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UBS Wealth launches high income strategy

Aimed at Asia wealth management clients, the multi-asset portfolio promises monthly distributions, according to the firm’s executives.
Adrian Zuercher, UBS Wealth Management

UBS Wealth Management in January launched a multi-asset solution for professional investors globally that invests in high income-yielding securities, according to Adrian Zuercher, Hong Kong-based head of asset allocation for Asia-Pacific.

“It is actually more specifically designed for our Asian clientele in the region where we see a big need for having a constant income [together with] a growth solution,” he said during a media briefing yesterday.

Multi-asset funds have become the most popular products in Hong Kong and Singapore. The fund category accounted for 36% of Hong Kong’s total gross sale in 2018 and also had the highest net inflows of $2.06bn during the first nine months last year in Singapore.

Zuercher said this particular multi-asset strategy is different because it targets a 5-7% annualised income for investors and distributes it on a monthly basis.

“Our other multi-asset offerings are basically capital appreciation strategies. So we really don’t care where the returns come from, whether from dividends, coupons or price appreciation. Some of these strategies are distributing income, but they do not have a specific target.”

The multi-asset income strategy invests in global equities and fixed income and allows allocation to either asset class to range between 30% and 70% of the portfolio.

“We build a strategic asset allocation and then we do a monthly tactical overlay. We do this every month because we review if we are achieving the right amount of income,” he added.

Option-writing strategy

Like most income-focused products, the strategy aims UBS Wealth offering is able to provide stable income via coupons from bonds and dividends from equities.

What makes the product different is that it also makes use of an option-writing strategy to achieve additional sources of income.

“That means we buy equity and then we sell out of the money calls,” Zuercher explained.

“It allows us to participate when markets are going up to a certain level, and by selling that call, it gives us a premium, which we use as the distribution of income.

He noted that the firm will not sell the calls if it does not hold the underlying asset.

“We try to be like an insurance company where we are selling the premium rather than speculating on something,” he said.

Currently, the strategy has 47% of its assets in bonds and 50% in equities.

On the fixed income side, around 12% of the portfolio is in US high yield bonds and 18% in emerging markets, including Asian investment grade and high yield and other emerging market sovereign and corporate bonds.

“Compared to more traditional solutions, the fixed income side has a higher tilt toward high yield and Asian and EM bonds,” he said, adding that there are more income opportunities in those areas.

For the portfolio’s equity sleeve, the US takes the largest allocation at 25%.

Zuercher explained that the US is one of the most liquid and transparent markets for writing options.

“The US equity market per se does not give you a lot of income. But by selling calls out of the money, we are actually able to make a low income yielding asset class a larger income yielding asset class,” he said.

Collaboration with UBS AM

The multi-asset income strategy is in a fund format and is co-managed by UBS Wealth and UBS Asset Management.

The fund is a collaboration between the CIO office and UBS Asset Management, Paula Ip, UBS Wealth’s Hong Kong-based head of investment fund sales for Greater China, said at the briefing.

It is different from the firm’s other multi-asset products because it makes use of UBS Wealth’s CIO view to determine the strategy’s asset allocation, according to IP.

In September 2018, UBS AM launched a multi-asset product in Hong Kong – the UBS (HK) Fund Series – Systemic Allocation Portfolio Medium Classic Fund, according to records from the Securities and Futures Commission.

Unlike UBS Wealth’s income product, the Systemic Allocation Portfolio aims to reduce equity downturn risk in the portfolio, according to the fund factsheet. Its equity exposure is within the range of 10%-55%.

Part of the Mark Allen Group.