Monday, 08.10.2018

US tax reform
US companies flourishing

The US economy is buzzing. In the first quarter of 2018, the country’s gross domestic product (GDP) grew by 4.2% on an annualized basis. At the same time, the economy is more or less at full employment. One of the main drivers of this boom is the tax reform initiated at the start of the year. In December 2017, UBS launched the US Tax Reform Beneficiaries Basket to provide investors with an opportunity to participate in the benefits of the relief in a concentrated form. To date, the strategy behind the shares selected has been very successful. The PERLES (symbol: USTAXU) on the basket has gained 11.3% in value since the start of the year and is therefore outperforming the S&P 500™ index.

One of Donald Trump’s main promises that he made during his election campaign was the implementation of a large-scale tax reform. In the battle for the White House in 2016, the Republican candidate promised extensive relief for private households and businesses, true to the motto of “America first!”. Shortly before Christmas 2017 and about eleven months after taking office, Trump signed a package of laws that had been hotly contested in Washington and implemented the largest tax reform in the US in more than 30 years. This measure, one of the central elements of which was a significant reduction in corporate income tax, is now clearly taking effect. The reform is not only driving the US economy forward as a whole, it is also having a positive effect on company figures according to UBS CIO WM. The experts describe the relief as the “icing on the cake” in an already positive environment. In concrete terms, the reform could accelerate this year’s profit growth in the US by 8%. Overall, UBS CIO WM anticipates a profit increase of 18% for the current year. (Source: UBS CIO WM, «UBS House view Monthly Base», October 2018, 20.09.2018) What is certain is that the US equity market in general and the beneficiaries of the tax reform in particular are currently in strong demand among investors. While other important stock markets hardly made any headway in the first three quarters of 2018, the S&P 500™ continued its attempt to set new records. At the end of September 2018, the benchmark was up by just under 9%. Meanwhile, the US Tax Reform Beneficiaries Basket has increased in price by more than 11%.

UBS launched this selection last December, shortly before a decision had been made on the reform. The impetus to do so came from UBS Research. The in-house analysts were of the opinion at the time that the US tax reform had only been partially priced into share prices. As a result, they systematically searched for companies that could potentially profit from the reform. One of the main criterion for the composition of the basket was the influence of the reform on cash flow and its relation to the respective market capitalization. In order to ensure that the composition did not differ too much from that of the S&P 500™ index, the experts limited the number of shares per sector, resulting in a moderate overweight in companies that benefit the most.

For example, the relatively high proportion of healthcare and technology companies in the US Tax Reform Beneficiaries Basket has paid off to date. In addition to the tax reform, the friendly US consumer climate is playing into the hands of the technology sector. The same also applies to the retail sector. Kohl’s and Macy’s, among others, were considered from this sector of the economy – the shares of the two US department stores have to date risen by around 37% in 2018.

Opportunities: The tracker certificate (symbol: USTAXU) on the US Tax Reform Beneficiaries Basket is still in the first year of its seven-year term. Investors can therefore continue to be able to rely on the long-term effect of the US tax reform. The management fee for the participation product is 0.3% p.a. Any dividend payments distributed by the basket members are reinvested net in the share of the company paying out.

Risks: This product does not have capital protection. The PERLES will make a loss if the underlying basket decreases. Investors in structured products are also exposed to issuer risk, which means that the invested capital may be lost if UBS AG becomes insolvent, regardless of the performance of the underlying.

More UBS products and further information on the risks and opportunities are available at ubs.com/keyinvest.

HCA Healthcare vs. Centene vs. Humana (5 years)¹
(for illustrative purposes only; figures in %)

The three healthcare companies HCA Healthcare, Centene and Humana are among the top performers in the US Tax Reform Beneficiaries Basket to date. The upward pace of the three shares increased once again in 2018.

Kohl’s vs. Macy’s vs. Gap (5 years)¹

(for illustrative purposes only; figures in %)

The share prices of the two US retailers Kohl’s and Macy’s have rocketed following the introduction of the tax reform. In contrast, operational problems have put the brakes on the Gap fashion chain’s share performance.

