05112015 Presentation 2

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

For Professional Advisors Only

Introduction to ETFsDr Christopher Mellor, CFA5 November 2015

3

Today’s agenda

· What are ETFs?

· Who uses ETFs and why?

· Choosing an ETF

· Why Source?

4

What are exchange traded funds?

· Open-ended funds

· Typically regulated UCITS funds

· Bought and sold throughout the day on a stock exchange, like shares

or…

· Bought and sold at daily NAV like mutual funds

Traditional Unit trusts and

OEICsEquities

5

Aug-14 Oct-14 Dec-14 Mar-15 May-15 Jul-1580%

90%

100%

110%

120%

Typically passive

Source EURO STOXX Optimised Banks UCITS ETF· Designed to track a benchmark index, after fees

EURO STOXX Optimised Banks IndexSource EURO STOXX Optimised Banks UCITS ETF

6

Strong growth in European assets

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 421860

100

200

300

400

500

600

US$

bill

ions

Data: ETFGI

25% p.a. growth

7

ETFs are a growing share of European and US fund assets

Data: Deutsche Bank European Monthly ETF Market Review, August 2015

Q1 Q3

Q1 Q3

Q1 Q3

Q1 Q3

Q1 0%

4%

8%

12%

16%

USET

Fs a

s %

of t

otal

fund

ass

ets

Q1 Q3 Q1

Q3 Q1

Q3 Q1

Q3 Q1

0%

1%

2%

3%

4%

Europe

ETFs

as

% o

f tot

al fu

nd a

sset

s

8

Why are ETFs so popular?

· Flexible

· Liquid

· Transparent

· Cost-efficient

· Ideal tools for implementing and modifying your asset allocation

9

Who uses ETFs and why?

Reasons for using ETFs and ETCs

1 Based on interviews with 100 UK investors (including asset managers, private banks, pension funds, wealth managers, insurance companies and family offices) conducted by Prescient in November and December 2014

Series10%

20%

40%

60%

80%

100%

76%68%

46% 46%39%

33%

18%

· 56% of UK professional investors use ETFs1

Long-term broad

exposure

Tactical adjustment

Long/short strategy

Liquidity mgmt

Sector rotation

Cash equitisatio

n

Transition mgmt

10

Where is the growth in Europe-listed ETPs?

2015 YTD net new assets

Data: ETFGI, August 2015

Equity Fixed income Active Commodities Other (inverse, leveraged, currency,

alternative)

-10

0

10

20

30

40

Asia Pacific

Europe

North America

Emerging

Global

$ bi

llion

11

Provider AUM (US$ billion) Market share

iShares 223.9 45.3%

Db X / db ETC 60.6 12.3%

Lyxor 51.7 10.5%

UBS ETFs 26.2 5.3%

Amundi 21.2 4.3%

Source 19.4 3.9%

Vanguard 17.8 3.6%

ETF Securities 13.1 2.6%

SPDR ETFs 12.5 2.5%

Commerzbank 7.7 1.6%

Top European providers

Data: ETFGI, as at Aug 2015. ETFs and ETCs.

12

Choosing an ETF

Source EURO STOXX Optimised Banks UCITS ETF

Performance data from 31 August 2014 to 31 August 2015. Tracking difference is the proportional difference between the ETF and the benchmark index performance. Spread is the average between 1 and 24 September 2015 on the LSE. Past performance is not a reliable indicator of future performance.

Insert chart here

· Performance- Does the ETF deliver the expected

performance i.e. index performance less fees· Tracking

- Does the ETF track the index accurately?· Transparency

- Can I see what assets the ETF holds?· Trading costs

- Bid / offer spread- Any broker commissions

Ongoing charge 0.30%

12-month ETF performance 2.63%

12-month index performance 2.95%

Tracking difference -0.30%Tracking error 0.01%

Average bid-offer spread 0.08%

13

Common approaches to index replication

Physical Synthetic (physical with swap overlay) Synthetic (swap-based with collateral)

How it works

• The ETF owns the constituents of the benchmark index

• It may lend out some constituents (stock lending)

• It may own only a sample of the index constituents (optimisation)

• The ETF owns a portfolio of listed securities, not necessarily from benchmark index

• The ETF contracts with a counterparty, who agrees to pay any difference between portfolio performance and index performance (unfunded swap contract)

• The ETF exchanges investment proceeds for index performance (funded swap contract)

• To reduce counterparty exposure, swap counterparty pledges collateral, held in a segregated account

Pros • Stock lending may enhance returns• Optimisation may reduce operational

costs

• Accurate index tracking • Accurate index tracking

Cons • High operational costs (dividend reinvestment, rebalancing)

• Stock lending introduces counterparty risk• Optimisation may cause tracking error

• Use of swaps introduces counterparty risk (see overleaf)

• ETF does not own securities• Use of swaps introduces counterparty risk

Securities lent out (collateral posted)

Securities (some or all of index constituents)

Collateral held on behalf of fund

Exposure to swap counterparty (max 10%)

Securities (listed portfolio)

Exposure to swap counterparty (max 10%)

14

Why Source?

· An independent provider focused exclusively on ETFs

· Competitive, high quality core benchmark products

· A unique range of smart beta and active exposure

· Over 30 products listed on LSE, spanning equity, fixed income and commodities

ETFs are what we do

15

Low-cost exposure to major equity indices

<SPXP> S&P 500, 0.05% total costUS

<S400> JPX-Nikkei 400, 0.25% total cost

Japan

Developed markets<MXFP> MSCI Emerging Markets, 0.85% total cost

Global emerging markets

<SX5S> EURO STOXX 50, 0.05% total cost<S600> STOXX Europe 600, 0.19% total cost<MXEU> MSCI Europe, 0.20% total cost

Europe

<CHNP> FTSE China A50, max 1.11% total cost

China

<S100> FTSE 100, 0.35% total cost<S250> FTSE 250, 0.35% total cost

UK

<MXWO> MSCI World, 0.35% total costGlobal developed markets

Total cost includes the annual ongoing charge (management, custody, administration) plus transaction costs where known

16

Our GBP product range

Major benchmarks

S&P 500

EURO STOXX 50

FTSE 100

FTSE 250

JPX-Nikkei 400

MSCI World

Europe

MSCI Europe

STOXX Europe 600

STOXX Europe 600 Optimised Banks

EURO STOXX Optimised Banks

Smart beta

Goldman Sachs Equity Factor Index Europe

Goldman Sachs Equity Factor Index World

Income-focused

US Energy Infrastructure MLP

Emerging markets

MSCI Emerging Markets

FTSE China A50

Equities Fixed Income

PIMCO Sterling Short Maturity

PIMCO Short-Term High Yield

PIMCO EM Advantage Local Bond Index

Gold

Platinum

Palladium

Commodities

US sectors

9 S&P 500 sectors

17

Where to buy and sell Source ETFs

18

For more information

If you have any questions about Source funds, please contact a member of our UK team or visit our website

Call us on: 020 3370 1144 Email: [email protected] Visit our website at: www.SourceETF.co.uk

19

Important information

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.

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 index’s 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

22

“Active / Passive Debate”

“Passive cash flows surge”

"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 repeated

ly

document that

investors woul

d

benefit by swi

tching from

active perform

ance investing

to

low-cost index

ing."

- 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 Fund

“Vanguard becomes largest mutual fund family”(Globally)

23

Passive is gaining traction in the UK

Funds 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.

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42009 2010 2011 2012 2013 2014

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

-2%

0%

2%

4%

6%

8%

10%

12%

6.0% 6.1% 6.2% 6.3%7.0%

6.6% 6.7%7.0% 7.2% 7.2% 7.2% 7.4% 7.6% 7.7% 7.8%

9.0% 9.1% 9.4% 9.6% 9.8% 9.8%10.5%

10.9%11.2%

Total FUM in onshore passive funds Proportion of total industry FUM in onshore passive funds

Fund

s un

der m

anag

emen

t (G

BP

mill

ions

)

24

Active tends to underperform on average

Percentage of active equity managers underperforming their benchmark, 2000 to 2014

Glo

bal e

quity

U.K

. equ

ity

Eur

opea

n eq

uity

Eur

ozon

e eq

uity

U.S

. equ

ity

Em

ergi

ng m

arke

t equ

ity

Glo

bal b

onds

GB

P d

iver

sifie

d bo

nds

GB

P g

over

nmen

t bon

ds

EU

R d

iver

sifie

d bo

nds

US

D d

iver

sifie

d bo

nds

0%10%20%30%40%50%60%70%80%90%

100%

Surviving funds Surviving + "dead" funds

Equities Fixed income

Past 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.

25

After costs, more than half of all assets underperform

Median post-cost return

Costs

Benchmark return

Underperforming benchmark Outperforming benchmark

Pro

babi

lity

Return

Source: The Vanguard Group Inc.

Investing as a zero-sum game

26

Myths and misconceptions of indexing

“Active works best in inefficient markets”

“Active can outperform in bull/bear markets”

“Returns matter more than costs”

“I don’t invest in average funds”

“Active managers can better manage risks in a portfolio”

27

Indexing only works in efficient markets?

Percentage of active equity managers underperforming their benchmark, 2005 to 2014

High Yield Emerging Small-Cap0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Surviving funds Surviving + "dead" funds

Past 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.

