UBS House View CIO Americas, WM

Weekly26 November 2018

Week Ahead

► Will Black Friday boost confidence in

retail? China's Single's Day online shopping

gala broke new records earlier in November,

despite a slowing Chinese economy. The US

Black Friday, which followed the Thanksgiving

holiday, is typically the busiest US shopping

day of the year. Positive signs on Black Friday

could restore confidence in the US consumer

after disappointing earnings releases from US

retailers last week.

► Is the "Fed put" in place for stocks? The

minutes of the Fed's November meeting will

be released and Chair Powell will make a

major speech. We will be looking for signs of

the Fed expressing concern over recent market

turbulence and indicating potential flexibility in

its rate path.

► Will Eurozone data rebound? Recent

Eurozone economic data has been undermined

by weakness in the auto sector, which has

been working to meet stricter emissions

rules. This week we will get fresh indications

on whether the Eurozone economy is

reviving, with data on consumer confidence,

unemployment, and inflation.

Investor Spotlight

Seeking value? Investors poured USD 1bn into

emerging market equity funds in the week of 20

November, a sixth consecutive inflow, according

to EPFR data.

Sector by sector. USD 1.5bn and USD 0.5bn

was pulled from US tech and financial stocks

respectively, as investors preferred the healthcare

and consumer sectors (inflows of USD 0.4bn and

USD 0.1bn).

For your information► We welcome your feedback:

wmrfeedback@ubs.com

This report has been prepared by UBS AG, UBS Switzerland AG and UBS Financial Services Inc.

Please see important disclaimers and disclosures at the end of the document.

Key Messages► Equity market sentiment faces a key test.

Global equities suffered a 2.6% two-day sell-off last week, leaving the index close to 10% down

from the year's peak. The slide reflected continued worries over slowing smartphone sales, along

with disappointing earnings from US retailers, and indications of a weakening in the US housing

market. The move has left valuations attractive. In emerging markets, on around 11x forward

earnings at present, stocks trade at a discount to their 30-year average of 13x. In the Eurozone,

they trade at 12x, versus a long-term average of 14x. And in the US, even after accounting for a

hit to earnings from the first rounds of higher US China tariffs, the price earnings ratio on 2019

earnings is roughly 16x, just above their long-term average. But markets will face a crucial test at

this week's G20 meeting between US President Donald Trump and China's President Xi Jinping. A

further round of trade retaliation could undermine market faith in political support for the global

economy, particularly coming against a backdrop of declining central bank liquidity.Takeaway: Weare overweight global equities. However, we remain alert to the risk that worsening trade tensionscould harm market sentiment.

► Avoiding the pitfalls of credit investing.The risk-off mood in equities spread to credit markets last week, aggravated by the fall in oil

prices, with US investment grade (IG) and high-yield (HY) spreads widening by 4bps and 11bps

respectively, while Euro IG and HY spreads expanded by 6bps and 14bps. If performance does not

improve before year-end, it will be the first time since 2008 that all four asset classes post negative

yearly returns. We do not yet see this as a cause for alarm. We expect default rates to remain

low over the coming 12 months, at 2.5% for the US and 2% for Euro high yield. But investors

should expect higher volatility as the cycle matures. As we noted in May's Volatility is Back. Areyou prepared?, to mitigate volatility we recommend going up the credit ladder. We expect higher-

rated USD BB bonds should outperform B rated bonds. And investors who increased credit risk

in recent years should consider shifting back toward government bonds, which returned 0.1%

last week in USD.Takeaway: We are tactically neutral on credit. But the asset class remains animportant strategic part of balanced portfolios, and we urge investors to consider strategies thatmaximize risk-adjusted rates of return.

► What should investors do when nothing works.The pain in markets has been unusually broad-based, with steep falls in equities and both Euro and

US dollar credit. Often reliable havens, such as US Treasuries and gold provided no significant relief.

And esoteric instruments like Bitcoin (–29% over the past month) have performed even worse.

Periods in which most asset classes decline in tandem are usually brief, but can be disconcerting.