¹) Please be aware that past performance does not indicate future results.
²) The conditions of ETTs are reviewed on a yearly basis and can be adjusted with a deadline of 13 months after the announcement.

PERLES on US Tax Reform Beneficiaries Basket

US Tax Reform Beneficiaries Basket: Initial weighting by sector (as of: 04.12.2017)

More UBS products and further information on the risks and opportunities are available at ubs.com/keyinvest.

Market overview

¹ Change based on the closing price of the previous day compared to the closing price a week ago.

SMI™ vs. VSMI™ 1 year

The VSMI™ Index is calculated since 2005. It shows the volatility of the stocks within the SMI™ index. A portfolio which reacts only to changes in volatility instead of volatility itself is relevant for the calculation. Thereby, the VSMI™ methodology uses the squared volatility, known as variance, of the SMI options with remaining time to expiry of 30 days traded at the Eurex.

Airbus/Boeing
Full-to-bursting order books

In the duel between the aircraft manufacturers Airbus and Boeing, the US industry leader has currently inched ahead by a nose. From January to August 2018, Boeing received net orders for 581 aircraft. In contrast, Airbus had to make do with just 219 net orders during this period. The most recent share price performance of the rivals reflects this. While the Airbus share is stagnating in the short term, the Boeing share has started the fourth quarter at a new all-time high.¹ UBS is now combining the two industry giants for an Early Redemption (ER) Worst of Kick-In GOAL (symbol: KCOADU). Investors can expect a coupon payment of 7.5% p.a. here. Meanwhile, the underlyings have a safety cushion of 40% over the two-year term.

Despite the recent slump in orders, Airbus› order book remains full to bursting. At the end of August 2018, the Group reported that it had orders for a total of 7,415 aircraft. At current production rates, production will therefore be fully utilized for almost nine years. Lastly, Airbus secured an order from Europe’s largest airline. Lufthansa converted purchase options for 27 A320 neo and A321 neo aircraft into concrete orders. Ten of the fuel-efficient aircraft from this order will go into service for SWISS. (Source: Airbus press release, 01.10.2018) At Boeing, the legendary 737 is the absolute bestseller. From January to August 2018, almost three-quarters of orders were for the classic aircraft, with the 737 MAX being most in demand. According to Boeing, never before has an airplane sold as well as this ultra-modern model in the company’s history, which stretches back for more than 100 years. The company has revealed that approximately 4,700 orders have been placed for the 737 MAX from more than 100 customers. (Source: Boeing.com) Investors will find out how well the industry leader has performed on October 24 when Boeing publishes its figures for the third quarter. Six days later, Airbus will provide an insight into the company’s latest business developments.

Opportunities: Shortly before the earnings releases, UBS will issue the ER Worst of Kick-In GOAL (symbol: KCOADU) on Airbus and Boeing. A coupon of 7.50% p.a. is available on the two shares. The barriers are set at 60% of the starting level of the two shares. As long as none of the underlyings touch or fall below this level, the product will end with a maximum return in line with the coupon. There is also the opportunity for early redemption at 100% plus the accrued coupon. The Early Redemption feature will take effect if the Airbus and Boeing shares are level with or above the initial price on one of the quarterly observation days (first date: 19.10.2019).

Risks: This product does not have capital protection. If the underlyings touch or fall below the respective Kick-In Level (barrier) and the early redemption feature does not apply, the amount repaid on the maturity date is reflecting the worst performance of the underlyings (but not more than notional value plus coupon). In this case, it is likely that losses will be incurred. Investors in structured products are also exposed to issuer risk, which means that the capital invested may be lost if UBS AG becomes insolvent, regardless of the performance of the underlying.

More UBS products and further information on the risks and opportunities are available at ubs.com/keyinvest.

Airbus vs. Boeing (5 years)¹

(for illustrative purposes only; figures in %)

7.50% p.a. Early Redemption Worst of Kick-In GOAL on Airbus / Boeing

More UBS products and further information on the risks and opportunities are available at ubs.com/keyinvest.