28

Bull market: Jul.98-Aug.00

Bear market: Sep00-Feb03

Bull market: Mar03-Oct07

Bear market: Nov07-Feb09

Bull market: Mar09-Dec14

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Debunking the market cycle myth

Percentage of active equity funds underperforming prospectus benchmark

Past 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.

29

0

2

4

6

8

10

12

Low cost median High cost median

Low cost investments tend to outperform higher cost investments

Average annual returns over the ten years to 31 December 2014

Aver

age

annu

alis

ed re

turn

(%)

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.

30

Fund leadership is quick to change

Rank persistence of UK active equity funds

Past 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.

Highest quintile 2nd quintile 3rd quintile 4th quintile Lowest quintile Merged/ liquidated0%

5%

10%

15%

20%

25%

30%27.1%

17.6%18.8%

7.1%

16.5%

12.9%

Per

cent

age

of fu

nds

31

Actively managed portfolios tend to increase volatility

0 2 4 6 8 10 12 14 16 18 200

1

2

3

4

5

6

7

GBP diversified bonds funds

GBP diversified bonds market

UK equity funds

UK equity market

Global bonds funds

Global bonds market

Global equity market

Global equity funds

Annual volatility (%)

Ann

ual r

etur

n (%

)

Past 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

32

Myths and misconceptions of indexing

“Active 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 don’t 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

33

Investing as a zero sum game

• Relevance to mutual fund investors

The record of active management

• Performance

• Cyclicality

• Survivorship bias

• Persistence

Comparing active to passive

• The role of cost

• Relative performance

Key takeaways

Myths and misconceptions

• Inefficient markets

• Bull/bear market

• Returns over costs

• Average fund

• Active is less risky

Other benefits of indexing

• More control over risks

• Greater diversification

• Portfolio consistency

34

Appendix

35

2010 2011 2012 2013 20140%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2012 2013 20140%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Percent underperformingPercent underperforming, including "dead" funds

Active performance can be cyclical

Percentage of UK active equity managers underperforming their benchmarks

5-year periods 10-year periods

Past 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.

36

Survivorship bias can impact results

Excess 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 fund’s Morningstar Category. We measure performance from 1 January 2000 or the fund’s inception, whichever is later, and continue each fund’s 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 fund’s returns prior to dying. Performance is measured in sterling terms, net of fees, gross of tax withholding, with income reinvested.

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

Ann

ualis

ed e

xces

s re

turn

prio

r to

bein

g m

erge

ed o

r liq

uida

ted

MedianMiddle 50% of funds

37

The role of costs

Ongoing charges by fund category

Category Active Index Difference

Global equity 1.31 0.23 1.08

U.K. equity 0.97 0.51 0.45

European equity 1.69 0.29 1.40

Eurozone equity 1.35 0.32 1.03

U.S. equity 1.31 0.21 1.10

Emerging market equity 1.34 0.26 1.07

Global bonds 0.86 0.19 0.66

GBP Diversified bonds 0.63 -- n/a

GBP Government bonds 0.56 0.31 0.25

EUR Diversified bonds 0.80 0.65 0.15

USD Diversified bonds 0.90 0.65 0.25

Notes: 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 investor’s 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.

38

Lower costs tend to equate to higher returns

Performance of UK active equity funds relative to ongoing charges

Past 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 fund’s 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 y

ear a

nnua

lised

exc

ess

retu

rns

(%)

Expense ratio (%)

0 1 2 3 4-10

-5

0

5

10Emerging market equity

0 1 2 3 4-10

-5

0

5

10European equity

0 1 2 3 4-10

-5

0

5

10Euro zone equity

0 1 2 3 4-10

-5

0

5

10Global equity

0 1 2 3 4-10

-5

0

5

10UK equity

0 1 2 3 4-10

-5

0

5

10US equity

39

Mer

ged/

Liqu

idat

ed

0

50

100

150

200

250

300

350

400

450

500

Active funds Index funds

Num

ber o

f fun

ds

Distribution of equity fund performance

Outperforming / outperforming adjusted for survivorship bias

Less

than

-7%

Bet

wee

n -7

% a

nd -6

%

Bet

wee

n -6

% a

nd -5

%

Bet

wee

n -5

% a

nd -4

%

Bet

wee

n -4

% a

nd -3

%

Bet

wee

n -3

% a

nd -2

%

Bet

wee

n -2

% a

nd -1

%

Bet

wee

n -1

% a

nd 0

%

Bet

wee

n 0%

and

1%

Bet

wee

n 1%

and

2%

Bet

wee

n 2%

and

3%

Bet

wee

n 3%

and

4%

Bet

wee

n 4%

and

5%

Bet

wee

n 5%

and

6%

Bet

wee

n 6%

and

7%

Gre

ater

than

7%

0

20

40

60

80

100

120

Excess return

Prospectus benchmark

Past 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.

40

Distribution of bond fund performance

Outperforming / outperforming adjusted for survivorship bias

Mer

ged/

Liqu

idat

ed

Bet

wee

n -3

% a

nd -2

%

Bet

wee

n -2

% a

nd -1

%

Bet

wee

n -1

% a

nd 0

%

Bet

wee

n 0%

and

1%

Bet

wee

n 1%

and

2%

Bet

wee

n 2%

and

3%

0

10

20

30

40

50

60

70

80

90

Active funds Index fundsExcess return

Num

ber o

f fun

ds

Prospectus benchmark

Past 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.

41

Adding passive can help reduce client risk

Active portfolio

Adding passive

Risk of losing clients

Clie

nt p

ulls

all

asse

ts

Clie

nt p

ulls

mos

t ass

ets

Clie

nt p

ulls

som

e as

sets

Clie

nt a

sks

ques

tions

Market return

Portfolio’s periodic return

Clie

nt p

ulls

all

asse

ts

Clie

nt p

ulls

mos

t ass

ets

Clie

nt p

ulls

som

e as

sets

Clie

nt a

sks

ques

tions

Market return

Portfolio’s periodic return

Risk of losing clients

Source: Vanguard .

42

Indexing can permit greater control of asset class risks in a portfolio• Using a concentrated active fund can lead to a portfolio with risk and return characteristics

differing from the equity market

Greater diversification• Actively managed funds tend to hold fewer securities with varying degrees of return correlation

Portfolio consistency• An index fund should maintain its style consistency by closely tracking the characteristics of

the index and market

Indexing offers additional benefits in portfolio construction

43


This 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, Limited

Issued 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

UK editionFor professional investors only

November, 2015

The case for currency hedged ETFsUBS ETFs – ETFs how you want them

Asset managementUBS ETFs

Andrew Walsh, Head of UBS ETF Sales UK & Ireland

46

ContentsSection 1 UBS ETFs – A leading provider in Europe

Section 2 Background and impact of currency movements

Section 3 Currency hedging in fixed income

Section 4 Comparison of Hedging options

Section 5 UBS ETFs – currency hedged ETFs

Section 6 UBS ETFs – currency hedging methodology

Section 7 Conclusion

Section 8 Appendix

UBS ETFs – A leading provider in Europe

Section 1

48

• 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.1

• A leading fund house in Europe, the largest mutual fund manager in Switzerland2 and one of the largest fund of hedge funds and real estate investment managers in the world.

UBS Global Asset Management – At a Glance

1 Source: UBS, 31 March 20152 Source: Morningstar/Swiss Fund Data Swiss Promoters report (as of 31 March 2015)

49

UBS Global Asset Management – Passive AssetsPassively managed assets: £148bn1

Source: UBS Global Asset Management. Data as at 30 June 2015.1 AuM 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.

2006 2007 2008 2009 2010 2011 2012 2013 2014 42156

0

40

80

120

160

200

240

Total index AuM by asset class

Total index AuM growth (CHF bn)27%

20%15%

14%

9%5%4% 3% 2%

Global EquitiesFixed IncomeNorth American Eq-uitiesPan-European EquitiesSwiss EquitiesAsia Pacific EquitiesUK Equities

53%28%

11%6% 1%

Segregated MandatesUBS Pooled Index Funds

Total index AuM by vehicle

50

UBS ETFs – A Leading Provider in EuropeETFs the way you want them14 years of ETF experience · In 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 Europe1 · UBS ETF has £17.1bn in ETFs under management1

· Net inflows of £4.2bn in 20151

· One 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 indices

5 Core markets / exchanges · UK London Stock Exchange (LSE) (84 listings)2

· CH SIX Swiss Exchange (229 listings)2

· DE Deutsche Börse AG (Xetra) (73 listings)2

· IT Borsa Italiana (69 listings)2

· JP Tokyo Stock Exchange (TSE) (10 listings)2

Broad selection · Overall 179 ETFs are offered: equities, fixed income, commodities, precious metals, hedge funds, real estate and multi asset portfolio

· Broad range of physically (88%) and synthetically (12%) replicated ETFs (accumulating and distributing share classes) 1 Source: ETFGI, 28 August 2015.

2 Source: UBS Global Asset Management, September 2015. Listings include share classes in various currencies

51

UBS ETFs – European ETF MarketUBS ETFs – One of Europe's leading providers of physically replicated ETFs

Source: UBS Global Asset Management, ETFGI, 28 August 2015

· As 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).