A robust portfolio construction offers the best protection. Beyond diversification, we recommend

investments in companies that benefit from long-term trends. Our favorite long-term investments

include reusable rocket technology and medical devices. Explicit hedges can also provide more

reliable protection. Our "bang for your buck" index currently highlights the Hang Seng China

Enterprises Index as offering relatively cheap protection. Adequate exposure to hedge funds can

also be helpful, and certain market-neutral strategies – such as developed market macro funds –

have been performing well.Takeaway: Few investments have delivered positive performance thisyear. Focusing on secular trends, seeking explicit portfolio hedges, and looking at hedge funds areoptions to help improve portfolio diversification.

Deeper Dive

Looking for signs atthe crossroads Mark

Haefele

Bottom line

Equity markets have been quite volatile since early October. Our base case is that we’re in a pullback within a bull market. But we'rewatching several key indicators closely and important catalysts that lie ahead, including the G20 meeting, the Fed’s response toeconomic uncertainty, and incoming economic data.

Since early October, equity markets have fallen amid volatiletrading. Whether the volatility of the last eight weeks will befollowed by a market bounce, or a deeper pullback, will largelydepend on the development of political risk, central bank policy,and incoming economic data.

On balance, our base case is that we are in a pullback withina bull market: typical recession indicators are not flashingred, inflation remains low enough for monetary tightening toproceed gradually, and many assets have already moved to pricein a more uncertain outlook.

But we are watching several key indicators closely, andimportant catalysts lie ahead:

G20 in focus

This week’s G20 summit could serve as an important turningpoint in how investors think about political risk.

Recently, President Donald Trump offered waivers on Iraniansanctions, citing concerns about a potential spike in oil prices,and many of the Trump administration's policies have been pro-growth, with even a cursory glance at Twitter showing that thepresident watches the stock market closely. Yet, with the effectsof US trade policy now showing up in the economic data, theadministration faces an even larger choice around supportingnear-term growth and pursuing geopolitical interests.

If the US still continues on a path toward escalation of the tradedispute with China after the G20 meetings, we can infer thateconomic considerations are slipping in the administration’spolicy agenda. Against such a backdrop, investors would beright to demand higher risk premia.

The high weighting of technology in US and EM equity marketindexes makes the outcome of the G20 particularly important.Following concerns around Chinese cyber-theft raised by USTrade Representative Robert Lighthizer, export controls areunder consideration for a number of significant emergingtechnologies, including artificial intelligence, microprocessors,robotics, and surveillance.

Watching the Fed

Another key turning point to watch is how the FederalReserve responds to increased market volatility and economicuncertainty.

During his first year in office Fed Chairman Jerome Powellhas, in the eyes of equity markets, established himself as morehawkish than his predecessor. But now market-implied inflationexpectations are falling alongside oil prices, credit spreads arewidening, and uncertainty about the effect of higher rates onthe US housing market is rising. While we need to rememberthat the US job market remains strong, the Fed now has theopportunity to signal greater flexibility around its interest ratepath, which would likely be well received by markets.

If the Fed continues to signal a hawkish path, however, it couldbe a significant indicator that the bank risks over-tighteningpolicy in 2019. The result would be global markets growingincreasingly sensitive to downside economic or corporatesurprises.

Incoming economic data

Finally, we will need to continue to monitor incomingeconomic data. Current rates of consumption, investment, and

UBS House View Weekly - 26 November 2018

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Deeper Dive

Looking for signs atthe crossroads Mark

Haefele

Bottom line

Equity markets have been quite volatile since early October. Our base case is that we’re in a pullback within a bull market. But we'rewatching several key indicators closely and important catalysts that lie ahead, including the G20 meeting, the Fed’s response toeconomic uncertainty, and incoming economic data.

employment growth in the major developed markets are nothistorically consistent with an impending recession.

But weaker US housing market data, widening credit spreads,deteriorating economic sentiment in the euro area, andthe impact, if any, of China's stimulus all bear monitoring.Current equity market valuations look reasonable if we assumemid-single-digit earnings growth for 2019. The prospect ofmuch slower economic growth would be a risk to corporateprofitability and undermine investor confidence that equityvaluations are well supported.

We are at a crossroads for how investors regard political, centralbank, and economic risk. We currently view the balance of risksas supporting an overweight position in global equities, whilestill monitoring closely the interaction of economic data, centralbank policy, and politics. We combine our overweight positionin global equities with counter-cyclical positions, including in 10-year US Treasuries.

