Confidential
UBS Asset Management
China and Asia fixed income:all you need to know
March 2020
Hayden Briscoe
China onshore bond marketOverview and macroeconomic backdrop
Section 1
US-I
2
Why invest in the UBS China Fixed Income?
Underrepresented market We are Late Cycle Need for diversification
Global index inclusion IG Rating: A1Low correlationAttractive yield
Strong global demand fuels liquidity in China bonds
Safe haven asset with strong fundamentals
China bonds as attractive portfolio diversifier
UBS CHINA FIXED INCOME
Challenging Market Conditions
1 2 3
Source: UBS Asset Management. As of end January 2020
3
0 bn
1,500 bn
3,000 bn
4,500 bn
6,000 bn
7,500 bn
9,000 bn
10,500 bn
12,000 bn
13,500 bn
15,000 bn
Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19
Billion USD
China Government Bonds Policy Bank Bonds Local Government BondsGovernment Agency Bonds Corporate Bonds Money Market InstrumentsAsset-Backed Securities Private Placement Notes Others
China makes up only 3.1% of a major global indicesForeign investors are still underinvested
A market too big to ignoreWe see strong inflow from global investors in China bonds
1
Source: UBS, WIND, World Bank. Policy banks are China Development Bank, Agricultural Development Bank of China, and Export-Import Bank of China. Corporate bonds include non-policy bank financial bonds, enterprise bonds, company bonds, and medium-term notes. As of October 2019
Foreign investors hold ~300 billion USD which is only 2.1% of market
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
China United States Europe Japan
% share global GDP Global bond index representation
4
Increase in monthly trading volume indicates rising liquidityLower volatility compared to developed markets
China bonds as new safe haven asset class2
China bonds attractive to match global uncertainty
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Oct
10
Apr
11
Oct
11
Apr
12
Oct
12
Apr
13
Oct
13
Apr
14
Oct
14
Apr
15
Oct
15
Apr
16
Oct
16
Apr
17
Oct
17
Apr
18
Oct
18
Apr
19
Oct
19
An
nu
alise
dV
ola
tility
(3y r
ollin
g)
China (A+) US (AAA) Europe (A+) UK (AA)
Source: Bloomberg, WIND. As of end January 2020
--
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Jan
16
Apr
16
Jul 16
Oct
16
Jan
17
Apr
17
Jul 17
Oct
17
Jan
18
Apr
18
Jul 18
Oct
18
Jan
19
Apr
19
Jul 19
Oct
19
USD
bn
5
Low correlation to other global marketsAttractive nominal yield
Portfolio diversifier with attractive yield pick-up
-1%
0%
1%
2%
3%
4%
5%
Dec-09 Dec-11 Dec-13 Dec-15 Dec-17 Dec-19
Yie
ld(%
)
China USA Germany Japan UK
Source: Bloomberg. As of end January 2020
Attractive yield and spread pick up in Asia vs. global credit markets
3
-0.3
-0.2
-0.1
0.0
0.1
0.2
0.3
0.4
US (
AA
A)
Euro
pe (A
+)
Fran
ce (
AA
A)
Germ
any
(AA
A)
Sw
itze
rlan
d (A
AA
)
Aust
ralia
(A
AA
)
Jap
an
(A
)
UK
(A
A)
S&
P 5
00
Euro
pe E
qu
itie
s
Chin
a E
quitie
s
World
Eq
uitie
s
UK
Eq
uitie
s
US IG
US H
Y
CEM
BI
MA
GG
IE
EM
BI
JAC
I
Major Bond Markets Equities Credit
Co
rrela
tio
n t
o C
hin
a B
on
ds
6
Looking back to 2019: fast maturing market
Quarterly turnover ratio of bonds
Source: Bloomberg, JP Morgan, as of end January 2020
Liquidity in trading
Market liberalization
Foreign investor ownership now exceeds USD 300bn
Foreign investors piling in
China now second largest bond marketImproving ease of access for offshore investors
42.0
13.7 12.4
5.9 4.6 3.5 3.2 3.2 2.1 2.0
Un
ited
Sta
tes
Ch
ina
Japan
UK
France
Germ
an
y
Can
ad
a
Italy
Neth
erlands
Spain
Bond market size in USD trillion
0
50
100
150
200
250
300
350
No
v 14
Feb 1
5
May 1
5
Au
g 1
5
No
v 15
Feb 1
6
May 1
6
Au
g 1
6
No
v 16
Feb 1
7
May 1
7
Au
g 1
7
No
v 17
Feb 1
8
May 1
8
Au
g 1
8
No
v 18
Feb 1
9
May 1
9
Au
g 1
9
No
v 19
Fo
reig
n H
old
ing
s o
f O
nsh
ore
C
NY
Bo
nd
s (U
SD
billio
n)
Govt Local Govt Quasi/Agency Credit Credit (CD) Credit (ABS)
New measures in 2019:
• CNY hedging open to offshore investorsImpact: Investors no longer have to rely on offshore Renminbi
• QFII and RFQII quota restrictions abolishedImpact: Improve ease of access for foreign investors
0
0.2
0.4
0.6
0.8
1
1.2
Jan
16
Mar
16
May
16
Jul 16
Sep 1
6
No
v 16
Jan
17
Mar
17
May
17
Jul 17
Sep 1
7
No
v 17
Jan
18
Mar
18
May
18
Jul 18
Sep 1
8
No
v 18
Jan
19
Mar
19
May
19
Jul 19
Sep 1
9
No
v 19
Rates Bonds Credit Bond Government Bonds + Policy Bank Bonds
7
Outlook for 2020
US accounts for about 20% of China's gross exports
Trade in 2020
Slowing growth outlook
Infrastructure spending leading investments
Fiscal spending increasing
Gradual deleveragingCredit impulse stabilizing
-0.10%
-0.08%
-0.06%
-0.04%
-0.02%
0.00%
0.02%
0.04%
0.06%
0.08%
0.10%
0.12%
Jan 1
0
Jun 1
0
No
v 10
Ap
r 11
Sep 1
1
Feb 1
2
Jul 12
Dec
12
May
13
Oct
13
Mar
14
Au
g 1
4
Jan 1
5
Jun 1