Provider # ETFsAUM (£ m) August-15

% market share

NNA (£ m) August-15

NNA (£ m) YTD 15

iShares 266 145'516 47.1% 1'780 13'483 db x/db ETC 229 38'109 12.3% 1'402 5'889 Lyxor AM 238 33'659 10.9% 778 5'393 UBS ETFs 128 17'050 5.5% 1'115 4'209 Amundi ETF 98 13'816 4.5% -73 1'957 Vanguard 13 11'584 3.7% 561 2'140 Source 79 11'335 3.7% 556 1'794 SPDR ETFs 75 8'149 2.6% -143 1'317 Commerzbank 104 5'029 1.6% 87 972 Deka 45 4'676 1.5% -221 -72 ZKB 4 4'256 1.4% -76 -131 HSBC/Hang Seng 28 3'572 1.2% -11 -438 EasyETF 37 3'330 1.1% 107 382 XACT 10 1'830 0.6% -27 7 Swiss & Global 20 1'382 0.4% -30 -95 Think ETFs 12 1'324 0.4% 503 533 PowerShares 21 1'248 0.4% 26 117 Ossiam 9 1'147 0.4% 18 -54 ETF Securities 17 467 0.2% 23 160 BBVA AM 3 362 0.1% 14 49 Others (25) 80 1'318 0.4% 31 475 Total 1'516 309'159 100.0% 7'132 38'086

Background and impact of Currency movements

Section 2

53

Global equity portfolios – example of foreign currency holdings

Typical globally diversified equity portfolios

USD53.46%

EUR12.43

%

GBP9.20%

JPY9.15%

CAD4.23%

CHF3.83%

AUD3.38%

Rest*4.32%

Global equities

Source: 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 Index

0%

50%

100%96.17% 90.85% 90.80% 87.57%

46.54%

Foreign currency risk

· Portfolios 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.

54

Past trends in currency marketsExchange-rate developments against the GBP

Currency 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 25/09/2015

JPY/GBP: -28 %

USD/GBP: +4%

EUR/GBP : -14%

CHF/GBP: +3%

Total Return

60

70

80

90

100

110

120

130

140

Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15EURGBP Curncy USDGBP Curncy JPYGBP Curncy CHFGBP Curncy

Abeonomics

US Hike?

ECB QE

CHF floor removal

55

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 rate

· Currency 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– 25/09/2015

Estimated index annualized return

0.65

0.7

0.75

0.8

0.85

0.9

0.95

60

80

100

120

140

160

180

Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15

EURG

BP Cu

rrenc

y

Inde

x Per

form

ance

(TR N

et)

MSCI EMU (TR Net, EUR) MSCI EMU (TR Net, GBP unhedged)MSCI EMU (TR Net, GBP hedged) EURGBP (right-hand scaled)

0%

1%

2%

3%

4%

5%

6%

7%

8%

MSCI EMU (TR Net, EUR) MSCI EMU (TR Net, GBPhedged)

MSCI EMU (TR Net, GBPunhedged)

currency hedged return

Section 3

Currency hedging in fixed income

Return components – the role of exchange rate

57

Local Currency Fixed Income(Valuation Change + Accrued Interest)

Foreign Fixed Income(Valuation Change + Accrued Interest +

Currency P&L)

(6)

(4)

(2)

0

2

4

6

8

10

Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15

Barlcays US Liquid Corporates (GBP, unhedged)

MTD Price Return MTD Coupon Return MTD Currency Return

(6)

(4)

(2)

0

2

4

6

8

10

Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15

Barlcays US Liquid Corporates (USD, local currency)

MTD Price Return MTD Coupon Return MTD Currency Return

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"

58

Currency movements now more important than ever before- one exposure, different funding currencies


50

100

150

200

250

300

Feb-99 Aug-00 Feb-02 Aug-03 Feb-05 Aug-06 Feb-08 Aug-09 Feb-11 Aug-12 Feb-14 Aug-15

Barclays US Aggregate Corporate(monthly data, Feb. 1999 - Aug. 2015)

Barclays US Aggregate Corporate (USD, local currency) Barclays US Aggregate Corporate (EUR, unhedged)Barclays US Aggregate Corporate (CHF, unhedged) Barclays US Aggregate Corporate (GBP, unhedged)Barclays US Aggregate Corporate (JPY, unhedged) Barclays US Aggregate Corporate (AUD, unhedged)

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

Foreign investment – the latest example (QE ECB)

59

The ECB QE results in weaker EUR (unhedged GBP investor has FX loss)


80

90

100

110

120

130

140

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15

Barclays Euro Area Short Maturity - Unhedged Exposure (monthly data, Feb. 2009 -Aug. 2015)

Barclays Euro Area Liquid Corporates 1-5 Year (local currency, EUR)Barclays Euro Area Liquid Corporates 1-5 Year (GBP, hedged)

Unhedged GBP investor Hedged GBP investor

80

90

100

110

120

130

140

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15

Barclays Euro Area Short Maturity - Hedged Exposure (monthly data, Feb. 2009 - Aug. 2015)

Barclays Euro Area Liquid Corporates 1-5 Year (local currency, EUR)Barclays Euro Area Liquid Corporates 1-5 Year (GBP, hedged)

Tracking quality – example (live track since May 30, 2014)

60

98

99

100

101

102

103

104

105

106

May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15

Performance (daily data, TR Net)

UBS ETF – Barclays US Liquid Corporates UCITS ETF (USD) A-dis Barclays US Liquid Corporate Total Return Index (USD)

98

99

100

101

102

103

104

105

106

May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15

Performance (daily data, TR Net)

UBS ETF – Barclays US Liquid Corporates UCITS ETF (hedged to EUR) A-acc Barclays US Liquid Corporate Total Return Index (hedged to EUR)

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

Jun Jul Aug Sep Okt Nov Dez Jan Feb Mrz2014 2015

Monthly Realized Tracking Error (annualized, based on daily data)

UBS ETF – Barclays US Liquid Corporates UCITS ETF (USD) A-dis

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

Jun Jul Aug Sep Okt Nov Dez Jan Feb Mrz2014 2015

Monthly Realized Tracking Error (annualized, based on daily data)

UBS ETF – Barclays US Liquid Corporates UCITS ETF (hedged to EUR) A-acc

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

61

Hedge frequency driven by trade-off between tracking error and trading costs

Annualized Tracking ErrorCurrency hedging accuracy is defined by….i. the frequency a profit or loss resulted of a currency hedge

transaction is rolled and,ii. the ratio between the Hedge Nominal on t-1 and the

Total Net Assets of the foreign currency portfolio on t

𝐻𝑒𝑑𝑔𝑒 𝑅𝑎𝑡𝑖𝑜𝑡 = 𝐻𝑒𝑑𝑔𝑒 𝑁𝑜𝑚𝑖𝑛𝑎𝑙𝑓𝑐,𝑡−1 𝑇𝑜𝑡𝑎𝑙 𝑁𝑒𝑡 𝐴𝑠𝑠𝑒𝑡𝑠𝑓𝑐,𝑡

Hedge Ratiot: proportion of Hedge Nominal on t-1 and the Total Net Assets on tHedge Nominalfc,t-1: the amount in foreign currency sold forward on t-1Total Net Assetsfc,t: the total net assets in foreign currency on tt: the current business dayt-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 portfolio

Trade-off between Hedge Frequency and Tracking Error / Trading Costs • The Hedge Ratio is defined as the nominal amount

to be hedged relative to the ETF's asset under management

• Predefined (by index provider) hedging methodology decides about the ETFs' hedging quality

• The higher the hedge frequency and the closer the hedge ratio to 100%, the lower the Tracking Error

• The higher the hedge frequency, the higher the turnover and hence the higher portfolio trading costs

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%

0.40%

0.45%

0.50%

Apr Mai Jun Jul Aug Sep Okt Nov Dez Jan Feb Mrz SinceIndex

Inception2014 2015

Barclays US Liquid Corporates USD vs. Barclays US Liquid Corporates hedged to EUR

Avg. spread between Libor USD 12m and Libor EUR 12m

≈ 36bps

Source: 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

63

Comparison of hedging optionsCurrency exposure can be hedged in a number of ways

UBS currency hedged ETFs Unhedged Certificates¹Forwards

Benefits • Reduced foreign currency risk

• Simple access and transparency

• One-time transaction• Currency hedging in fund

format• Can positively impact

performance compared to unhedged ETF

• Can positively influence performance

• Lower fees• Can positively impact

performance compared to a hedge portfolio/product

• Various hedging methods possible, e.g. daily hedge

• Quicker trading• Possibly lower costs

• Various hedging methods and products available on the market

• Quicker trading

Disadvantages • Higher fees than for non-hedged index

• Can negatively impact performance compared to unhedged ETF

• Additional foreign currency risk

• Can negatively impact performance compared to a hedge portfolio/product

• Exact hedge only through short intervals

• High minimum investment• Greater risk due to use of

OTC derivatives• Counterparty and

operational risk• Less transparency• Only suitable for

professional investors• Portfolio management

resources required

• Issuer risk• Less transparency• Only suitable for

professional investor• Portfolio management

resources required

Currencies • E.g. CHF, EUR, GBP, USD • - • Various currencies • Various currencies

TER • 0.3 - 0.45% p.a. • from 0.15% p.a. • n.a. • n.a.Transaction costs • One-time² • One-time • Multiple • Multiple

¹Certificates included: currency certificates, warrants and mini-futures. ²One-off transaction cost for the product, the monthly transaction cost (spread ) for the hedge impacts fund performance.