¹) Please be aware that past performance does not indicate future results.
²) The conditions of ETTs are reviewed on a yearly basis and can be adjusted with a deadline of 13 months after the announcement.

Friday, 28.09.2018

Germany
A warm fall

Just as it enters the year of its 30th anniversary, the DAX™ has been thrown out of step. Since the start of the year, the Deutscher Aktienindex™, launched on July 1, 1988, has recorded a negative performance of 4.4%.¹ As is the case on other stock exchanges, the simmering trade conflict is regarded as the main source of friction for the German stock market. Nevertheless, the current ifo Business Climate Index shows that the mood within the German economy remains at a comparatively high level despite all of the factors contributing to the uncertainty. With an ETT (symbol: ETDAX), investors can use the current weakness in the DAX™ to enter the market. While the participation product is directly linked to the fluctuating performances of 30 large caps, the aim of the new Worst of Kick-In GOAL on Bayer, SAP and Volkswagen (symbol: KCMSDU) is to achieve a relatively stable performance. The DAX™ trio allow a coupon of 6.50 percent p.a. This return opportunity is linked to a 40% safety buffer.

Every month, the Munich-based ifo Institute asks around 9,000 managers about the current situation on the markets and their expectations for the next six months. This survey helps form the Business Climate Index, which is one of the most important early indicators for the German economy. Although the barometer became slightly gloomier in September, falling to 103.7 points after totaling 103.9 points in the previous month, the Index still remained at a historically high level. “The German economy is stable, even if there is increasing uncertainty,” commented Clemens Fuest, President of the ifo Institute, on the latest results. (Source: ifo Institute press release, 24.09.2018)

The customs dispute between the US and China that continues to simmer is weighing heavily on the mood on the Frankfurt Stock Exchange. Added to this is an instable political situation, which is unusual for Germany. Nevertheless, the Grand Coalition of the CDU, CSU and SPD would now like to focus on the business at hand after the recent quarrels regarding Hans-Georg Maassen, former President of the Federal Office for the Protection of the Constitution. The German regional elections in Bavaria and Hesse on October 14 and 28, respectively, could be indicatory in this respect. In addition to the two polls, DAX™ investors are likely to keep a close eye on the reporting season over the coming weeks, as this will show whether and to what extent the protectionism that is emerging worldwide is having an impact on the business of the major export-oriented German corporations.

Opportunities: Should the results of the elections cure the DAX™ of its recent lethargy, the ETT (symbol: ETDAX) would be an effective investment instrument. The open-end product tracks the key index with a conversion ratio of 10:1. Investors also benefit from the attractive profit sharing schemes of the German large caps, with dividends being reinvested in net terms. No management fees are typically incurred for this structure.² SAP traditionally kicks off the reporting season on the DAX, with the software group presenting its quarterly figures on October 18. Together with those of Bayer and Volkswagen, the SAP share serves as the underlyings for a new Worst of Kick-In GOAL (symbol: KCMSDU). Investors can make concrete plans here thanks to an annual coupon payment of 6.50%. If none of the shares fall level with or below the barrier of 60% of the initial fixings, investors will also receive their nominal amount back in full at the end of the term.

Risks: These products do not have capital protection. The ETT will make a loss if the underlying index falls below the initial price. If the underlyings of the Worst of Kick-In GOAL touch or fall below the respective Kick-In Level (barrier), the amount repaid on the maturity date is reflecting the worst performance of the underlyings (but not more than notional value plus coupon). In this case, it is likely that losses will be incurred. Investors in structured products are also exposed to issuer risk, which means that the capital invested may be lost if UBS AG becomes insolvent, regardless of the performance of the underlying.

More UBS products and further information on the risks and opportunities are available at ubs.com/keyinvest.

DAX™ (5 years)¹

Consolidation at a high level: The DAX™ has been trending sideward for more than a year. During this time, the area has emerged as a support level for the benchmark at around 12,000 points.

