universe and categories as defined in earlier charts. Performance is shown in sterling, net of fees gross of tax, with income reinvested. 10 year annualised excess returns (%)Expense ratio (%)

*

Distribution of equity fund performanceOutperforming / outperforming adjusted for survivorship biasProspectus benchmarkPast performance is not a reliable indicator of future results. Sources: Vanguard calculations, using data from Morningstar, Inc. Displays the distribution of fund excess returns, relative to their prospectus benchmark, for the 15 year period ending 31 December 2014. Fund universe is as defined on page 13. Performance is shown in GBP, net of fees, gross of tax, with income reinvested.

*

Distribution of bond fund performanceOutperforming / outperforming adjusted for survivorship biasProspectus benchmarkPast performance is not a reliable indicator of future results. Sources: Vanguard calculations, using data from Morningstar, Inc. Displays the distribution of fund excess returns, relative to their prospectus benchmark, for the 15 year period ending 31 December 2014. Fund universe is as defined on slide 13. Performance is shown in GBP, net of fees, gross of tax, with income reinvested. Past performance is not a reliable indicator of future results.

*

Adding passive can help reduce client riskActive portfolioAdding passive Source: Vanguard .

*

Indexing can permit greater control of asset class risks in a portfolioUsing a concentrated active fund can lead to a portfolio with risk and return characteristics differing from the equity marketGreater diversificationActively managed funds tend to hold fewer securities with varying degrees of return correlation Portfolio consistencyAn index fund should maintain its style consistency by closely tracking the characteristics of the index and marketIndexing offers additional benefits in portfolio construction

*

Important informationThis document is directed at professional investors and should not be distributed to, or relied upon by retail investors.This document is designed for use by, and is directed only at persons resident in the UK.The material contained in this document is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information on this document does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions.The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. Past performance is not a reliable indicator of future results.The opinions expressed in this presentation are those of individual speakers and may not be representative of Vanguard Asset Management, LimitedIssued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority. 2015 Vanguard Asset Management, Limited. All rights reserved.VAM-2015-09-25-2923




ETFs in Portfolio Contruction

Philip Bailey

or, How to save your clients money. whilst charging them more.

Philip Bailey

Who are Assetfirst?

Subsidiary of:- Provisio Wealth ManagementAdviser Charging adopted in March 2008 Pioneers of a ETF investing in the retail sectorFounders of assetfirst - a unique outsourced investment solution for IFAs

Assetfirst

Virtual Investment CommitteeRisk tailored portfoliosDisciplined Strategic asset allocationActive Tactical asset allocation & regular rebalancingEnabling bespoke portfoliosSubscription fees paid by the IFA, not the client.

Assetfirst vs Risk Targeted Multi-Asset Sectors. Five years to 31st July 2015**

Risk verses Return Asset Allocation Technique

**

Asset Allocation How Different Asset Classes perform**

Rigorous independent researchBespoke Detailed asset allocation researchRobust methodologyStress tested portfolio designStrategic Asset AllocationBack tested performanceExpected Risk (Standard Deviation)

Risk Graded Model Portfolios

Expected Annualised Risk and Return

Asset MixGeometric ReturnAnnual Standard DeviationDefensive6.5%7.2%Defensive to Balanced7.5%9.2%Balanced8.0%10.7%Balanced to Aggressive8.6%12.7%Aggressive9.4%16.3%Balanced High Yield7.0%9.7%

**About Fund Selection

10 year: Median Fund vs Benchmark**

The devils in the fees !**

ETF Application**

ETFs Perfect tool for Portfolio Construction High Liquidity Low cost Average Equity TER 37bpsExtremely low tracking errorReturns superior to most active managersNo risk of style driftNo risk of portfolio manager turnoverEnsure accurate asset allocationEasier control of portfolio risk.

**Pure Asset Allocation

**Purer Asset Allocation

The 5 Ps - Passive Portfolios Produce Predictable Performance

Expected Annualised Risk and Return

Asset MixGeometric ReturnAnnual Standard DeviationDefensive6.5%7.2%Defensive to Balanced7.5%9.2%Balanced8.0%10.7%Balanced to Aggressive8.6%12.7%Aggressive9.4%16.3%Balanced High Yield7.0%9.7%

Balanced Model

Save your clients money whilst charging more.Dont forget the Adviser Fee (1%) and Wrap Fee (.25%). Total Assetfirst cost 1.55% ..and ETF Trading Costs are significantly lower.