Hedging on portfolio level

UBS ETFs – currency hedged ETFs

Section 5

65

UBS ETFs – currency hedged equity ETFsSuite of sterling-hedged equity ETFs listed on the LSE


Currency hedged UBS ETFsGBP EUR USD CHF SGD

MSCI Japan MSCI Japan MSCI Japan MSCI Japan MSCI JapanMSCI Canada MSCI Canada MSCI Canada MSCI Canada MSCI Canada

n/a MSCI United Kingdom MSCI United Kingdom MSCI United Kingdom MSCI United KingdomMSCI EMU n/a MSCI EMU MSCI EMU MSCI EMUMSCI USA MSCI USA n/a MSCI USA MSCI USA

MSCI Switzerland MSCI Switzerland MSCI Switzerland n/a MSCI SwitzerlandMSCI Australia MSCI Australia MSCI Australia MSCI Australia n/a

· The 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.

66

UBS ETFs – currency hedged ETFsETFs hedged to the GBP

Fund name Distribution1 TER ISIN

Trading LSE Bloombergcurrency code ticker

UBS ETF (LU) MSCI Canada hedged GBP UCITS ETF dis 0.43 % LU0937838836 GBp UC57 UC57 LN

UBS ETF (LU) MSCI Canada hedged GBP UCITS ETF acc 0.43% LU0950673797 GBp UC58 UC58 LN

UBS ETF (LU) MSCI EMU hedged GBP UCITS ETF dis 0.33% LU0937835733 GBp UC59 UC59 LN

UBS ETF (LU) MSCI EMU hedged GBP UCITS ETF acc 0.33% LU0950669688 GBp UC60 UC60 LN

UBS ETF (LU) MSCI Japan hedged GBP UCITS ETF dis 0.45% LU0969638401 GBp UC61 UC61 LN

UBS ETF (LU) MSCI Japan hedged GBP UCITS ETF acc 0.45% LU0969638583 GBp UC62 UC62 LN

UBS ETF (LU) MSCI Switzerland hedged GBP UCITS ETF dis 0.30% LU0977261246 GBp UC70 UC70 LN

UBS ETF (LU) MSCI Switzerland hedged GBP UCITS ETF acc 0.30% LU0977261162 GBp UC69 UC69 LN

UBS ETF (IE) MSCI Australia hedged GBP UCITS ETF dis 0.50% IE00BD4TY907 GBp UC71 UC71 LN

UBS ETF (IE) MSCI Australia hedged GBP UCITS ETF acc 0.50% IE00BD4TYB29 GBp UC72 UC72 LN

UBS ETF (IE) MSCI USA hedged GBP UCITS ETF dis 0.30% IE00BD4TYH80 GBp UC73 UC73 LN

UBS ETF (IE) MSCI USA hedged GBP UCITS ETF acc 0.30% IE00BD4TYJ05 GBp UC74 UC74 LN¹ dis=distributing, acc = accumulating

Source: UBS Global Asset Management, 2014

UBS Fixed Income ETFs – sovereign and corporate range

67

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 Börse XETRA; LSE – London Stock Exchange; SIX - SIX Swiss

Exchange

UBS ETF SBI® share classes Fund currency AuM in GBP Mn TER Inception date Exchange Replication ISINUBS ETF (LU) SBI® Foreign AAA-BBB 1-5 UCITS ETF (CHF) A-dis CHF 93 0.20% 30.07.2013 BI, XETRA, SIX Physical LU0879397742UBS ETF (LU) SBI® Foreign AAA-BBB 5-10 UCITS ETF (CHF) A-dis CHF 51 0.20% 30.07.2013 BI, XETRA, SIX Physical LU0879399441

UBS ETF Barclays share classesFund

currencyAuM in GBP Mn TER

Inception date Exchange

Replication ISIN

UBS ETF (LU) Barclays Capital US Treasury 1-3 UCITS ETF (USD) A-dis USD 91 0.21% 02.02.2012BI, XETRA, LSE, SIX Physical LU0721552544




UBS ETF (LU) Barclays Euro Area Liquid Corporates 1-5 UCITS ETF (EUR) A-dis EUR

87

0.18% 30.05.2014 BI, XETRA Physical LU1048314196UBS ETF (LU) Barclays Euro Area Liquid Corporates 1-5 UCITS ETF (hedged to CHF) A-acc CHF 0.23% 31/03/2015 SIX Physical LU1048314865UBS ETF (LU) Barclays Euro Area Liquid Corporates 1-5 UCITS ETF (hedged to USD) A-acc USD 0.23% 30.01.2015 SIX Physical LU1048314436

UBS ETF (LU) Barclays US Liquid Corporates 1-5 UCITS ETF (USD) A-dis USD

198

0.18% 01.12.2014BI, XETRA, LSE, SIX Physical LU1048314949

UBS ETF (LU) Barclays US Liquid Corporates 1-5 UCITS ETF (hedged to CHF) A-acc CHF 0.23% 30.01.2015 SIX Physical LU1048315755UBS ETF (LU) Barclays US Liquid Corporates 1-5 UCITS ETF (hedged to EUR) A-acc EUR 0.23% 31/03/2015 XETRA, SIX Physical LU1048315243UBS ETF (LU) Barclays US Liquid Corporates 1-5 UCITS ETF (hedged to GBP) A-dis GBP 0.23% 01.12.2014 LSE, SIX Physical LU1048315326

UBS ETF (LU) Barclays US Liquid Corporates UCITS ETF (USD) A-dis USD

1900.18% 30.05.2014

BI, XETRA, LSE, SIX Physical LU1048316647

UBS ETF (LU) Barclays US Liquid Corporates UCITS ETF (hedged to CHF) A-acc CHF 0.23% 30.09.2014 SIX Physical LU1048317538UBS ETF (LU) Barclays US Liquid Corporates UCITS ETF (hedged to EUR) A-acc EUR 0.23% 30.05.2014 BI, XETRA Physical LU1048317025UBS ETF (LU) Barclays US Liquid Corporates UCITS ETF (hedged to GBP) A-dis GBP 0.23% 31.10.2014 LSE, SIX Physical LU1048317298

UBS ETF Markit share classesFund

currencyAuM in GBP Mn TER

Inception date Exchange

Replication ISIN

UBS ETF (LU) Markit iBoxx € Germany 1-3 UCITS ETF (EUR) A-dis EUR 21 0.17% 24.01.2012BI, XETRA, LSE, SIX Physical LU0721553351




UBS ETF (LU) Markit iBoxx € Liquid Corporate UCITS ETF (EUR) A-dis EUR 57 0.22% 24.01.2012BI, XETRA, LSE, SIX Physical LU0721553864

UBS ETFs – currency hedging methodology

Section 6

Month 2

1 2 3 4 5 6 7 …28

29

30

31

69

UBS ETFs – currency hedging methodology

UBS 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 ETF

• The 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.

1

2

3

Hedging of foreign currency in the desired home currency

1. The return of the non-currency hedged indices in the selected home currency.2. The profit or loss arising from the forward contract in the selected home currency.

The two components of currency-hedged index returns

Valuation of securities contained in index1

2 Sale of foreign currency forward at one-month forward rate

3


Month 1

1 2 3 4 5 6 7 …28

29

30

70

Impact on currency hedged ETF performancePerformance is impacted by direct and indirect costs

Direct costs

A reliable estimate of cost in advance for the currency hedge is almost impossible.

Indirect costs

• Higher TER¹ due to currency hedging management (physical replication)

• Spread on currency forwards

• These costs deteriorate the performance

Description Performance impact

• Potential inaccuracy of the currency hedge, due to intra-monthly changes of the underlying (e.g. unhedged equity index)- Over- / underinvestment in

equities- Over- / underhedge, due to

market volatility

• Positive 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)

¹Higher 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 – conclusion

Section 7

72

Currency hedged UBS ETFs – conclusion

· Mitigate 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?

73

UBS ETFs – Further Information

Factsheetswww.ubs.com/etf

Websitewww.ubs.com/etf

Brochureswww.ubs.com/etf

Market data: • Bloomberg: UETF <GO> • Reuters: ETFV

For illustration purpose only

http://www.ubs.com/etf



74

UBS ETFs – Awards

Past performance is not a reliable indicator for future performance.

75

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

Contact InformationUBS ETF Sales Team UK & Ireland

Internet· www.ubs.com/etf · [email protected]

Market data· Reuters, 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]

Florian 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]


mailto:[email protected]

AppendixSection 8

77

UBS ETFs – Product Range (1/7)Equities

1 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.