Bayer vs. SAP vs. Volkswagen (5 years)¹

Three equities, two directions: While Bayer and Volkswagen have posted a negative performance over the last five years, the DAX™ heavyweight SAP was able to significantly increase its market capitalization.

¹) Please be aware that past performance does not indicate future results.
²) The conditions of ETTs are reviewed on a yearly basis and can be adjusted with a deadline of 13 months after the announcement.

ETT on DAX™

6.50% p.a. Worst of Kick-In GOAL auf Bayer / SAP / Volkswagen

More UBS products and further information on the risks and opportunities are available at ubs.com/keyinvest.

Market overview

¹ Change based on the closing price of the previous day compared to the closing price a week ago.

SMI™ vs. VSMI™ 1 year

The VSMI™ Index is calculated since 2005. It shows the volatility of the stocks within the SMI™ index. A portfolio which reacts only to changes in volatility instead of volatility itself is relevant for the calculation. Thereby, the VSMI™ methodology uses the squared volatility, known as variance, of the SMI options with remaining time to expiry of 30 days traded at the Eurex.

Ferrari/Porsche
Luxury car bodies in new splendor

The events in the sports car segment are coming thick and fast at the moment, as luxury manufacturer Ferrari wants to place 15 new models on the market by 2022. Their aim by this point in time is for some 60% of their cars to come equipped with a hybrid engine. Alternative engines are also a hot topic at rivals Porsche. The company was the first German car maker to announce its intention to withdraw from the diesel market. It now focuses solely on gasoline engines, hybrid models and electric vehicles. Investors have the option of including both of the car stocks in their portfolio. The new Worst of Kick-In GOAL (symbol: KCOIDU) in subscription has an attractive annual coupon of 8% and offers a safety buffer of 30%.

The traditional combustion engine is increasingly becoming obsolete. Electric engines are now also making waves in the sports car industry. Porsche has removed diesel engines from its product range and increased its focus in the areas of hybrid and electric mobility. It is estimated that more than EUR 6 billion will be pumped into these technologies by 2022. As early as 2025, every second new Porsche vehicle could be electrically powered, be it via a hybrid engine or a completely electric engine. The long-established Italian company Ferrari is also following this path. At its recent presentation of the new medium-term development plan in Maranello, CEO Louis Camilleri announced a plethora of new models – with 15 new models and model variants being planned to be released in the three areas of Sport, GT and Special Series between 2019 and 2022. This will also include a sporty all-terrain vehicle, which has suffered long delays. The aim of this offensive push is to further diversify the current product range. By 2022, some 60% of the Ferraris produced will be hybrid models. This should also see profits increasing further. The Group’s operating margin is expected to reach 38% in 2022, after totaling 31.9% in the second quarter of 2018.

Opportunities: Should any investors want the two luxury car body manufacturers to be part of their portfolio as a pair, they would be advised to take a look at the Worst of Kick-In GOAL (symbol: KCOIDU). The configuration of this new issue is very impressive – The product is in subscription and has an annual coupon of 8% as well as an initial risk buffer of 30%. Provided that neither the Ferrari share nor the Porsche share fall level with or below the barrier of 70% of the initial fixing level, the maximum return will be paid out. The product issued in Swiss francs includes currency hedging. The security matures after exactly one year.

Risks: This product does not have capital protection. If the underlyings touch or fall below the respective Kick-In Level (barrier), the amount repaid on the maturity date is reflecting the worst performance of the underlyings (but not more than notional value plus coupon). In this case, it is likely that losses will be incurred. Investors in structured products are also exposed to issuer risk, which means that the capital invested may be lost if UBS AG becomes insolvent, regardless of the performance of the underlying.

More UBS products and further information on the risks and opportunities are available at ubs.com/keyinvest.

Ferrari vs. Porsche (since 04.01.2016, Start Ferrari-Listing in Mailand)¹

8.00% p.a. Worst of Kick-In GOAL on Porsche / Ferrari

More UBS products and further information on the risks and opportunities are available at ubs.com/keyinvest.