UBS House View Weekly - 26 November 2018

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Regional view - United States

The importance of loss harvesting

Jeff LeForgeInvestment Strategist Americas

There are five weeks remaining in 2018. Asthe new year approaches many investors arepreparing for the upcoming tax season. Thisoften includes loss harvesting shares in taxableaccounts. Loss harvesting (LH) is a tax deferralstrategy that proactively realizes losses to offsetcurrent or future taxable gains.

We’re proponents of harvesting lossesyear-round, but the recent decline inUS equities and increase in interestrates means that many investors likelyhave embedded losses even if they’veexecuted the strategy earlier in the year.

Loss harvesting is somewhatcounterintuitive because it requiresthe investor to sell low after buyinghigh. However, research indicatesthat proactively harvesting losses cangenerate a median after-tax alpha of

roughly 0.5% annually1. How can thisbe?

It’s all about deferring taxes andcompound growth.

Retirement investing is based off the taxdeferral concept. Traditional IndividualRetirement Accounts (IRAs) and 401(k)plans are examples of tax-deferredaccounts. Loss harvesting seeks toreplicate this general concept without

running afoul of wash-sale2 rules.

Taxes decrease your net worth. Lossharvesting offsets capital gains anddefers a portion of your tax expenseto a future date. The deferral is like aninterest-free loan from the government.As a result, you have more assetsavailable to invest today. The opportunityto invest and grow the deferred expenseis the benefit of loss harvesting.

One tax return. Many securities.Even more tax lots.

Capital losses and gains roll-up to thetaxable investor. This means that anyshare held in taxable accounts canpresent loss harvesting opportunities. Ifyou’re saving and periodically purchasingnew shares, you’re creating new tax lotsto potentially harvest. If you're investedwith an active manager, they likelyproduce turnover in the portfolio andeffectively resetting the cost basis forsecurities in the portfolio.

Loss harvesting is a continuous cycle.

Losses, not gains, drive effective lossharvesting. Investors need not wait forrealized gains to harvest losses becauseunused losses can be carried forward tooffset gains realized in the future and theloss might not be available in the future.

Therefore, losses should be takenwhenever the benefit of realizing theloss outweighs the costs. Doing so takesadvantage of temporary losses and helpsto maximize and accumulate compoundgrowth generated from tax-deferrals.

A caveat with tax rates.

If you expect your capital gains tax rateto increase, the benefit of loss harvestingincreases. If, however, you expect yourtax rate to decrease, the benefit fromloss harvesting decreases. Therefore,investors that are likely to be subject to

the maximum capital gains during theirlifetime should find loss harvesting mostimpactful to after-tax returns.

The Legacy strategy.

Loss harvesting shares that are expectedto be transferred results in the greatestbenefit. The beneficiary of the sharesreceives a step-up in the cost basisupon the death of the donor; effectivelyavoiding a capital gains tax during his orher lifetime.

1Andrew Berkin and Jia Ye. "TaxManagement, Loss Harvesting, and HIFOAccounting." Financial Analysts Journal,2003, p. 92.2"Sales and Trades of InvestmentProperty." IRS Publication 550, InternalRevenue Service, 2015, p. 59.

Important note: Tax strategies can becomplex. In addition to federal taxesimposed on ordinary income and capitalgains, there may be state and localtaxes that must be considered beforeimplementing a tax loss harvestingstrategy. Also, transaction costs that mayapply from buying and selling securitiesneed to be carefully considered. Eachinvestor should consult his or herown tax advisor concerning the taxconsequences of any investment strategythey make or are contemplating. UBSdoes not offer tax advice.

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Strategy and performanceTAA and market returns

S&P 500 forecast CIO GWM

6-month rolling price target USD 2925

2017 earnings per share actual USD 133.0

2018 earnings per share estimate USD 161.0

2019 earnings per share estimate USD 168.0

Source: UBS, as of 23 November 2018

Asset class

Tactical Deviation

in %*

Total return in % Annualized total return in % Benchmark1–Year 5–Year 10–Year**1–week 1–month YTD

Cash –2.0 0.04 0.20 1.65 1.77 0.64 0.44Barclays Capital US Treasury – Bills [1–3 M]

Fixed Income –1.0

US Gov't –6.5 0.13 0.74 –1.36 –1.35 1.37 2.64 BarCap US Agg Government

US Gov't 10 year +2.0 0.23 1.16 –3.33 –3.52 1.57 3.31Bloomberg Barclays US Treasury Bellwethers 10 Year