LSE SIX XETRA Borsa ISIN Bloomberg SedolFund name (SF = Synthetically replicated Fund) Fee

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Listing/Key exchanges

Equities GlobalUBS ETF (LU) MSCI World UCITS ETF 0.30% 618 USD Physical Yes GBp/USD CHF/GBP/USD EUR EUR LU0340285161 UC55 LN BBQ33B1UBS ETF (IE) MSCI World UCITS ETF 0.30% 29 USD Physical Yes GBp CHF/USD EUR EUR IE00B7KQ7B66 UC10 LN B5V9PQ1

Equities EuropeUBS ETF (LU) EURO STOXX 50 UCITS ETF 0.15% 502 EUR Physical Yes GBp/EUR CHF/EUR/GBP EUR EUR LU0136234068 UB01 LN B7M4QM2UBS ETF (LU) MSCI EMU UCITS ETF 0.23% 1'703 EUR Physical Yes GBp CHF/EUR EUR EUR LU0147308422 UB06 LN B7K2811UBS ETF (LU) MSCI EMU hedged CHF UCITS ETF 0.33% 343 CHF Physical No CHF LU0950669175 EUCHBH SW BCZVTL5UBS ETF (LU) MSCI EMU hedged GBP UCITS ETF 0.33% GBP Physical Yes GBp GBP LU0937835733 UC59 LN BC7HFZ7UBS ETF (LU) MSCI EMU hedged GBP UCITS ETF 0.33% GBP Physical No GBp GBP LU0950669688 UC60 LN BCZVP06UBS ETF (LU) MSCI EMU hedged USD UCITS ETF 0.33% USD Physical Yes USD USD USD LU0937835576 UC89 LN BVG1F53UBS ETF (LU) MSCI EMU hedged USD UCITS ETF 0.33% USD Physical No USD LU0950669415 EUUSBH SW BCZVNL3UBS ETF (IE) MSCI EMU SF UCITS ETF 0.23% 142 EUR Synthetic No GBp EUR EUR EUR IE00B5B1MZ58 UC30 LN B7TDG55UBS ETF (IE) MSCI EMU Growth SF UCITS ETF 0.32% 2 EUR Synthetic No EUR EUR EUR IE00B4MFJH03 UIQ1 GY B3X01J3UBS ETF (LU) MSCI EMU Value UCITS ETF 0.25% 88 EUR Physical Yes GBp EUR EUR EUR LU0446734369 UB17 LN B6TWGH7UBS ETF (LU) MSCI EMU Small Cap UCITS ETF 0.33% 26 EUR Physical Yes GBp CHF/EUR EUR EUR LU0671493277 UB69 LN B79W2J8UBS ETF (LU) MSCI Europe UCITS ETF 0.20% 123 EUR Physical Yes GBp EUR/GBP EUR EUR LU0446734104 UB12 LN B7RMD19UBS ETF (LU) MSCI Europe ex UK UCITS ETF 0.20% 10 EUR Physical Yes GBp CHF/EUR EUR LU1048312067 UC77 LN BKXGYS0UBS ETF (LU) FTSE 100 UCITS ETF 0.20% 118 GBP Physical Yes GBp CHF/GBP EUR EUR LU0136242590 UB03 LN B7TKRN1UBS ETF (IE) FTSE 100 SF UCITS ETF 0.22% 37 GBP Synthetic No GBp GBP GBP EUR IE00B3X0KQ36 UC17 LN B6R0J07UBS ETF (LU) FTSE 250 UCITS ETF 0.25% 5 GBP Physical Yes GBp CHF/GBP EUR LU1048312737 UC78 LN BMPHGK1UBS ETF (LU) MSCI United Kingdom UCITS ETF 0.20% GBP Physical Yes GBp CHF/GBP LU0937836467 UC63 LN BC7HG43UBS ETF (LU) MSCI United Kingdom UCITS ETF 0.20% GBP Physical No GBp CHF/GBP LU0950670850 UC64 LN BCZVQ92UBS ETF (LU) MSCI United Kingdom hedged CHF UCITS ETF 0.30% 142 CHF Physical No CHF LU0950671072 UKCHBH SW BCZVNN5UBS ETF (LU) MSCI United Kingdom hedged EUR UCITS ETF 0.30% EUR Physical Yes EUR LU0937836970 UKEUAH SW BC7HFT1UBS ETF (LU) MSCI United Kingdom hedged EUR UCITS ETF 0.30% EUR Physical No EUR EUR EUR LU0950671239 UKEUBH SW BCZVNV3UBS ETF (LU) MSCI United Kingdom hedged USD UCITS ETF 0.30% USD Physical Yes USD LU0937837275 UKUSAH SW BC7HFN5UBS ETF (LU) MSCI United Kingdom hedged USD UCITS ETF 0.30% USD Physical No USD LU0950671403 UKUSBH SW BCZVNP7

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Equities SwitzerlandUBS ETF (LU) MSCI Switzerland UCITS ETF 0.20% CHF Physical Yes CHF LU0979892907 SW2CHA SW BFLR167UBS ETF (LU) MSCI Switzerland UCITS ETF 0.20% CHF Physical No CHF EUR LU0977261329 SW2CHB SW BFG35Y6UBS ETF (LU) MSCI Switzerland hedged GBP UCITS ETF 0.30% GBP Physical Yes GBp GBP LU1169830442 UC94 LN BXRTQS0UBS ETF (LU) MSCI Switzerland hedged GBP UCITS ETF 0.30% GBP Physical No GBp GBP LU1169830525 UC93 LN BXRTQQ8UBS ETF (LU) MSCI Switzerland hedged EUR UCITS ETF 0.30% EUR Physical Yes EUR LU0979892220 S2EUAH SW BFLR1C3UBS ETF (LU) MSCI Switzerland hedged EUR UCITS ETF 0.30% EUR Physical No EUR EUR LU0977260941 S2EUBH SW BFG3632UBS ETF (LU) MSCI Switzerland hedged USD UCITS ETF 0.30% USD Physical Yes USD LU0979892659 S2USAH SW BFLR1D4UBS ETF (LU) MSCI Switzerland hedged USD UCITS ETF 0.30% USD Physical No USD LU0977261089 S2USBH SW BFG3643

Equities USAUBS ETF (LU) MSCI USA UCITS ETF 0.20% 1'059 USD Physical Yes GBp/USD CHF/USD/GBP EUR EUR LU0136234654 UC66 LN BG3FBV1UBS ETF (IE) MSCI USA UCITS ETF 0.20% 18 USD Physical Yes GBp/USD CHF/USD EUR EUR IE00B77D4428 UC04 LN B7TY584UBS ETF (IE) MSCI USA hedged CHF UCITS ETF 0.30% 125 CHF Physical No CHF IE00BD4TYL27 USCHWH SW BD4TYL2UBS ETF (IE) MSCI USA hedged EUR UCITS ETF 0.30% EUR Physical Yes EUR IE00BD4TYF66 USEUYH SW BD4TYF6UBS ETF (IE) MSCI USA hedged EUR UCITS ETF 0.30% EUR Physical No EUR EUR EUR IE00BD4TYG73 USEUWH SW BD4TYG7UBS ETF (IE) MSCI USA hedged GBP UCITS ETF 0.30% GBP Physical Yes GBp GBP IE00BD4TYH80 UC73 LN BD4TYH8UBS ETF (IE) MSCI USA hedged GBP UCITS ETF 0.30% GBP Physical No GBp GBP IE00BD4TYJ05 UC74 LN BD4TYJ0UBS ETF (IE) MSCI USA SF UCITS ETF 0.20% 179 USD Synthetic No GBp USD USD EUR IE00B3SC9K16 UC38 LN B5ZXRB8UBS ETF (IE) MSCI USA Growth SF UCITS ETF 0.36% 27 USD Synthetic No GBp USD EUR EUR IE00B5ST4671 UC35 LN B7TDJ78UBS ETF (IE) MSCI USA Value UCITS ETF 0.20% 151 USD Physical Yes GBp CHF/USD EUR EUR IE00B78JSG98 UC07 LN B7TLMS4UBS ETF (IE) S&P 500 UCITS ETF 0.12% 96 USD Physical Yes GBp/USD CHF/USD EUR EUR IE00B7K93397 UC13 LN B7TVD03UBS ETF (IE) S&P 500 SF UCITS ETF 0.22% 120 USD Synthetic No GBp USD USD EUR IE00B4JY5R22 UC41 LN B7RMWG7

110

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Equities CanadaUBS ETF (LU) MSCI Canada UCITS ETF 0.33% CAD Physical Yes GBp CAD EUR EUR LU0446734872 UB23 LN B7T3XC1UBS ETF (LU) MSCI Canada hedged CHF UCITS ETF 0.43% CHF Physical No CHF LU1130155432 CACHBH SW BCZVNJ1UBS ETF (LU) MSCI Canada hedged EUR UCITS ETF 0.43% EUR Physical No EUR EUR EUR LU1130155606 CAEUBH SW BCZVNQ8UBS ETF (LU) MSCI Canada hedged GBP UCITS ETF 0.43% GBP Physical Yes GBp GBP LU1130156596 UC88 LN BVC3MC9UBS ETF (LU) MSCI Canada hedged GBP UCITS ETF 0.43% GBP Physical No GBp GBP LU1130156323 UC87 LN BVC3MR4UBS ETF (LU) MSCI Canada hedged USD UCITS ETF 0.43% USD Physical No USD LU1130155861 CAUSBH SW BCZVNK2UBS ETF (IE) MSCI Canada SF UCITS ETF 0.28% 36 CAD Synthetic No GBp CAD EUR EUR IE00B5TZCY80 UC24 LN B7TSDW6