5
No
v 15
Ap
r 16
Sep 1
6
Feb 1
7
Jul 17
Dec
17
May
18
Oct
18
Mar
19
Au
g 1
9
Jan 2
0
Credit Impulse 12-month Change
LGFV reducing as % of net financing
100%
58% 56% 61%
95%80% 83%
22% 20%11% 16%
28%
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
LGFV LGB
18% 17% 17% 17% 17% 18% 18% 19% 19% 17%
20% 19% 16% 15% 16% 16% 16% 16% 16% 17%
8% 8%7% 7% 6% 6% 6% 6% 6% 6%
9% 9% 10% 11% 12% 12% 12% 12% 13% 14%
14% 14% 16% 17% 16% 15% 14% 12% 12% 11%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Others
Korea
HK + TW
South East Asia
Japan
EU
US
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Dec
09
May
10
Oct
10
Mar
11
Au
g 1
1
Jan 1
2
Jun 1
2
No
v 12
Ap
r 13
Sep 1
3
Feb 1
4
Jul 14
Dec
14
May
15
Oct
15
Mar
16
Au
g 1
6
Jan 1
7
Jun 1
7
No
v 17
Ap
r 18
Sep 1
8
Feb 1
9
Jul 19
Tax Revenue (YTD YoY) Personal Income Tax (YTD YoY)
Corporate Tax (YTD YoY) Value-added Tax (YTD YoY)
Source: Bloomberg, JP Morgan, as of end January 2020
UBS China Fixed Income (RMB)
Section 2
9
Why invest in UBS China Fixed Income?
• Easy and direct accessto China's fast-growing and very large onshore fixed income market
• Attractive yield of 3.00%from investment grade portfolio
• Active, diversified portfoliomanaged by a team with years of experience in onshore China securities
• High-quality assetsto build diversified investment grade portfolio
• Focus on liquidityto preserve room for flexibility
• Sector allocationFocus on China government and policy bank bonds
CNY returns net
Longstanding investment expertise in China
Portfolio composition Attractive market opportunity
YTD 3 months 1 year
UBS Bond China Fixed Income
0.76 2.17 3.46
AVG peer performance 0.13 1.55 2.68
China Bond Aggregate 0.73 2.32 4.57
• Attractive yield pick-upwith strong risk-adjusted returns compared to major developed markets
• Strong technical demandby inclusion in global indices
• Ideal safe haven assetwith low realized volatility and low correlation to other markets
Source: UBS Asset Management, Bloomberg, Morningstar Direct. As of end January 2020
1.87%
51.08%
1.85%
18.26%
0.31%
25.39%
1.24%Commercial BankBondsChina GovernmentBondsGovernment AgencyBondsCorporate Bonds
Non-Bank FinInstitution Bonds
Sector allocation
AAA0.28%
A172.98%
A22.53%
A31.54%
Baa20.31%
Baa32.14%
NR20.22%
Credit quality allocation
10
Fund Index
Yield to Maturity (gross) 3.07% 3.13%
OAD (years) 5.26 5.03
Average rating of holdings A2 A2
No. of issuers 30 555
Key statistics
UBS China Fixed Income: Positioning
Sector Allocation vs Index
US-I
Source: UBS Asset Management as at 31 January 2020Note: Please note that information is representative of a specific Asian high yield portfolio and may vary. All figures above are gross of fees.
China Fixed Income Fund
Credit quality allocation (MV%)
China Aggregate Index CNY
As of 31 January 2020
AAA0.28% A1
72.98%
A22.53%
A31.54%
Baa20.31%
Baa32.14%
NR20.22%
A163.23%
A31.35%
Baa22.89%
NR30.31%
21.51%
13.70%
0.00% -0.56% -2.11%-6.75% -7.89%
-19.50%
1.60%
-30%
-20%
-10%
0%
10%
20%
30%
GovernmentBond
Corporate Bonds Project Rev DebtInstrument
Non-Bank FinInstitution Bonds
Govt SupportingAgency Bonds
CommercialBank Bonds
Policy BankBonds
LocalGovernment
Bonds
Cash
11
UBS-AM China Fixed Income performance
Annualized1
1 month 3 months Year-to-date 1 Year Since inception
UBS Bond China Fixed Income 0.83 2.44 0.83 4.63 6.92
Bloomberg Barclays China Aggregate Index CNY 0.73 2.32 0.73 4.57 6.97
Value added2 0.10 0.13 0.10 0.05 -0.05
Tracking error3 - - - 0.42 0.52
Total returns (USD, Gross)
Total return (%) in CNY for periods ending 31 January 2020
Source: UBS Asset ManagementNote: The returns shown above are based on currently available information and are subject to revision. Past performance is no guarantee of future results. Performance figures are gross of fees. Please see attached disclosure information. Inception date as of 31 March 2018
1 Periods greater than 1 year are annualized.2 Value added is the arithmetic difference between the composite return and the benchmark return.3 Tracking error is the standard deviation of the difference between the monthly composite and benchmark returns, based on logarithmic returns
Tracking error is annualized for periods greater than 1 year
Investment philosophy and process
Section 3
13
Alpha from different sources…
• Long or short relative to benchmark
• Curve positioning
• Local Asian bond market opportunities
• High yield expertise
• Market beta
• Sector-rotation, issuer and issue selection
• Opportunistic allocations to investment grade
• Active long or short positions in Asian currencies
• Options
• Carry strategies
Credit
For illustrative purposes only
… and a holistic investment process in the evolving Asia high yield market.