¹) Please be aware that past performance does not indicate future results.
²) The conditions of ETTs are reviewed on a yearly basis and can be adjusted with a deadline of 13 months after the announcement.

Friday, 20.09.2018

Electric Car Beneficiaries Basket
Charged for the future

At the dawn of a new era marked by the change from the gasoline engine to electric cars, many people are wondering what the car of tomorrow will look like. The German premium manufacturer BMW recently provided an answer to this question with the unveiling of the iNext, a new self-driving electric car. The car is scheduled to enter series production from 2021 onwards. Nevertheless, it is not just manufacturers who are vying for pole position in this new sector; suppliers and the IT industry also have high hopes for the future innovations on four wheels. For example, chip manufacturer Infineon has long been following the trend of autonomous driving and driver assistance systems as well as e-mobility. Investors now have the opportunity to diversify and participate in the growth opportunities offered by the trend toward electric vehicles in the automotive industry. The PERLES on the “Electric Car Beneficiaries Basket” (symbol: ECARSU) fully participates in the performance of the share basket. The only deduction is an annual management fee of 0.5%. In return, any net dividends are reinvested in the basket members.

Although the electric car has not yet become a staple product, it has enjoyed enormous growth. The best example of this is China, which is by far the world’s foremost pioneer in terms of e-mobility. In the first half of 2018, around 412,000 electric cars were sold in the Middle Kingdom, more than twice as many as in the previous year. In the US, the world’s second-largest market for electric cars, the growth rate stood unmoving at 34%. According to the experts at the Center of Automotive Management (CAM), electric cars will gradually take over the roads. In 2020, they anticipate a global market share of 6%, which is expected to increase to 25% by 2025 and even to 40% by 2030. (Source: www.auto-institut.de) It is not only manufacturers who are wanting to get on-board with this trend – suppliers and IT corporations are also muscling in. For example, Continental has numerous technical products focused on e-mobility in the pipeline. These include the “New Wheel Concept”. By utilizing the strong braking effect in the energy recovery system, electric vehicles can move through city traffic almost without using the brakes. Automotive supplier, Aptiv – a spin-off of Delphi Automotive – already has a fleet of 30 self-driving vehicles in operation in the Lyft carpool network in Las Vegas.

The chip industry is also experiencing demand for the digitization of automobiles. The experts at Mordor Intelligence predict that the automotive semiconductor market will expand from USD 34.6 billion in 2017 to USD 92.9 billion in 2023 with an average annual growth rate of 17.9%. One of the beneficiaries of this trend is the previously mentioned Infineon. UBS experts believe the German semiconductor manufacturer to be well positioned in both silicon and silicon carbide technology. (Source: UBS CIO WM, Semis: Who’s powering Tesla’s Model 3?, 15.08.2018)

Opportunities: The primary research experts at the UBS Evidence Lab attempted to identify the winners in the electric car trend, breaking down electric vehicles into their component parts. In the end, a committee of experts filtered out eight promising groups from the supplier industry and the IT industry. Based on these results the “Electric Car Beneficiaries Basket” has been combined. With the PERLES (symbol: ECARSU) on the new share basket, investors now have the opportunity to make a diversified investment in this future-oriented area. The product currently in subscription tracks the performance of the underlying basket – after the deduction of the annual management fee of 0.5%. The net dividends are reinvested in the basket. The security matures after seven years. However, the issuer has the option of extending the term by a further seven years.

Risks: PERLES do not have capital protection. If the underlying asset records a negative performance, this would therefore result in commensurate losses in the structured product. Investors in structured products are also exposed to issuer risk, which means that the capital invested may be lost if UBS AG becomes insolvent, regardless of the performance of the underlying.

More UBS products and further information on the risks and opportunities are available at ubs.com/keyinvest.

Continental vs. Denso vs. Valeo (5 years)¹

Continental, Denso and Valeo – the three automotive suppliers for the Electric Car Beneficiaries Basket show positive development on a five-year basis. The French company, Valeo, recorded the largest growth.