Equities Asia-PacificUBS ETF (LU) MSCI Japan UCITS ETF 0.35% 631 JPY Physical Yes GBp/USD CHF/JPY/GBP EUR EUR LU0136240974 UB02 LN B739W06UBS ETF (LU) MSCI Japan hedged CHF UCITS ETF 0.45% 213 CHF Physical No CHF LU0950672120 JPCHBH SW BCZVNM4UBS ETF (LU) MSCI Japan hedged EUR UCITS ETF 0.45% EUR Physical Yes EUR LU0937837945 JPEUAH SW BC7HFS0UBS ETF (LU) MSCI Japan hedged EUR UCITS ETF 0.45% EUR Physical No EUR EUR EUR LU0950672476 JPEUBH SW BCZVNT1UBS ETF (LU) MSCI Japan hedged GBP UCITS ETF 0.45% GBP Physical Yes GBp GBP LU0969638401 UC61 LN BF2GX23UBS ETF (LU) MSCI Japan hedged GBP UCITS ETF 0.45% GBP Physical No GBp GBP LU0969638583 UC62 LN BF2GX34UBS ETF (LU) MSCI Japan hedged USD UCITS ETF 0.45% USD Physical Yes USD LU0979891768 JPUSAH SW BFLR178UBS ETF (LU) MSCI Japan hedged USD UCITS ETF 0.45% USD Physical No USD LU0977260867 JPUSBH SW BFG35Z7UBS ETF (IE) MSCI Japan SF UCITS ETF 0.32% 31 JPY Synthetic No GBp JPY EUR EUR IE00B54HQ477 UC32 LN B7TV1J8UBS ETF (LU) MSCI Hong Kong UCITS ETF 0.45% 24 HKD Physical Yes USD EUR LU1169827224 HKDU SW BXNSYT8UBS ETF (LU) MSCI Singapore UCITS ETF 0.45% 27 SGD Physical Yes USD EUR LU1169825954 SGPDU SW BXNSYV0UBS ETF (LU) MSCI Pacific ex Japan UCITS ETF 0.30% 88 USD Physical Yes GBp/USD USD/GBP EUR EUR LU0446734526 UB20 LN B7TLRJ0UBS ETF (IE) MSCI AC Asia ex Japan SF UCITS ETF 0.37% 40 USD Synthetic No USD USD EUR IE00B7WK2W23 UIQI GY B817436UBS ETF (IE) MSCI Australia UCITS ETF 0.40% 17 AUD Physical No CHF/AUD EUR IE00BD4TY451 AUSCHW SW BD4TY45UBS ETF (IE) MSCI Australia hedged CHF UCITS ETF 0.50% 5 CHF Physical No CHF IE00BD4TY675 AUCHWH SW BD4TY67UBS ETF (IE) MSCI Australia hedged EUR UCITS ETF 0.50% 3 EUR Physical No EUR EUR IE00BD4TY899 AUEUWH SW BD4TY89UBS ETF (IE) MSCI Australia hedged GBP UCITS ETF 0.50% GBP Physical Yes GBp GBP IE00BD4TY907 UC71 LN BD4TY90UBS ETF (IE) MSCI Australia hedged GBP UCITS ETF 0.50% GBP Physical No GBp GBP IE00BD4TYB29 UC72 LN BD4TYB2UBS ETF (IE) MSCI Australia hedged USD UCITS ETF 0.50% 9 USD Physical No USD IE00BD4TYD43 AUUSWH SW BD4TYD4

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Equities Emerging MarketsUBS ETF (LU) MSCI Emerging Markets UCITS ETF 0.45% 197 USD Physical Yes GBp/USD CHF/USD EUR EUR LU0480132876 UB32 LN B76HL88UBS ETF (IE) MSCI Emerging Markets SF UCITS ETF 0.34% 895 USD Synthetic No GBp USD USD EUR IE00B3Z3FS74 UC27 LN B7TDD65UBS ETF (IE) MSCI Brazil UCITS ETF 0.43% 2 USD Physical Yes GBp CHF/USD EUR EUR IE00B6SBCY47 UC42 LN B6SBCY4UBS ETF (LU) MSCI Turkey UCITS ETF 0.43% 4 EUR Physical Yes GBp CHF/EUR EUR EUR LU0629459404 UB36 LN B7RM1X7

Equities ThemesUBS ETF (LU) MSCI World Socially Responsible UCITS ETF 0.38% 65 USD Physical Yes GBp CHF/USD EUR EUR LU0629459743 UC44 LN B8NZ739UBS ETF (LU) MSCI Emerging Markets Socially Responsible UCITS ETF 0.53% 25 USD Physical Yes GBp CHF/USD EUR LU1048313891 UC79 LN BMPHGM3UBS ETF (LU) MSCI Europe&Middle East Socially Responsible UCITS ETF 0.28% 24 EUR Physical Yes GBp CHF/EUR EUR EUR LU0629460675 UB39 LN B7TLNN6UBS ETF (LU) MSCI North America Socially Responsible UCITS ETF 0.33% 98 USD Physical Yes GBp CHF/USD EUR EUR LU0629460089 UC46 LN B6YRHS5UBS ETF (LU) MSCI Pacific Socially Responsible UCITS ETF 0.40% 15 USD Physical Yes GBp CHF/USD EUR EUR LU0629460832 UB45 LN B6VJTX3UBS ETF (LU) MSCI Japan Socially Responsible UCITS ETF 0.40% 7 JPY Phyiscal Yes GBp EUR LU1230561679 JPSR LN BYQDZ49UBS ETF (IE) MSCI United Kingdom IMI Socially Responsible UCITS ETF 0.28% 27 GBP Physical Yes GBp IE00BMP3HN93 UKSR LN BMP3HN9UBS ETF (IE) DJ Global Select Dividend UCITS ETF 0.30% 15 USD Physical Yes GBp CHF/USD EUR EUR IE00BMP3HG27 UC75 LN BMPHHQ4UBS ETF (IE) MSCI EMU Cyclical UCITS ETF 0.25% 11 EUR Physical Yes CHF/EUR EUR EUR IE00BMP3HJ57 EUCYC SW BMP3HJ5UBS ETF (IE) MSCI EMU Defensive UCITS ETF 0.25% 7 EUR Physical Yes CHF/EUR EUR EUR IE00BMP3HL79 EUDEF SW BMP3HL7UBS ETF (IE) MSCI ACWI Risk Weighted SF UCITS ETF 0.34% 7 USD Synthetic No GBp USD USD EUR IE00B6VS8T94 UC22 LN B7FJT03UBS ETF (IE) Solactive Global Copper Mining UCITS ETF 0.48% 1 USD Physical Yes GBp CHF/USD EUR IE00B7JM9X10 UC49 LN B7GJ0X2UBS ETF (IE) Solactive Global Oil Equities UCITS ETF 0.33% 5 USD Physical Yes GBp CHF/USD EUR IE00B5PYL424 UC51 LN B88KWG7UBS ETF (IE) Solactive Global Pure Gold Miners UCITS ETF 0.43% 5 USD Physical Yes GBp CHF/USD EUR IE00B7KMNP07 UC53 LN B86P093


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UBS ETFs – Product Range (5/7)Fixed Income


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Bonds International SwitzerlandUBS ETF (LU) SBI® Foreign AAA-BBB 1-5 UCITS ETF 0.20% 97 CHF Physical Yes CHF EUR EUR LU0879397742 SF1CHA SW BDSTQX4UBS ETF (LU) SBI® Foreign AAA-BBB 5-10 UCITS ETF 0.20% 54 CHF Physical Yes CHF EUR EUR LU0879399441 SF5CHA SW BDSTR64

Government Bonds GermanyUBS ETF (LU) Markit iBoxx € Germany 1-3 UCITS ETF 0.17% 28 EUR Physical Yes GBp CHF/EUR EUR EUR LU0721553351 UB89 LN B73MXJ1UBS ETF (LU) Markit iBoxx € Germany 3-5 UCITS ETF 0.17% 3 EUR Physical Yes GBp CHF/EUR EUR EUR LU0721553435 UB91 LN B7FP3R6UBS ETF (LU) Markit iBoxx € Germany 5-10 UCITS ETF 0.17% 4 EUR Physical Yes GBp CHF/EUR EUR EUR LU0721553518 UB94 LN B78DL95UBS ETF (LU) Markit iBoxx € Germany 7-10 UCITS ETF 0.17% 2 EUR Physical Yes GBp CHF/EUR EUR EUR LU0721553609 UB96 LN B7SZKS3

Government Bonds USAUBS ETF (LU) Barclays Capital US Treasury 1-3 UCITS ETF 0.20% 93 USD Physical Yes GBp CHF/USD EUR EUR LU0721552544 UB74 LN B7VPD81UBS ETF (LU) Barclays Capital US Treasury 3-5 UCITS ETF 0.20% 12 USD Physical Yes GBp CHF/USD EUR EUR LU0721552627 UB76 LN B7K1H99UBS ETF (LU) Barclays Capital US Treasury 5-7 UCITS ETF 0.20% 9 USD Physical Yes GBp CHF/USD EUR EUR LU0721552890 UB79 LN B771TG3UBS ETF (LU) Barclays Capital US Treasury 7-10 UCITS ETF 0.20% 10 USD Physical Yes GBp CHF/USD EUR EUR LU0721552973 UB82 LN B4NV706