14
Collaboration – Portfolio management & credit analysts
Alpha generation Risk management
▪ Credit selectionBottom-up research
▪ Valuationsrelative and absolute
▪ Macroeconomic pictureTechnical trends
▪ Idiosyncratic riskUnderstand business modelAssess financial conditionMonitor event risk
▪ Industry riskAssess business cycles
Portfolio Management
Credit Analysts
Global macroeconomic
assessment
Focus on regional drivers
Risk adjusted outcomes for
credit, rates & FX
Portfolio construction
Timing, execution& liquidity
management
Fundamental credit analysis
On the ground company research
Country and sector expertise
Preservation of capital
High conviction relative value
opinions
Consistent performance is derived by leveraging global portfolio management insights and regional interaction with analysts
For illustrative purposes only
15
Portfolio construction
Develop Risk Budget1 Implementation2 Risk Monitoring3
UBS Asian High Yield Bond Strategy
Our objective is to take compensated risks seeking to generate favorable risk-adjusted returns for our clients over a market cycle.
Rate
sC
red
itFX
Overall duration exposure
IG credit
HY credit
- Index +
Min 75%
Non-US currencies Max 20%
Max 25%
Max 10%Single issuer
Non Asia Max 25%
Max 8% Tracking Error
For illustrative purposes only.
Our process combines a top-down and bottom-up approach under ongoing risk management
Duration Country Currency Sector
Top-Down Macro Strategies
Bottom-Up Security Selection Strategies
Government Quasi-Sov Corporate Non-Asia
16
Issuer selection
Single security analysis
– credit view(management, event risks, etc.)
– technicals(liquidity, supply, etc.)
– valuation(absolute and relative credit spreads)
Key considerations
− underlying fundamental risks associated with a borrower
− appropriate level of credit spread to compensate an investor for assuming those risks
Fundamental credit analysis
− qualitative assessment of management strength, market position, competitive environment and financial flexibility
− qualitative assessment of historical operating results, credit ratios and most importantly, an expected future outlook
Portfolio manager views
– beta positioning– industry allocation– quality distribution– liquidity needs– performance targets– risk budgets
Credit analyst views
− fundamental overview− industry investment thesis− industry relative weighting− issue relative weights
Credit research
− industry overview− financial projections− capital structure− cash flow and liquidity− covenant review− management review− ownership structure
PO
RT
FO
LIO
HO
LD
ING
A disciplined and thorough research-based approach
For illustrative purposes only
17
Asia Fixed Income – execution and trading
Execution factors
– Price/Cost
– Speed of execution
– Size
– Market Coverage
– Others (settlement, delivery, etc. )
Fixed Income portfolio management tool
– Analysis of portfolio, benchmark and risk parameters
– Trade simulation
Price discovery
– Tradeweb
– Bloomberg
– Market Axess
– Brokers
UBS Asset Management’s Compliance team regularly monitors the quality of the executions, and continuously enhances internal best execution and trading policies to reflect latest market practices.
Investment guideline check & risk management
– Sentinel Global Risk System
– Prima / RIskMetriicsBarclays Point
Order management systems
– Longview
– Sophis (OTC Derivatives)
– FXCM (FX Cash Management)
Portfolio holding
– Ongoing management with internal portfolio management system (YODA)
Combining PM's knowledge with industry leading technology to deliver best execution
For illustrative purposes only
18
Formal investment meetings
Meeting Frequency Purpose
Fixed Income Investment Forum (FIIF) Monthly Identify key investment themes and risks
Macro Forum Discussion QuarterlySurvey GDP, inflation trends versus consensus and cash paths across major economies
Sector Survey Discussion QuarterlySurvey 300+ market factors, assign conviction and assess returns to identify trade ideas
FIIF Sub-committees (Rates / FX, IG credit, HY credit, EM Debt)
Bi-Weekly,
as requiredReview market development, valuations and trade ideas
Meeting Frequency Purpose
Asia Macro Discussion Quarterly Review of macro and policy direction across all Asia countries
APAC Research Forum Monthly Discuss China cross asset class themes in Fixed Income, equities and asset allocation
APAC Risk Control Meeting Monthly PM and risk team discuss market risks and portfolio risk utilization
APAC Credit Committee B-Weekly Formal review of credit research recommendations
Asia Portfolio Strategy Team WeeklyReview global and Asia market developments, FIIF views, portfolio risk positioning, trade ideas and investment performance
Asia PMs & Credit Analysts WeeklyDiscussion of single name credit news/views, upcoming primary issuance and portfolio positioning
Asia Morning Meeting Daily Discuss overnight market color, news, and updates
Enable portfolio managers to effectively draw on the global resources of our portfolio management and credit research teams, as well as the broader Fixed Income investment group, as they assess the relative attractiveness of sectors/industries and formulate macro views (e.g. credit beta and duration positioning) and set portfolio strategy:
19
Why invest in UBS China Fixed Income?