US Municipal 0.0 0.22 0.47 –0.45 –0.02 3.45 4.79 BarCap Municipal Bond

US IG Corp 0.0 –0.03 –0.23 –3.44 –2.79 2.93 6.42 BarCap US Agg Credit

US HY Corp 0.0 –0.29 –1.63 –0.37 0.34 4.38 11.19 BarCap US Agg Corp HY

Int'l Developed Markets 0.0 –0.13 –0.42 –4.12 –3.72 –0.48 2.52 BarCap Global Agg xUS

Emerging Markets 0.0 –0.23 0.19 –4.61 –3.47 2.03 6.9750% BarCap EM Gov and 50% BarCap Global EM (USD)

Emerging Markets Local Currency 0.0 0.04 1.19 –5.15 –3.51 0.11 4.32 BarCap EM Gov

Emerging Markets Hard Currency +3.5 –0.50 –0.81 –4.08 –3.43 3.94 9.62 BarCap Global EM (USD)

Equity +3.0

Global Equity +3.0 –2.65 –2.33 –5.67 –3.44 5.55 9.74 MSCI ACWI

US Large cap Growth –1.0 –4.60 –6.35 1.57 3.59 11.82 15.45 Russell 1000 Growth

US Large cap Value +1.0 –2.72 –0.93 –2.09 2.00 7.80 11.29 Russell 1000 Value

US Mid cap 0.0 –2.48 –1.53 –2.47 0.25 8.37 14.19 Russell Mid Cap

US Small cap 0.0 –2.53 –2.37 –2.00 –0.59 7.20 12.43 Russell 2000

Int'l Developed Markets 0.0 –1.09 –0.74 –10.26 –8.54 1.81 6.89 MSCI EAFE

EM Equity 0.0 –1.73 0.97 –14.51 –13.86 1.55 7.84 MSCI EMF

Commodities 0.0 –2.85 –4.11 –5.97 –4.62 –7.45 N/A Blooomberg Commodity Index

Yield Assets 0.0

Senior Loans 0.0 –0.34 –0.70 3.49 4.02 3.78 7.66S&P/LSTA U.S. Leveraged Loan 100 Index

Preferreds 0.0 –0.09 –1.43 –2.88 –2.83 6.12 8.16BofA Merrill Lynch Fixed Rate Preferred Securities Index

MLPs 0.0 –3.22 –6.98 –4.82 1.05 –5.40 8.29 Alerian MLP Total Return

US Real Estate 0.0 –0.83 3.22 1.49 0.78 9.08 11.32 FTSE NAREIT Equity REIT Index

0–2–4–6 2 4 6

*The tactical deviation is for a moderate, non-taxable investor without alternative investments. See the latest UBS House View: Investment Strategy Guide for an interpretation of the tactical deviations and an explanation of the corresponding benchmark allocation.**As of last month end Source: UBS, as of 23 November 2018

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0–1–2–3 1 2 3 Sector

Tactical Deviation

Total return in % Annualized total return in %

Benchmark

1–week

1–month

YTD 1–Year 5–Year 10–Year**

Communication Services 0.0 –4.00 –7.61 –10.59 0.32 2.82 9.18 SPX Index

Consumer Discretionary 0.0 –4.25 –5.72 3.27 8.25 10.96 18.49 S5COND Index

Consumer Staples –1.0 –2.35 0.15 –2.11 2.32 7.70 11.56 S5CONS Index

Energy +1.0 –5.00 –7.33 –9.39 –2.92 –3.43 4.73 S5ENRS Index

Financials +2.0 –2.93 0.36 –5.66 0.83 10.36 9.63 S5FINL Index

Health Care 0.0 –2.61 –0.74 9.90 11.73 11.99 14.84 S5HLTH Index

Industrials –1.0 –3.17 –2.85 –6.76 –0.99 8.37 12.79 S5INDU Index

Information Technology 0.0 –6.07 –8.88 2.63 1.71 16.93 18.42 S5INFT Index

Materials 0.0 –3.48 2.27 –10.67 –7.36 5.59 10.10 S5MATR Index

Real Estate 0.0 –1.46 4.37 2.73 1.94 8.05 8.67 S5RLST Index

Utilities –1.0 –1.35 0.34 5.53 0.52 10.87 10.61 S5TELS Index

S&P 500 –3.77 –3.75 0.18 3.33 10.06 13.22 S5UTIL Index

Note: Tactical deviations are intended to be applicable to the US equity portion of a portfolio across investor risk profiles. **As of last month end Source: UBS, as of 23 November 2018