Government Bonds RegionalUBS ETF (LU) Markit iBoxx € Sovereigns 1-5 UCITS ETF 0.17% 2 EUR Physical Yes CHF/EUR EUR LU0969639128 SS1CHA SW BGDWKT3


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UBS ETFs – Product Range (6/7)Fixed Income


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Corporate Bonds USAUBS ETF (LU) Barclays US Liquid Corp. UCITS ETF 0.18% USD Physical Yes GBp/USD CHF/USD EUR EUR LU1048316647 UC84 LN BSBMWJ3UBS ETF (LU) Barclays US Liquid Corp. hedged CHF UCITS ETF 0.23% CHF Physical No CHF LU1048317538 CBUSS SW BKXH0C9UBS ETF (LU) Barclays US Liquid Corp. hedged EUR UCITS ETF 0.23% EUR Physical No EUR EUR EUR LU1048317025 CBUSE SW BMPHGX4UBS ETF (LU) Barclays US Liquid Corp. hedged GBP UCITS ETF 0.23% GBP Physical Yes GBp GBP LU1048317298 UC85 LN BKXH085UBS ETF (LU) Barclays US Liquid Corp. 1-5 UCITS ETF 0.18% USD Physical Yes GBp/USD CHF/USD EUR EUR LU1048314949 UC81 LN BSS82Z0UBS ETF (LU) Barclays US Liquid Corp. hedged CHF 1-5 UCITS ETF 0.23% CHF Physical No CHF LU1048315755 CBUS5S SW BKXGZV0UBS ETF (LU) Barclays US Liquid Corp. hedged EUR 1-5 UCITS ETF 0.23% EUR Physical No EUR EUR EUR LU1048315243 CBUS5E SW BKXGZQ5UBS ETF (LU) Barclays US Liquid Corp. hedged GBP 1-5 UCITS ETF 0.23% GBP Physical Yes GBp GBP LU1048315326 UC82 LN BKXGZR6UBS ETF (LU) Barclays MSCI US Liquid Corp. Sustainable UCITS ETF 0.20% 24 USD Phyiscal Yes GBp/USD EUR LU1215461085 UC97 LN BYQDYY2

e

Corporate Bonds EMUUBS ETF (LU) Barclays Euro Area Liquid Corp. 1-5 UCITS ETF 0.18% EUR Physical Yes CHF/EUR EUR EUR LU1048314196 CBEU5 SW BMPHG23UBS ETF (LU) Barclays Euro Area Liquid Corp. hedged CHF 1-5 UCITS ETF 0.23% CHF Physical No CHF LU1048314865 CBEU5S SW BKXGZL0UBS ETF (LU) Barclays Euro Area Liquid Corp. hedged USD 1-5 UCITS ETF 0.23% USD Physical No USD LU1048314436 CBEU5U SW BKXGZG5

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Corporate Bonds InternationalUBS ETF (LU) Markit iBoxx € Liquid Corp. UCITS ETF 0.20% 75 EUR Physical Yes GBp CHF/EUR EUR EUR LU0721553864 UB99 LN B6VGKY2


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UBS ETFs – Product Range (7/7)Commodities and Alternatives


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Commodity ETFsUBS ETF (IE) Bloomberg Commodity Index USD SF UCITS ETF 0.37% USD Synthetic No USD IE00B5B3W843 DCUSAS SW B3T7H89UBS ETF (IE) Bloomberg Commodity Index h. CHF SF UCITS ETF 0.37% CHF Synthetic No CHF IE00B598DX38 DCCHAS SW B5V0Y34UBS ETF (IE) Bloomberg Commodity Index h. EUR SF UCITS ETF 0.37% EUR Synthetic No EUR IE00B58ZM503 DCEUAS SW B4XXS09UBS ETF (IE) Bloomberg Commodity Index h. GBP SF UCITS ETF 0.37% GBP Synthetic No GBP IE00B5993T22 DCGBAS SW B5453N9UBS ETF (IE) CMCI Composite USD SF UCITS ETF 0.37% USD Synthetic No GBp/USD USD EUR EUR IE00B53H0131 UC15 LN B53H013UBS ETF (IE) CMCI Composite hedged CHF SF UCITS ETF 0.37% CHF Synthetic No CHF IE00B58FQX63 CCCHAS SW B3P9JL6UBS ETF (IE) CMCI Composite hedged EUR SF UCITS ETF 0.37% EUR Synthetic No EUR EUR IE00B58HMN42 CCEUAS SW B3R9JG9UBS ETF (IE) CMCI Composite hedged GBP SF UCITS ETF 0.37% GBP Synthetic No GBp GBP GBP IE00B50XJX92 UC90 LN B50XJX9

Alternatives ETFsUBS ETF (IE) HFRX Global Hedge Fund Ind. CHF SF UCITS ETF 0.34% CHF Synthetic No CHF CHF IE00B5280Y01 HFCHAS SW B68ZZ14UBS ETF (IE) HFRX Global Hedge Fund Ind. EUR SF UCITS ETF 0.34% EUR Synthetic No EUR EUR IE00B54DDP56 HFEUAS SW B3Y9CX0UBS ETF (IE) HFRX Global Hedge Fund Ind. GBP SF UCITS ETF 0.34% GBP Synthetic No GBP GBP IE00B53B4246 HFGBAS SW B5N88P6UBS ETF (IE) HFRX Global Hedge Fund Ind. USD SF UCITS ETF 0.34% USD Synthetic No USD USD USD IE00B53PTF40 UC19 LN B7V4Z26

Multi Asset Portfolio-ETFUBS ETF (IE) MAP Balanced 7 hedged USD SF UCITS ETF 0.60% USD Synthetic No USD EUR EUR IE00B95FFX04 M7USAS SW B95FFX0UBS ETF (IE) MAP Balanced 7 hedged EUR SF UCITS ETF 0.60% EUR Synthetic No EUR EUR EUR IE00BTFR5140 M7EUAS SW BVDPS48

30

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35

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UBS ETFs investing in equitiesUBS 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 fund’s assets are passively managed. As a result, the net asset value of the fund’s 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 FundsThe 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 MetalsThe 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 fund’s assets are passively managed. As a result, the net asset value of the fund’s 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 Fund’s 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 HFRThe 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 Fund’s 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 IncomeThis 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

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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 UK’s 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

For Professional Advisors Only

Defining and using smart betaDr Christopher Mellor, CFA30 September 2015

88

What is smart beta?

· Between alpha and beta (Towers Watson)· The middle of the passive-to-active spectrum (Morningstar)· Investment strategies based on one or more of the five equity factors (SSGA)· Indices that are not weighted by market capitalisation (Russell)

It depends who you talk to…

“Terrible name, interesting trend”

The Economist, July 2013

89

What is smart beta?

There are many names for essentially the same thing

· Smart beta

· Strategic beta

· Enhanced beta

· Smart passive

· Non-market-cap indices

· Advanced beta

· Beta plus

· Enhanced indices

· Factor-based indices

· Alternative beta

· Non-traditional indices

· Alternative beta

· Alternatively-weighted indices

· Engineered beta

· Second generation indices

90

Back to basics: what is beta?· “Buying the market”· Passive, long-only exposure to a particular market segment· Market cap weighted indices· Some examples:

‒ FTSE 100, S&P 500, SMI, MSCI World, MSCI Emerging Markets, FTSE China A50

· Pros and cons:

‒ Market cap weighted indices are good at measuring market performance

‒ Used to benchmark

‒ But market cap weighted indices overweight overpriced stocks and underweight undervalued stocks when markets are extended (e.g. Tech was 25% of S&P 500 in 1999)

91

Deviating from the benchmark

· Filtering, e.g. selecting only stocks with high dividend yield

‒ Note that standard beta indices apply simple filtering (e.g. by size, country of listing, etc.)· Alternative weighting, e.g. weighting a bond portfolio by GDP rather than market cap· or a combination of both

· Can be done on a discretionary basis (human intervention) = Active Management· Can be done on a systematic basis (rules based indices) = Smart Beta

There are two ways that you can move away from benchmark

92

Defining smart beta

Simple filtering to ensure

investability

Market cap weighting

Alternative filtering

e.g. factors

fundamentals

Alternative weighting

e.g. factors

fundamentalsrisk

Market timing / signals

Human discretion /

sophisticated quant

process

e.g.S&P 500Euro STOXX 50

e.g.SectorsSmall/mid cap indices

e.g.Man GLG Europe PlusPIMCO Source Short Maturity ETFs

e.g.Morgan Stanley MEMO PlusJP Morgan Macro Hedge

e.g.JPX-Nikkei 400MSCI Europe ValueSTOXX Exporters

e.g.FTSE RAFIGoldman Sachs Equity Factor IndicesMSCI Minimum Volatility

Smart betaBeta Active / quantitative

93

However you define it, smart beta assets are growing

Assets in global “strategic beta” ETPs

Data: Morningstar database, Feb 2015

· Morningstar data suggests US$ 418 bn in “strategic beta” ETPs globally (16% of ETP assets)

· Deutsche Bank estimates US$ 410 bn in “enhanced beta” ETFs (25% of equity ETFs)

· But still only around 1.3% of global fund assets

2010 2011 2012 2013 20140

100

200

300

400

500

US$

bill

ions

Morningstar data from Morningstar database as at Dec 2014. Deutsche Bank data from Deutsche Bank ETF Annual Review & Outlook Reports, Dec 2014. Share of global fund assets is Morningstar “strategic beta” assets as at Dec 2014, as percentage of total global fund assets from ICI as at Q3 2014.