• Easy and direct accessto China's fast-growing and very large onshore fixed income market
• Attractive yield of 3.00%from investment grade portfolio
• Active, diversified portfoliomanaged by a team with years of experience in onshore China securities
• High-quality assetsto build diversified investment grade portfolio
• Focus on liquidityto preserve room for flexibility
• Sector allocationFocus on China government and policy bank bonds
CNY returns net
Longstanding investment expertise in China
Portfolio composition Attractive market opportunity
YTD 3 months 1 year
UBS Bond China Fixed Income
0.76 2.17 3.46
AVG peer performance 0.13 1.55 2.68
China Bond Aggregate 0.73 2.32 4.57
• Attractive yield pick-upwith strong risk-adjusted returns compared to major developed markets
• Strong technical demandby inclusion in global indices
• Ideal safe haven assetwith low realized volatility and low correlation to other markets
Source: UBS Asset Management, Bloomberg, Morningstar Direct. As of end January 2020
1.87%
51.08%
1.85%
18.26%
0.31%
25.39%
1.24%Commercial BankBondsChina GovernmentBondsGovernment AgencyBondsCorporate Bonds
Non-Bank FinInstitution Bonds
Sector allocation
AAA0.28%
A172.98%
A22.53%
A31.54%
Baa20.31%
Baa32.14%
NR20.22%
Credit quality allocation
US-I
Appendix
UBS Asset Management
Fixed Income Overview
Appendix A
US-I
22
US
Global
European and UK
Emerging Markets
Swiss
Australian and Asia Pacific
Global presence
Chicago
New York
London
Zurich
Singapore
Hong Kong
Shanghai
Tokyo
Sydney
Total AUM USD 253 billion, by strategyBonds USD 151 billion
Money Market USD 102 billion
Leading manager with USD 253 billion in assets under management
UBS-AM Global Fixed Income at a glance
• Deep expertise with 100+ fixed income investment professionals, averaging 18 years investment experience
• Globally integrated platform offering local insights and diverse perspectives
• Disciplined investment approach drawing on deep resources to employ diverse alpha sources
• Commitment to proprietary research across the full investment spectrum
Key strengths of Global Fixed income
US Taxable
Emerging Markets
European
US Municipal
Australian
Swiss
Source: UBS Asset Management: worldwide fixed income invested assets. As of December 31, 20191 Excludes fixed income assets in multi asset mandates and other strategies managed by Multi Asset and Solutions
23
Experienced Asia fixed income investment team
Source: UBS Asset Management. As of January 2020
Hayden BriscoeHead Fixed Income, Asia Pacific
A highly experienced and stable team with average industry experience of 17 years
Asia PM
Trading and Investment Analysts Asia
Investment Specialists
Credit Research APAC
Yunxi LiuAnalyst APAC
Ross DilkesPM APAC
Evan GreenburgPM APAC
Jiayi YewPM China
Brian LouPM China
Sophie LeiAnalyst China
Smit RastogiAnalyst North East Asian Property and Financials
Ben SquireHead Credit Research APAC
Ethan WangAnalyst Chinese Corporates
Brian HuangAnalyst China Industrials and Property
David ChengHead Investment Specialist APAC
Patrick JungInvestment Specialist Australia
Keiko SugawaHead Japan Fixed Income & Investment Specialist Japan
Eiji YamamotoInvestment Specialist Japan
Michael FleischInvestment Specialist Asia
Pantheon ChungFixed Income Taiwan
Jimmy YangTrading China
Feifei YuTrading China
Steven ChuangTrading Taiwan
Earl San JuanAnalyst Australia, Asia
Emerging Markets Team
Thiago CarlosEmerging market analyst
Federico KauneHead EM PM
Igor ArseninPM EM
Jose BernalEmerging market analyst
Will RivaEmerging market analyst
Singapore Hong Kong Shanghai
Sydney Tokyo Taiwan
Global
Gianandrea HeyerEmerging market analyst
David MichaelPM EM
Daphne ChiuFixed Income Taiwan
24
Portfolio managers directly involved with Asia FI strategies
Source: UBS Asset Management. As of January 2020
Name Years in Industry Years with Firm Years with Strategy/Fund
Hayden Briscoe, Head FI APAC 28 3 3
Ross Dilkes (lead PM) 14 14 7
Evan Greenburg (deputy PM) 14 5 5
Brian Lou (onshore China) 9 2 n/a
Jiayi Jew (onshore China) 9 <1 n/a
Fixed Maturity Funds, $1,990
China Fixed Income, $890
Asian USD Credit, $616
Asian USD IG, $1,221
Asian USD HY, $950
Onshore China private funds,
$50
Team manages USD 5.7 billion in assets across 21 portfolios
25
Asia fixed income strategiesDiversified offering
Source: UBS Asset Management as at 31 January 2020
UBS (Lux) Bond Fund – Full Cycle
Asian Bond
UBS (Lux) Bond SICAV – Asian
Investment Grade Bonds
UBS (Lux) Bond SICAV – Asian High
Yield
UBS (HK) Fund Series – China High
Yield Bond
UBS (Lux) Bond SICAV – China Fixed Income
Universe / Style USD Asian creditUSD Asian
investment grade credit
USD Asian non-investment grade
credit
USD China non-investment grade
creditChina fixed income
BenchmarkJ.P. Morgan Asia
Credit Index