Strategy and performanceTAA and market returns: US equity sectors

Market movesLevel 1–w chg YTD chg

S&P 500 2,633 –3.77% 0.18%

DJIA 24,286 –4.40% 0.26%

Nasdaq 6,939 –4.25% 1.51%

Nikkei 225 N/A –0.72% –3.22%

Eurostoxx 50 3,137 –1.37% –7.53%

MSCI EM* 969 –1.72% –14.30%

MSCI World* 1,975 –2.76% –3.95%

MSCI EAFE* 1,793 –1.08% –9.79%

DXY 97 0.47% 5.20%

Gold $ 1223/oz –0.03% –6.12%

Brent crude oil $ 58.8/bbl –11.92% –12.07%

US 10–year yield 3.04% –2 bps +63 bps

VIX 21.5 +3.4 pts +10.5 ptsSource: Bloomberg, as of 23 November 2018Note: All returns are in local currency* As of intraday 22 November 2018

Tactical time horizon is approximately six months.Total return market performance is from Bloomberg as of close of business on source date, using representative indices, and is provided for information only.Past performance is no indication of future performance.

+ – Indicates +/– change

Terms and abbreviationsYTD = year-to-date. TAA = tactical asset allocation.

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Earnings calendarThe Earnings Calendar provides publicly announced reporting dates and times of companies covered by Chief Investment Office GWM. Reporting dates and times are subject to change by the reporting companies.

Date Company Ticker Company Ticker Company Ticker

27-Nov-2018 salesforce.com, inc. CRM

28-Nov-2018 Dick's Sporting Goods, Inc. DKS

29-Nov-2018 HP, Inc. HPQ Splunk, Inc. SPLK VMware, Inc. VMW

Source: FactSet, UBS, as of 23 November 2018

Date Indicator Period Time (ET) Unit Consensus Previous

26-Nov-18 Dallas Fed Mfg Survey Nov 10:30 AM level 25.0 29.4

27-Nov-18 FHFA House Price Index Sep 09:00 AM m/m 0.4% 0.3%

27-Nov-18 Consumer Confidence Nov 10:00 AM level 136.0 137.9

28-Nov-18 Advance Goods Trade Balance Oct 08:30 AM –$77.0b –$76.0b

28-Nov-18 Wholesale Inventories MoM Oct P 08:30 AM m/m 0.5% 0.4%

28-Nov-18 Real Gross Domestic Product (annualized) 3Q S 08:30 AM q/q 3.6% 3.5%

28-Nov-18 New Home Sales Oct 10:00 AM m/m 5.2% –5.5%

29-Nov-18 Personal Income Oct 08:30 AM m/m 0.4% 0.2%

29-Nov-18 Consumer Spending Oct 08:30 AM m/m 0.4% 0.4%

29-Nov-18 Pending Home Sales Index Oct 10:00 AM m/m 0.8% 0.5%

Source: Bloomberg, UBS, as of 23 November 2018UBS forecast estimates are published on Friday evenings in Economic Perspectives by economists employed by UBS Investment Research, a part of UBS Investment Bank. m/m = month–over–month. q/q = quarter–over–quarter. y/y = year–over–year. k = thousand. mn = million. bn = billion. P = preliminary.

Key economic indicators

ESG/Sustainable Investing Considerations: Sustainable investing strategies aim to consider and in some instances integrate the analysis of environmental, social and governance (ESG) factors into the investment process and portfolio. Strategies across geographies and styles approach ESG analysis and incorporate the findings in a variety of ways. Incorporating ESG factors or Sustainable Investing considerations may inhibit the portfolio manager’s ability to participate in certain investment opportunities that otherwise would be consistent with its investment objective and other principal investment strategies. The returns on a portfolio consisting primarily of ESG or sustainable investments may be lower or higher than a portfolio where such factors are not considered by the portfolio manager. Because sustainability criteria can exclude some investments, investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria.  Companies may not necessarily meet high performance standards on all aspects of ESG or sustainable investing issues; there is also no guarantee that any company will meet expectations in connection with corporate responsibility, sustainability, and/or impact performance.