94

Dividend and style exposure dominate

Morningstar “Strategic Beta” by sub-category Deutsche Bank “Enhanced Beta” assets

Data: Morningstar database, Feb 2015 Data: Deutsche Bank ETF Annual Review & Outlook Reports, Dec 2014

DividendGrowthValueOther

StyleDividendEqual-weightSemi-active

Smart beta in a portfolio

96

What does smart beta mean for investors?

· More choice of market-type exposure

‒ Existing exposure can be “sliced and diced” in more precise ways

· More control over risk and reward

‒ Portfolios can be tweaked to express different views e.g. lower risk, value

· More opportunity to outperform or underperform

Understanding how to select and combine products is key

97

Products are typically “tools” or “strategies”

· Allow investors to isolate a particular factor / risk premium / theme

· Often single factor products· Don’t specifically target outperformance· May be used short-term / tactically· More likely to be “satellite” products· Examples include STOXX International

Exposure indices and MSCI Europe Value

· Designed to replace traditional beta exposure· Typically broad and diversified· Often multi-factor or multi-asset · May specifically target outperformance or

better risk-adjusted returns· Likely to be “core” products· Examples include fundamental indices and

multi-factor strategies (GS EFI)

Tools Strategies

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

98

Conclusion

· There is no single, accepted definition of smart beta· In practice, the term is used for a wide range of passive products with alternative filtering and/or

weighting schemes· The key question is where each product fits in a portfolio

‒ A tool to isolate specific market characteristics?

‒ A broader investment strategy designed to replace “beta” benchmarks?· Source is a pioneer in smart beta ETFs

‒ Carefully selected range of products

‒ Expert partners

Selected Source smart beta products

100

Goldman Sachs Equity Factor Indices:Efficient factor exposure can be a challenge

Data: Goldman Sachs International

· Systematic factors are well-known sources of outperformance

· However

‒ Different factors perform well at different times

‒ Some factors are negatively correlated

· Efficient exposure must be diversified across factors, and consider the correlations between them

Best

Worst

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Size4.5%

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%

101

Goldman Sachs Equity Factor Indices

· Broad, long-only equity exposure, emphasising five systematic factors

‒ Low beta

‒ Size

‒ Value

‒ Momentum

‒ Quality· Efficient portfolio construction, taking correlations between factors into account · Controlled risk versus market cap-weighted benchmarks· Choice of indices: World and Europe

102102

0

50

100

150

200

250

300

Sep 04 Sep 06 Sep 08 Sep 10 Sep 12 Sep 14

Inde

x pe

rform

ance

(%)

GS EFI World MSCI World Daily Net TR Index Beta-adjusted outperformance*

GS EFI World: persistent outperformance

1y 3y (ann.) 5y (ann.)Sep 2004 to Aug 2015

Return (ann.) Volatility Sharpe ratio Max 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 Index 3.52% 2.20% 2.52% 2.72%Beta-adjusted outperformance* 3.07% 3.78% 3.94% 3.47%

Source: 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

http://www.source.info/

103

JPX-Nikkei 400

Index construction· A benchmark gaining rapid acceptance‒ Focused on shareholder value as well as size

‒ Used as a benchmark by the Japanese Government Pension Investment Fund

‒ Over $1.8 billion in Europe-listed ETFs1

· Low cost exposure‒ 0.20% per annum management fee

· Choice of share classes‒ JPY (unhedged)

‒ EUR-hedged

‒ USD-hedged share classes

Quantitative ranking

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

Qualitative factors

External directors

Adoption of IFRS

Earnings disclosure in English

Top 400 companiesWeighted by free-float market capitalisation

1 As at end of July 2015

104

PIMCO EM Advantage Local Bond Index

Exposure by country

GDP-weighted exposure to emerging market government debt

Data: PIMCO, as at 30 January 2015

China, 15.1%India, 15.1%Brazil, 14.6%Mexico, 10.0%Russia, 8.7%Indonesia, 7.5%Turkey, 6.9%Poland, 4.2%South Africa, 3.4%Thailand, 3.2%Other, 11.3%

· Weights countries by GDP rather than debt issuance

‒ Avoids over-allocation to highly indebted countries

· Includes India and China (excluded from other major benchmarks)

· Uses currency forwards where local bond markets are inaccessible

105

Key risks of Source smart beta ETFs

· No capital protection: you may not get back the amount you invest

· No guarantee that “smart beta” indices will outperform traditional market capitalisation weighted indices

106


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.

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 index’s 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

107

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 Group’s 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 PIMCO’s products or their redemption, or make any representation regarding the advisability of investing in PIMCO’s 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 PIMCO’s 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 PIMCO’s 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

ETFs in Portfolio Construction

Philip Bailey

or,

How to save your clients money….

whilst charging them more.

Philip Bailey

Who are Assetfirst?

• Subsidiary of:- • Provisio Wealth Management• Adviser Charging adopted in March 2008 • Pioneers of a ETF investing in the retail

sector• Founders of “assetfirst” - a unique

outsourced investment solution for IFAs

Assetfirst

• Virtual Investment Committee• Risk tailored portfolios• Disciplined Strategic asset allocation• Active Tactical asset allocation & regular

rebalancing• Enabling bespoke portfolios• Subscription fees – paid by the IFA, not

the client.

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

22 April 2023 114

Risk verses Return – Asset Allocation Technique

22/04/2023 115

http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCN_8oeGVnMgCFUZpFAodiIEDuw&url=http%3A%2F%2Fnavebook.com%2Fo-que-deve-ser-feito-para-vencer-a-autossabotagem%2F&psig=AFQjCNEjCMirh51wf_faPLNagtk5eSKPUw&ust=1443613501969031

Asset Allocation

How Different Asset Classes perform

22/04/2023 116

Rigorous independent research

• Bespoke • Detailed asset allocation research• Robust methodology• Stress tested portfolio design• Strategic Asset Allocation• Back tested performance• Expected Risk (Standard Deviation)

Risk Graded Model Portfolios

Asset Mix Geometric Return

Annual Standard Deviation

Defensive 6.5% 7.2%

Defensive to Balanced 7.5% 9.2%

Balanced 8.0% 10.7%

Balanced to Aggressive 8.6% 12.7%

Aggressive 9.4% 16.3%

Balanced High Yield 7.0% 9.7%

Expected Annualised Risk and Return

22/04/2023 120

About Fund Selection

http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCLjdkOb_m8gCFQLaGgod4CgGfQ&url=http%3A%2F%2Fnearpictures.com%2Fpages%2Fl%2Flost-in-translation-cover%2F&psig=AFQjCNECxPdUtmXz9TMy-xJ6GeG9lshocw&ust=1443607620897244

10 year: Median Fund vs Benchmark

22/04/2023 121

The devil’s in the fees !

22/04/2023 122

ETF Application

22/04/2023 123

ETFs – Perfect tool for Portfolio Construction

• High Liquidity • Low cost – Average Equity TER 37bps• Extremely low tracking error• Returns superior to most active

managers• No risk of style drift• No risk of portfolio manager turnover• Ensure accurate asset allocation• Easier control of portfolio risk.

22/04/2023 125

22/04/2023 126

22/04/2023 127

Pure Asset Allocation

22/04/2023 128

Pure Asset Allocation

22/04/2023 129

Purer Asset Allocation

The 5 Ps - Passive Portfolios Produce Predictable Performance

Asset Mix Geometric Return

Annual Standard Deviation

Defensive 6.5% 7.2%

Defensive to Balanced 7.5% 9.2%

Balanced 8.0% 10.7%

Balanced to Aggressive 8.6% 12.7%

Aggressive 9.4% 16.3%

Balanced High Yield 7.0% 9.7%

Expected Annualised Risk and Return

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

1 2 3 4 5 6 7 8 9 10

Actual annualised return (7.5%) versus expected ann return (8.0%)

Balanced Model

Save your clients money whilst charging more.

Portfolio Management

Method3rd Party

CostsAverage

underlying Fund TER

Total Costs on £10m

total client portfolio

Regulatory Risk

assetfirst Guided Architecture

£500 + VAT 0.40% £40,000 Low

Pick Funds nil 1.15% * £115,000 High

Fund of Funds nil 1.71% * £171,000 Medium

Discretionary Fund Manager 0.75% 1.15% * £190,000 Low

Model Portfolios nil 1.15% * £115,000 Low

Don’t forget the Adviser Fee (1%) and Wrap Fee (.25%). Total Assetfirst cost 1.65% ..and ETF Trading Costs are significantly lower.

How ETF based portfolios can benefit your business

• Institutional 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.

05112015 Presentation 2

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