Infineon vs. Intel (5 years)¹

Semiconductors are playing an increasingly important role in the automotive industry. The two giants in the world of chip manufacturing, Infineon and Intel, are thus included in the Electric Car Beneficiaries Basket. Both shares are trending upwards.

¹) Please be aware that past performance does not indicate future results.
²) The conditions of ETTs are reviewed on a yearly basis and can be adjusted with a deadline of 13 months after the announcement.

PERLES on Electric Car Beneficiaries Basket

Starting composition and weighting of the Electric Car Beneficiaries Baskets

More UBS products and further information on the risks and opportunities are available at ubs.com/keyinvest.

Market overview

¹ Change based on the closing price of the previous day compared to the closing price a week ago.

SMI™ vs. VSMI™ 1 year

The VSMI™ Index is calculated since 2005. It shows the volatility of the stocks within the SMI™ index. A portfolio which reacts only to changes in volatility instead of volatility itself is relevant for the calculation. Thereby, the VSMI™ methodology uses the squared volatility, known as variance, of the SMI options with remaining time to expiry of 30 days traded at the Eurex.

Richemont/LVMH/Swatch
Attractive risk-reward profile

Suppliers of luxury goods are currently operating in a favorable environment: In addition to strong equity markets, UBS CIO WM believes that rising real estate prices and a growing middle class, particularly in Asia, are playing into the hands of the sector. However, the simmering trade dispute represents a threat to the entire consumer goods industry and thus also for the luxury segment. In this respect, a partially protected positioning might be interesting for investors. The new Callable Kick-In GOAL on Richemont, LVMH and Swatch (symbol: KCMHDU) offers a safety buffer of 40%. Provided that none of the three luxury equities impinge on this buffer during the two-year term, the product will yield the maximum return of 7.00% p.a. upon maturity.

UBS CIO WM assumes that the factors outlined above will remain robust for the time being. In addition, China is likely to remain a growth driver for the luxury sector in the medium term. In parallel to this, the watch market should experience a healthy revival. However, analysts also stress that political uncertainties could negatively impact the economic climate and consumer confidence. UBS CIO WM currently prefers luxury companies with good organic growth prospects or the potential for successful restructuring, as well as attractive valuations. (Source: UBS CIO WM European Consumer Discretionary, Equity preferences, 28.08.2018) The latest figures from LVMH provide evidence of the positive industry environment. The French group enjoyed a 28% increase in profits in the first six months of 2018 and thus exceeded analysts’ expectations. There has been great demand for the luxury watches, clothing and high-priced jewelry sold by this industry giant, particularly in China. (Source: Thomson Reuters media report, 24.07.2018)

Opportunities: Together with the two Swiss watch manufacturers Richemont and Swatch, LVMH acts as the underlying for a new Callable Kick-In GOAL (symbol: KCMHDU). Irrespective of the performance of the three equities, the new issue will pay out a coupon of 7% p.a. This return opportunity enjoys low barriers of 60% of the initial price level. Please note that an early redemption including a proportionate coupon amount is possible with this Kick-In GOAL. The issuer is entitled to cancel the product for the first time on September 26, 2019, and subsequently every three months thereafter.

Risks: This product does not have capital protection. If the underlyings touch or fall below the respective Kick-In Level (barrier) and the callable feature does not apply, the amount repaid on the maturity date is reflecting the worst performance of the underlyings (but not more than notional value plus coupon). In this case, it is likely that losses will be incurred. Investors in structured products are also exposed to issuer risk, which means that the capital invested may be lost if UBS AG becomes insolvent, regardless of the performance of the underlying.

More UBS products and further information on the risks and opportunities are available at ubs.com/keyinvest.

Richemont vs. LVMH vs. Swatch (5 years)¹

7.00% p.a. Callable Kick-In GOAL on Richemont/ LVMH/ Swatch

More UBS products and further information on the risks and opportunities are available at ubs.com/keyinvest.