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Non-Traditional Assets

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

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

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

Hedge Fund Risk: There are risks specifically associated with investing in hedge funds, which may include risks associated withinvesting in short sales, options, small-cap stocks, “junk bonds,” derivatives, distressed securities, non-U.S. securities and illiquidinvestments.

Managed Futures: There are risks specifically associated with investing in managed futures programs. For example, not all managersfocus on all strategies at all times, and managed futures strategies may have material directional elements.

Real Estate: There are risks specifically associated with investing in real estate products and real estate investment trusts. Theyinvolve risks associated with debt, adverse changes in general economic or local market conditions, changes in governmental, tax,real estate and zoning laws or regulations, risks associated with capital calls and, for some real estate products, the risks associatedwith the ability to qualify for favorable treatment under the federal tax laws.

Private Equity: There are risks specifically associated with investing in private equity. Capital calls can be made on short notice,and the failure to meet capital calls can result in significant adverse consequences including, but not limited to, a total loss ofinvestment.

Foreign Exchange/Currency Risk: Investors in securities of issuers located outside of the United States should be aware that evenfor securities denominated in U.S. dollars, changes in the exchange rate between the U.S. dollar and the issuer’s “home” currencycan have unexpected effects on the market value and liquidity of those securities. Those securities may also be affected by otherrisks (such as political, economic or regulatory changes) that may not be readily known to a U.S. investor.

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Emerging Market InvestmentsInvestors should be aware that Emerging Market assets are subject to, amongst others, potential risks linked to currency volatility, abrupt changesin the cost of capital and the economic growth outlook, as well as regulatory and socio-political risk, interest rate risk and higher credit risk. Assetscan sometimes be very illiquid and liquidity conditions can abruptly worsen. CIO GWM generally recommends only those securities it believes havebeen registered under Federal U.S. registration rules (Section 12 of the Securities Exchange Act of 1934) and individual State registration rules(commonly known as "Blue Sky" laws). Prospective investors should be aware that to the extent permitted under US law, CIO GWM may fromtime to time recommend bonds that are not registered under US or State securities laws. These bonds may be issued in jurisdictions where thelevel of required disclosures to be made by issuers is not as frequent or complete as that required by US laws.For more background on emerging markets generally, see the CIO GWM Education Notes, Emerging Market Bonds: Understanding EmergingMarket Bonds, 12 August 2009 and Emerging Markets Bonds: Understanding Sovereign Risk, 17 December 2009.Investors interested in holding bonds for a longer period are advised to select the bonds of those sovereigns with the highest credit ratings (inthe investment grade band). Such an approach should decrease the risk that an investor could end up holding bonds on which the sovereign hasdefaulted. Sub-investment grade bonds are recommended only for clients with a higher risk tolerance and who seek to hold higher yielding bondsfor shorter periods only.

Research publications from Chief Investment Office Global Wealth Management, formerly known as CIO Americas, Wealth Management, arepublished by UBS Global Wealth Management, a Business Division of UBS AG or an affiliate thereof (collectively, UBS). In certain countries UBS AGis 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 sellany investment or other specific product. The analysis contained herein does not constitute a personal recommendation or take into account theparticular 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 legalrestrictions and cannot be offered worldwide on an unrestricted basis and/or may not be eligible for sale to all investors. All information and opinionsexpressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express orimplied, is made as to its accuracy or completeness (other than disclosures relating to UBS). All information and opinions as well as any pricesindicated are current only as of the date of this report, and are subject to change without notice. Opinions expressed herein may differ or be contraryto those expressed by other business areas or divisions of UBS as a result of using different assumptions and/or criteria. At any time, investmentdecisions (including whether to buy, sell or hold securities) made by UBS and its employees may differ from or be contrary to the opinions expressedin UBS research publications. Some investments may not be readily realizable since the market in the securities is illiquid and therefore valuing theinvestment and identifying the risk to which you are exposed may be difficult to quantify. UBS relies on information barriers to control the flow ofinformation contained in one or more areas within UBS, into other areas, units, divisions or affiliates of UBS. Futures and options trading is consideredrisky. Past performance of an investment is no guarantee for its future performance. Some investments may be subject to sudden and large falls invalue 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 effecton the price, value or income of an investment. This report is for distribution only under such circumstances as may be permitted by applicable law.

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