Portfolio Management Method3rd Party CostsAverage underlying Fund TER Total Costs on 10m total client portfolioRegulatory Riskassetfirst Guided Architecture500 + VAT 0.40%40,000LowPick Fundsnil1.15% *115,000HighFund of Fundsnil1.71% *171,000MediumDiscretionary Fund Manager0.75%1.15% *190,000LowModel Portfoliosnil1.15% *115,000Low

How ETF based portfolios can benefit your businessInstitutional quality investment & cost

Deliver a transparent fee based service

Remain at the centre of the client relationship

Maintain Independence advice & research

Deliver low cost investment solutions

Move your practice from 0.5% to 1% fee

Bullet Proof your future income

Legal disclaimer

This communication is for professional advisers only and is not intended to be used by retail clients.

No liability is accepted for any loss or damage occurring as a result of reliance on any statement, opinion or any error or omission contained in the preceding presentation.

Any statement or opinion reflects our understanding of current or proposed legislation and regulation which may change without notice.

These presentations should not be seen as a substitute for professional advice.







Note the fees isnt on the listAlthough ETFs are typically transparent about fees and costs, the only real way to compare like with like (and to compare with eg other mutual funds) is to look at performance. What is the fund performance relative to the index? That is the true cost NB there are no entry / exit fees on Source ETFs*Imagine a spectrum of investment products arranged by complexity [click] First, standard benchmarks. Even these have some rules [click] eg filtering out the smallest/least liquid stocks to ensure investability. Typically weighted by market cap [click] . Lots of examples. [click] Next, we have more complex filtering [click]. Indices that filter stocks using factors like quality, dividends, size, or fundamentals like return on equity. [click for examples] Next, different weighting schemes [click] Weighting by factors, fundamentals again, also equal weight, GDP weight. Examples [click] These can be complicated multi factor models BUT still market exposure. Youre just trying to find a different (ideally better) way to do it, by introducing more complex rules.Risk control is next step. [click] Also complicated (covariance matrices, optimisation constraints). Still market exposure. Good example is MSCI Min Vol [click] . Many investors use this instead of standard benchmark, preferring a lower risk approach. Where to draw line between beta and smart beta? Around here [click] is intuitive. There are grey areas. For example, many people view size as a factor. Where does that put eg the FTSE 250? Is it smart beta? [click] or is it so familiar that it really belongs here? [click] . Is UK small/mid cap a market segment in its own right, or just a different way of getting UK equity exposure?Still a gap on the right. Can things get any more complicated? Yes [click] We see more and more strategies now that have some kind of element of market timing [click], that move in and out of the market, or change their exposure, based on some kind of signal. Youre no longer just trying to capture a particular market segment in a passive way. You have a strategy. Many quant strategies fall into this category [click] May still be rules-based and passive, may not be that complicated, but is it beta? No. Is it even smart beta? No, we think not. This is no longer about buying the market, (however, you choose to do that) its about beating the market. From here, its only a short step to rules so complex they are inside someones head ie active management [click][click]We think theres a clear line here. [click] [click] Whatever you choose to call this category, the key things is that its a different animal, definitely not beta. You couldnt just slot these into your portfolio as alternative to say, FTSE 100 or S&P 500.. So, thats our view on what is, and is not, smart beta. It looks complicated, but actually its simple. Smart beta is passive, market exposure just like beta but a little more complex.

*CHART show the performance of five equity factors over past nine years, ranking from best to worst performers

Clear that different factors outperform / underperform at different times

Some are markedly cyclical

Some are negatively correlated Eg value and momentum

These characteristics can make it difficult to capture returns efficiently

*Offers broad global equity exposureIs long onlyCaptures five equity factors in a single strategyIs designed to be efficient and diversified - takes correlations between factors into accountTargets enhanced returns versus market cap-weighted benchmarks eg MSCI WorldIs accessible via Source ETF

*GS EFI World has outperformed MSCI World by 2.9% per annum since 2004, with lower volatility

It typically has a beta of around 0.9

The grey dotted line shows GS EFI World versus MSCI World (exposure adjusted so that both indices have similar beta)The outperformance of EFI has been very consistent

********************************************But really, Active Equity Income Fund investing is not a true zero sum game if you take costs into account. You have to subtract the costs from the equation.

After that, the median return for Equity Income Fund s shifts and a majority will underperform. And the higher the costs, the further the curve shifts and the smaller the green area of outperforming Equity Income Fund s becomes.

Note that this doesnt have anything to do with active or passive, it just illuminates the absolute reality of the costs when investing.

So what does it look like in reality?********************

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