J.P. Morgan Asia Credit Index
Investment Grade
J.P. Morgan Asia Credit Index Non Investment Grade
Bloomberg Barclays China Aggregate
Index in CNY
Option Adjusted Duration 4.2 4.3 2.6 2.2 5.3
Average Rating BBB A- B+ B+ AAA (onshore)
Yield to Maturity 4.6% 2.8% 7.1% 9.1% 3.1%
Derivatives Low Low Low Low None
Alpha Target 100-200bps 100-200bps 100-200bps N/A 75 bps
Tracking Error Target 200-400bps 200-400bps 200-400bps N/A 150 bps
Volatility – 5 years 3.0 N/A 4.6 N/A N/A
Inception Jan 2010 May 2016 Aug 2011 Mar 2017 Apr 2018
AuM Fund USD 257 52 823 100 483
AuM Strategy USD 616 106 950 950 890
26
Asia fixed income composite return summary
Source: UBS Asset Management
Note: The returns shown above are based on currently available information and are subject to revision. Past performance is no guarantee of future results. Performance figures are gross of fees. Please see attached disclosure information. Inception Dates: Full Cycle: 31 January 2010, Asian High Yield:31 August 2011 Benchmark change after 30 September 2014. Before: J.P. Morgan Asia Credit Index Non-Investment Grade in ADXY; after: J.P. Morgan Asia Credit Index Non-Investment Grade in USD. China Fixed Income: 30 April 2018, China High Yield: 31 March 2017
1 Periods greater than 1 year are annualized2 Value added is the arithmetic difference between the composite return and the benchmark return
Total returns (%) in USD for periods ending 31 January 2020
Annualized
Year-to-date 1 Year 2 Years 3 Years 4 Years 5 Years
Since Inception
UBS Bond Full Cycle Asia 1.17 11.58 7.42 6.19 6.30 5.82 6.43
J.P. Morgan Asia Credit Index 1.36 10.66 6.10 5.50 5.54 4.88 6.00
Value added2 -0.19 0.92 1.32 0.70 0.76 0.94 0.43
UBS Investment Grade Bond 1.49 11.46 7.20 5.91 - - 5.14
J.P. Morgan Asia Credit Index IG 1.54 10.91 6.53 5.64 - - 4.85
Value added2 -0.05 0.55 0.67 0.27 - - 0.29
UBS Bond Asian High Yield 0.62 11.89 6.80 6.41 8.40 7.50 7.21
J.P. Morgan Asia Credit Index Non-IG 0.78 9.89 4.75 5.08 7.08 6.51 6.54
Value added2 -0.16 2.00 2.05 1.33 1.32 0.98 0.67
UBS Bond China Fixed Income 0.83 4.63 - - - - 6.92
Bloomberg Barclays China Aggregate Index CNY 0.73 4.57 - - - - 6.97
Value Added2 0.10 0.05 - - - - -0.05
UBS China High Yield Bond Fund 0.49 10.89 5.02 - - - 4.42
27
Over 20 year history of UBS-AM in AsiaLong-term commitment, experience and track record in managing Asian bonds
Source: UBS Asset Management. Past performance is not an indicator of future return. As of June 2019
• Best Fund Manager for Bonds – Asia Pacific Hard Currency by Citywire in the Hong Kong Awards (2016 and 2017)
• UBS (Lux) Bond Fund – Full Cycle Asian Bond (USD) P-acc: awarded Best Asia Bond Fund in the Morningstar Hong Kong Fund Awards for 2017
• UBS (Lux) Bond Fund – Full Cycle Asian Bond (USD) P-acc: 4-star Morningstar rating in the EAA Fund Asia Bond category
• UBS (Lux) Bond SICAV – Asian High Yield (USD) P-acc: 3-star Morningstar rating in the EAA Fund Asia High Yield Bond category
2006
• Asian local currency bond mandate
• Asian USD HY credit funds
• Asian local currency bond fund
• CNH bond fund
• Asian local currency bond segregated mandate
• Onshore China fixed income fund
• Asian USD IG credit buy & hold mandate
• Asian USD credit fixed maturity fund
• Asian USD IG credit fund
• China high yield fund
2010 2011 2012 2014 201620152013
• Onshore China short term fund
• Asian USD IG credit segregated portfolio
• CNH bond portfolio
• Asian USD credit fund
2017 2018
• Onshore China CNY bond fund
• WFOE onshore China Flexible Bond Fund and customized fundsIndustry recognition
2019
• China Treasury segregated portfolio
Asian credit markets
Supportive credit environment
Appendix B
US-I
29
2.9
1.9
1.0
3.6
6.4 6.6
5.2
2.6
1.3
0.6
1.0
6.2 6.2
5.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
US Euro Area LATAM EmergingEurope
Emerging Asia China ASEAN-5
GD
P G
row
th %
2018 2019F
Asia remains a bright spot for growth
Strong Asia growth
Asia remains a global growth driver
Stable fundamentals
Rising profitability combined with low default rates
China opening up
Maturing Chinese bond market offers new opportunities
… driving the world economy amid a global growth slowdown
Asia growth continues to outperform overall global growth
Source: IMF World Economic Outlook (WEO) Update July 2019. As of January 2020
Emerging MarketsDeveloped Markets
30
30 bn
35 bn
40 bn
45 bn
50 bn
55 bn
60 bn
Jan
-12
Apr-
12
Jul-1
2
Oct
-12
Jan
-13
Apr-
13
Jul-1
3
Oct
-13
Jan
-14
Apr-
14
Jul-1
4
Oct
-14
Jan
-15
Apr-
15
Jul-1
5
Oct
-15
Jan
-16
Apr-
16
Jul-1
6
Oct
-16
Jan
-17
Apr-
17
Jul-1
7
Oct
-17
Jan
-18
Apr-
18
Jul-1
8
Oct
-18
Jan
-19
Apr-
19
Jul-1
9
Oct
-19
Jan
-20
Positive Yielding Debt Negative Yielding Debt
Asian high yield bonds provide strong income proposition
USD 14tn negative yielding debt