¹) Please be aware that past performance does not indicate future results.
²) The conditions of ETTs are reviewed on a yearly basis and can be adjusted with a deadline of 13 months after the announcement.

Friday, 14.09.2018

Food producers
Food is always in demand

We feast all year round – barbecues are lit in summer, winter is filled with one Christmas dinner after another, and there are plenty of culinary treats like chocolate Easter bunnies and pumpkins to enjoy in spring and fall too. So food is always in demand. As this is the case even in difficult economic times, the industry is often described as defensive with comparatively low economic sensitivity. The growing world population and increasing prosperity in emerging markets are also proving to be growth drivers, too. With the UBS ETT (symbol: ETFOO) on the STOXX™ Europe 600 Food & Beverage Index, you can participate in the share performance of the major European food groups in a diversified manner.² For those interested in optimizing their return, the new Callable Worst of Kick-In GOAL (symbol: KCKHDU) on Danone, Mondelez, Nestlé and Lindt & Sprüngli could prove appealing. The subscription product has a barrier of 55% of the initial fixing as well as an annual coupon of 5%.

Food companies around the world are currently in good health. One of the highlights of the reporting season just ended was provided by Nestlé (see also page 3). New CEO Mark Schneider has brought the world market leader back on track with a targeted reorganization of the company. In the first six months of 2018, organic growth adjusted for one-off effects increased by 2.8%. We expect this to pick up even more in the second half of the year. Schneider expects a positive performance of around 3%. Fellow compatriot Lindt & Sprüngli is likewise enjoying growth. Revenues in local currencies improved by 5.1%, in particular due to a good performance in emerging markets, while half-year profits rose by a disproportionate 12.7%. In the medium to long term, Lindt & Sprüngli wants to increase its profitability by 20 to 40 basis points.

Mondelez has also proved to be a positive surprise. The world’s second-largest confectionery producer exceeded expectations in its interim report for the second quarter. The US group is currently benefiting from a disciplined spending policy set out by its management as well as strong sales of Cadbury chocolate and Oreo cookies. Leading yogurt manufacturer Danone has also further expanded its business in 2018; however, the French company is currently experiencing headwinds in Morocco. Consumers are accusing the company of abusing its market power and charging excessive prices. CFO Cecile Cabanis is nevertheless remaining calm on this issue and expects to be able to compensate for the losses in sales elsewhere. The targets for the year as a whole were therefore confirmed at the half-year stage.

Opportunities: The abovementioned food groups make up the four underlying assets of the new Callable Worst of Kick-In GOAL (symbol: KCKHDU). The subscription product has a maximum term of three years and an annual coupon of 5%. The product can be repaid early for the first time after one year – and then every three months. The Kick-In Level is at 64% of the underlying prices. Investors wanting an even more-diversified investment will find the ETT (symbol: ETFOO) on the STOXX™ Europe 600 Food & Beverage Index is just what they are looking for. The product fully participates in the performance of the European food industry without any maturity constraints. The product currently contains 22 stocks.

Risks: The products do not have capital protection. Should the underlying assets deliver a negative performance, the ETT will incur commensurate losses. Worst of Kick-In GOALs, however, have conditional capital protection. If the underlyings touch or fall below the respective Kick-In Level (barrier) and the callable feature does not apply, the amount repaid on the maturity date is reflecting the worst performance of the four shares (but not more than notional value plus coupon). In this case, it is likely that losses will be incurred. Investors in structured products are also exposed to issuer risk, which means that the capital invested may be lost if UBS AG becomes insolvent, regardless of the performance of the underlying.

More UBS products and further information on the risks and opportunities are available at ubs.com/keyinvest.

STOXX™ Europe 600 Food & Beverage Index (5 years)¹

Although its momentum has slowed somewhat recently, the STOXX™ Europe 600 Food & Beverage Index has enjoyed a steady upward trend over the last five years.

Danone vs. Mondelez vs. Nestlé vs. Lindt & Sprüngli (5 years)¹

The food companies Danone, Mondelez, Nestlé and Lindt & Sprüngli enjoyed varying rates of growth, with the premium chocolate producer leading the pack with a positive performance of 78%.