Source: Bloomberg, Bloomberg Barclays Global Aggregate Index MV USD. As of end January 2020
Market size bn
Total negative yielding debt - USD 14 trillion
31
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
US HY EUR HY Asia HY
Attractive valuation supported by 3 positive factorsAttractive yield and spread pick up in Asia vs. global credit markets
5.5% – 11.7% 12mth forecasted return range
UBS expects 8-9% 12m return
1.Supportive monetary policy - central banks look to underpin growth
2.Loosening financial conditions in China
3.Default rate to remain low, fundamentals to remain stable
Asian USD Credit Market: Yields
Source: Bloomberg. As of end January 2020
Ø Asia HY YTM: 6.35%
2020 Forecast
5.5%Bull Case
2020F
Bear case7.5%
32
Easing monetary policy
%
1%
2%
3%
4%
5%
6%
7%
Jan 18 Jul 18 Jan 19 Jul 19 Jan 20
USA China 3m SHIBOR IndiaIndonesia South Korea PhilippinesMalaysia
USA
China
Indonesia
South Korea
Philippines
India
Central bank policy rates
Central banks loosen policy to support growth
Source: Bloomberg. As of end January 2020
Various rate cuts across Asia
Malaysia5x
3x
2x
4x
2x
1x
6.50%
2.50%
1.75%
6.00%
3.25%
4.75%
5.15%
1.75%
1.25%
5.00%
2.75%
4.50%
Interest rate movements
# of rate cuts
33
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19
Credit impulse (12M)
Targeted credit growth supports the economy in China
Source: Bloomberg. As of end December 2019
Bloomberg China Credit Impulse
(yoy % change)
China's credit impulse has been increasing since November 2018
China's credit impulse – measures change in new credit issued as percentage of GDP
Credit impulse
China's credit impulse signals economic and investment activity inflection points
Flow of credit and improved sentiment will be supportive for risk assets
34
Default rates are low and trend expected to continue…
Asian companies have healthier corporate balance sheets Annual default rates by region since 2010
Stable and increasing interest rate coverage ratio Low historical default rates in China credit markets
Source: J.P. Morgan. For illustration purposes only. Data available as of January 2020
… backed by solid interest rate coverage ratios and fundamentals
Source: J.P. Morgan. For illustration purposes only. Data available as of December 2019
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F
China HY Asia
EM Europe LATAM
CEMBI Broad HY Composite
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
2014 2015 2016 2017 2018 1H 2019
Interest rate coverage ratio
HY HY industrial HY property
35
%
2%
4%
6%
8%
0 1 2 3 4 5 6 7 8 9
Yie
ld (
%)
Duration (years)
Asian high yield – attractive risk/return
Yield(%) Duration
Yield/Duration
Spread (bps)
USD High Yield 5.5 3.1 0.7 390
EUR High Yield 3.4 4.2 0.4 337
Asia USD High Yield 6.7 3.2 0.8 524
Asia HY
Asia IG
Europe HY
US HY
US IG
Europe IG
Yield/duration ratio for high yield (HY) and investment grade (IG) bonds
Asian high yield provides higher yield but with lower duration
Source: Bloomberg, J.P. Morgan. As represented by Bloomberg Barclays US Aggregate Corporate Index, Bloomberg Barclays Euro Aggregate Corporate index, JACI Investment Grade Index, Bloomberg Barclays US Corporate High Yield Index, Bloomberg Barclays Pan-European High Yield Index, and JACI Non-Investment Grade Index. As of end January 2020
UBS (Lux) Bond Fund – Asian High Yield (USD)
Appendix C
37
Fund Index
Yield to Maturity (gross) 7.03% 6.72%
OAD (years) 2.96 2.81
Average rating of holdings B1 B1
No. of issuers 115 265
Key statistics
UBS Asian High Yield Bond Fund: Positioning
Sector Allocation vs Index
US-I
Source: UBS Asset Management as at 31 January 2020Note: Please note that information is representative of a specific Asian high yield portfolio and may vary. All figures above are gross of fees.
Asian HY Fund
Quality allocation
JACI HY
As of 31 January 2020
AAA0.00%
BBB1.68%
BB32.45%
B51.97%
CCC1.44%
NR8.36%
Cash4.11%
BB38.12%
B38.21%
CCC0.85%
NR22.79%
3.0% 2.7% 2.1% 2.0%0.9%
-0.1% -0.5% -0.9% -1.0% -1.2% -1.5% -1.5% -1.8%
-6.2%
4.1%
Utilit
ies
Real Est
ate
Consu
mer
Oil
& G
as
Indu
strial
Pulp
& P
aper
Tra
nsp
ort
Sove
reig
n
Tm
t
Meta
ls &
Min
ing
Div
ers
ifie
d
Financi
al
Infr
ast
ruct
ure
Qu
asi
-Sov
Cash
& F
x
38
UBS Asian High Yield: Position Breakdown
Market Exposure vs. Index
Top 10 Issuer Underweights
Top 10 Issuer Overweights
As of 31 January 2020
4.1%
3.2%
2.8%
2.2%
1.2%
0.7%
-0.1%
-0.1%
-0.3%
-0.6%
-0.8%
-0.9%
-0.9%
-1.1%
-1.7%
-5.3%
-6.5%
4.1%
India
Indonesia
Macau
Philippines
Sri Lanka
Australia
Cambodia
Maldives
Thailand
Pakistan
Vietnam
Singapore
Mongolia
South Korea
Malaysia
Hong Kong
China
Cash & FX
Source: UBS Asset Management as at 31 January 2020Note: Please note that information is representative of a specific Asian high yield portfolio and may vary. All figures above are gross of fees.