¹) Please be aware that past performance does not indicate future results.
²) The conditions of ETTs are reviewed on a yearly basis and can be adjusted with a deadline of 13 months after the announcement.

ETT on STOXX™ Europe 600 Food & Beverage Index

5.00% p.a. Callable Worst of Kick-In GOAL on Danone, Mondelez, Nestlé, Lindt & Sprüngli

More UBS products and further information on the risks and opportunities are available at ubs.com/keyinvest.

Market overview

¹ Change based on the closing price of the previous day compared to the closing price a week ago.

SMI™ vs. VSMI™ 1 year

The VSMI™ Index is calculated since 2005. It shows the volatility of the stocks within the SMI™ index. A portfolio which reacts only to changes in volatility instead of volatility itself is relevant for the calculation. Thereby, the VSMI™ methodology uses the squared volatility, known as variance, of the SMI options with remaining time to expiry of 30 days traded at the Eurex.

Major Swiss corporations
Many positive surprises

Richemont presented its interim report for the current reporting season on Monday, making it the last of the 20 SMI™ members to do so. The overall conclusion is impressive – the results of three-quarters of Swiss blue chips exceeded the expectations of the financial community, including those of the three heavyweights Nestlé, Novartis and Roche as well as Zurich Insurance Group. These four SMI™ stocks make up the new Callable Worst of Kick-In GOAL (symbol: KCKEDU). The product, which is in subscription until September 19, pays out an annual coupon of 5% on a quarterly basis. This return opportunity comes with an initial risk buffer of 46%.

Roche proved to be one of the highlights of the recent reporting season. The largest manufacturer of cancer medication in the world not only posted its highest growth in almost five years, it also raised its outlook once again. An increase in sales by a moderate single-digit percentage is now expected in the current financial year, after it had only raised its forecast revenue growth rate to a low single-digit percentage in April. Domestic competitor Novartis also performed well in the first half. For example, the ophthalmic division, which is due to go public in the first half of 2019, increased its adjusted operating income by 14%. Due to the successful first six months, the sales and profit forecast for the full year has been confirmed. While Nestlé narrowed its growth target from 2–4% to 3%, Zurich Insurance stuck to its medium-term objectives. “At the midpoint of our three-year plan, we stand well on track to achieve all indicated targets by the end of 2019,” said Group Chief Executive Officer Mario Greco. (Source: Thomson Reuters media report, August 9, 2018)

Opportunities: With the four SMI™ stocks serving as the underlyings for the Callable Worst of Kick-In GOAL (symbol: KCKEDU), an annual coupon of 5% is possible. Starting on December 27, this coupon will be paid out quarterly irrespective of the performance of the underlying assets. Meanwhile, the repayment of the CHF 1,000 notional is linked to the underlying shares. The quartet has a comfortable safety buffer of 46%. If the buffer holds out until the end of the term, the maximum return will be paid out. Due to the callable function, the product can be repaid prematurely – for the first time after one year.

Risks: This product does not have capital protection. If the underlyings touch or fall below the respective Kick-In Level (barrier) and the callable feature does not apply, the amount repaid on the maturity date is reflecting the worst performance of the underlyings (but not more than notional value plus coupon). In this case, it is likely that losses will be incurred. Investors in structured products are also exposed to issuer risk, which means that the capital invested may be lost if UBS AG becomes insolvent, regardless of the performance of the underlying.

More UBS products and further information on the risks and opportunities are available at ubs.com/keyinvest.

Nestlé vs. Novartis vs. Roche vs. Zurich Insurance (5 years)¹

5.00% p.a. Callable Worst of Kick-In GOAL on Nestlé, Novartis, Roche, Zurich Insurance

More UBS products and further information on the risks and opportunities are available at ubs.com/keyinvest.

¹) Please be aware that past performance does not indicate future results.
²) The conditions of ETTs are reviewed on a yearly basis and can be adjusted with a deadline of 13 months after the announcement.