2.0%
1.8%
1.5%
1.5%
1.4%
1.4%
1.4%
1.3%
1.3%
1.2%
0.0% 0.5% 1.0% 1.5% 2.0% 2.5%
Aev International Pte
Bank Of East Asia Ltd
Yanlord Land Hk Co Ltd
Adani Green Energy Up
Cifi Holdings Group
Modernland Overseas Pte
Central Chn Real Estate
Chn Aoyuan Property Grp
Smc Global Power Hldgs
Tower Bersama Infrastruc
-1.2%
-1.2%
-1.2%
-1.2%
-0.8%
-0.8%
-0.8%
-0.8%
-0.7%
-0.7%
-2.3% -1.8% -1.3% -0.8% -0.3% 0.2%
Proven Honour Capital
Cfld Cayman Investment
Greenland Glb Invst
1Mdb Global Investments
Fwd Group Ltd
Third Pkstan Intl Sukuk
Logan Property Holdings
Nwd Mtn Ltd
Zhenro Properties Group
Woori Bank
39
UBS-AM Asian High Yield performance
Annualized1
Year-to-date 1 Year 2 Years 3 Years 5 YearsSince
inception
UBS Bond Asian High Yield 0.62 11.89 6.80 6.41 7.50 7.21
J.P. Morgan Asia Credit Index Non-Investment Grade
0.78 9.89 4.75 5.08 6.51 6.54
Value added2 -0.16 2.00 2.05 1.33 0.98 0.67
Tracking error3 1.07 1.03 0.91 1.19 1.34
Morningstar quartile ranking4 3 1 1 1 2 -
Total returns (USD, Gross)
quartile fund over1, 2 and 3 years
UBS Asian High Yield Bond Fund Composite
Source: UBS Asset Management, as at 31 January 2020
Note: The returns shown above are based on currently available information and are subject to revisionPast performance is no guarantee of future results. Performance figures are net of fees. Please see attached disclosure information. Inception date as of 31 August 2011Benchmark change after 30 September 2014. Before: J.P. Morgan Asia Credit Index Non-Investment Grade in ADXY; after: J.P. Morgan Asia Credit Index Non-Investment Grade in USD1 Data for periods greater than 1 year is annualized
For periods greater than 1 year, annualized returns are used to calculate the value added and the tracking errorFor periods greater than 1 year, the annualized standard deviation is based on monthly logarithmic returns
2 Value added is the arithmetic difference between the composite return and the benchmark return3 Tracking error is the standard deviation of the difference between the monthly composite and benchmark returns, based on logarithmic returns
Tracking error is annualized for periods greater than 1 year4 Retrieved from Morningstar direct
UBS (Lux) Bond SICAV – Full Cycle Asian Bond
Appendix D
41
Fund Index
Yield to Maturity (gross) 4.51% 3.99%
OAD (years) 4.48 4.39
Average rating of holdings Baa2 Baa2
No. of issuers 103 127
UBS Full Cycle Asian Bond: Positioning
Asian Full Cycle Fund
As of 31 January 2020
Sector allocation vs index
Quality allocationKey statistics
JACI
Source: UBS Asset Management as at 31 January 2020
Note: Please note that information is representative of a specific Asian credit portfolio and may vary. All figures above are gross of fees.
AAA, 0.64%
AA, 5.13%
A, 25.05%
BBB, 35.00%
BB, 12.67%
B, 15.78%
CCC, 1.32%
NR, 4.37%
Cash, 0.05%
AA, 5.86%
A, 30.34%
BBB, 39.11%
BB, 8.84%
B, 9.05%
NR, 6.14%
10.0%
1.8% 1.7% 1.0% 0.9% 0.7% 0.5% 0.0%
0.0% -0.1% -0.3% -0.6% -1.2%-6.1%
-8.4%
0.1%
Real Est
ate
Financi
al
Indu
strial
Oil
& G
as
Utilit
ies
Tm
t
Oth
er
Consu
mer
Pulp
& P
aper
Div
ers
ifie
d
Tra
nsp
ort
Meta
ls &
Min
ing
Infr
ast
ruct
ure
Qu
asi
-Sov
Sove
reig
n
Cash
& F
X
42
UBS Full Cycle Asian Bond: Position Breakdown
Market Exposure vs. Index
Top 10 Issuer Underweights
Top 10 Issuer Overweights
As of 31 January 2020
Source: UBS Asset Management as at 31 January 2020
Note: Please note that information is representative of a specific Asian credit portfolio and may vary. All figures above are gross of fees.
12.0%
3.0%
2.5%
2.3%
1.8%
1.8%
1.6%
1.6%
1.5%
1.3%
0.0% 2.0% 4.0% 6.0% 8.0%10.0%12.0%14.0%
Us Treasury N/B
Huarong Finance 2019
Boc Aviation Ltd
Siam Commercial Bank Cay
Bharti Airtel Ltd
Adani Green Energy Up
Hkt Capital No 5 Ltd
Powerlong Real Estate
China Govt Intl Bond
United Overseas Bank Ltd
-3.6%
-2.9%
-2.3%
-1.5%
-1.4%
-1.3%
-1.2%
-1.0%
-0.9%
-0.9%
-4.0%-3.5%-3.0%-2.5%-2.0%-1.5%-1.0%-0.5%0.0%
Republic Of Indonesia
Republic Of Philippines
Sinopec Grp Oversea 2012
Cnooc Finance 2015 Us
Export-Import Bank Korea
Republic Of Sri Lanka
Alibaba Group Holding
Korea Development Bank
Perusahaan Listrik Negar
China Cinda Finance 7.13%
5.53%
1.17%
0.85%
0.70%
0.48%
0.28%
0.16%
0.02%
-0.02%
-0.03%
-0.20%
-0.29%
-0.37%
-0.37%
-0.53%
-1.21%
-2.28%
-5.35%
-5.70%
0.05%
India
Singapore
Hong Kong
Thailand
Japan
Other
Sri Lanka
United States
Macau
Maldives
Cambodia
Vietnam
Taiwan
South Korea
Mongolia
Pakistan
Philippines
Malaysia
China
Indonesia
Cash & FX
43
UBS-AM Asian Full Cycle performance
Annualized
Year-to-date
1 Year 2 Years 3 Years 4 Years 5 Years Since Inception
UBS Full Cycle Asian Bond 1.17 11.58 7.42 6.19 6.30 5.82 6.43
J.P. Morgan Asia Credit Index 1.36 10.66 6.10 5.50 5.54 4.88 6.00
Value added2 -0.19 0.92 1.32 0.70 0.76 0.94 0.43
Tracking error3 0.92 0.82 0.76 0.71 0.80 1.63
Information ratio4 1.00 1.61 0.92 1.06 1.18 0.26
Source: UBS Asset Management, as at 31 January 2020
Note: The returns shown above are based on currently available information and are subject to revision. Past performance is no guarantee of future results. Performance figures are gross of fees. Please see attached disclosure information. Inception date as of 31 January 20101 Data for periods greater than 1 year is annualized
For periods greater than 1 year, annualized returns are used to calculate the value added and the tracking errorFor periods greater than 1 year, the annualized standard deviation is based on monthly logarithmic returns
2 Value added is the arithmetic difference between the composite return and the benchmark return3 Tracking error is the standard deviation of the difference between the monthly composite and benchmark returns, based on logarithmic returns
Tracking error is annualized for periods greater than 1 year4 Information ratio is the arithmetic value added divided by the tracking error
UBS Full Cycle Asian Bond Composite
Composite total returns (USD, Gross)
UBS (Lux) Bond SICAV – Asian Investment Grade
Appendix E
45
Fund Index
Yield to Maturity (gross) 2.83% 2.72%
OAD (years) 4.89 4.94
Average rating of holdings A3 Baa1
No. of issuers 76 360
UBS Asian Investment Grade: Positioning
AAA6.6%
AA10.1%
A32.7%
BBB39.2%
NR10.8%
Cash0.7%
2.8%2.0% 2.0% 1.8%
1.3%0.2% 0.0%
-0.2% -0.5% -0.9% -1.2% -1.3% -1.3%
0.5%
Oil
& G
as
Real Est
ate
Div
ers
ifie
d
Financi
al
Indu
strial
Qu
asi
-Sov
Pulp
& P
aper
Tra
nsp
ort
Meta
ls &
Min
ing
Infr
ast
ruct
ure
Utilit
ies
Consu
mer
Tm
t
Sove
reig
n
Cash
& F
x
AAA, 0.6% AA,
8.1%
A, 39.9%
BBB, 51.3%
Asian Full Cycle Fund
As of 31 January 2020
Sector allocation vs index
Quality allocationKey statistics
JACI
Source: UBS Asset Management as at 31 January 2020
Note: Please note that information is representative of a specific Asian credit portfolio and may vary. All figures above are gross of fees.
46
UBS Asian Investment Grade composite return summary
Source: UBS Asset Management, as at 31 January 2020
Note: The returns shown above are based on currently available information and are subject to revision. Past performance is no guarantee of future results. Performance figures are gross of fees. Please see attached disclosure information. Inception date as of 31 May 2016
1 Periods greater than 1 year are annualized2 Value added is the arithmetic difference between the composite return and the benchmark return3 For periods greater than 1 year, the annualized standard deviation is based on monthly logarithmic returns4 Tracking error is the standard deviation of the difference between the monthly composite and benchmark returns, based on logarithmic returns. Tracking error is annualized for periods greater than one year5 Information ratio is the arithmetic value added divided by the tracking error. For periods greater than one year, annualized returns are used to calculate the value added and the tracking error
Annualized
Year-to-date 1 Year 2 Years 3 Years Since Inception
UBS Asian Investment Grade Bond 1.49 11.46 7.20 5.91 5.14
J.P. Morgan Asia Credit Index Investment Grade 1.54 10.91 6.53 5.64 4.85
Value added2 -0.05 0.55 0.67 0.27 0.29
Tracking error3 0.52 0.46 0.46 0.45
Information ratio4 1.05 1.46 0.58 0.64
UBS Asian Investment Grade Bond Composite
Composite total returns (USD, Gross)
47
Disclaimer
UBS Asset Management (UK) Ltd is a subsidiary of UBS AG. Registered in England.UBS Asset Management (UK) Ltd and UBS Asset Management Funds Ltd are authorised and regulated by the Financial Conduct Authority. UBS 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.© UBS 2020. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.This document is for Professional Clients only. It is not to be distributed to or relied upon by Retail Clients under any circumstances.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.Source for all data and charts (unless otherwise stated): UBS Asset ManagementThe 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 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 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 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 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 Asset Management (UK) Ltd we ask that you consult with us. We also request that any information obtained from UBS Asset Management (UK) Ltd in your possession is destroyed as soon as it is no longer required.The Luxembourg and Irish domiciled funds are recognised schemes under section 264 of the Financial and Services Markets Act 2000. The protections offered by the UK's regulatory systemand the compensation under the Financial Services Compensation Scheme, will not be available.