Friday, 02.11.2018

US Information Technology
The Moment of Truth

The reporting season on Wall Street is in full swing. Quarterly results from Apple out this Thursday (after the US market closes) mark the high point of the current slew of numbers. Even though the figures we have already seen from the US tech sector have mostly been ahead of expectations, prices have been under pressure recently. The S&P 500™ Information Technology Index has fallen by 10.9% from all its all-time high at the start of the month.1 Investors who see this setback as a chance to get on board can use an ETT (symbol: ETINFU). The participation product replicates the S&P 500™ Information Technology Index with no time limitation and no management fees.2 An alternative to a 1:1 investment in the US IT sector is the Early Redemption (ER) Worst of Kick-In GOAL on Alphabet, Microsoft and Apple. The subscription product has a 9.5% annual coupon. The barriers are set at a low 60% of the initial prices of the sector trio.

Soon after the closing bell on Wall Street, on Thursday evening (after editorial deadline) a release from Apple will come over the ticker. The world’s largest listed company is announcing its results for the fourth quarter of its fiscal year 2017/2018 (to 30 September). CEO Tim Cook and his management team will also be holding a conference call at 10:00pm CET to talk in detail about recent business performance and the outlook for the key Christmas quarter. The sheer size alone of the iPhone manufacturer means the quarterly numbers are hugely important for Wall Street.

Opportunities: The exchange traded tracker (ETT) (symbol: ETINFU) passively replicates the 65 stocks in the S&P 500™ Information Technology Index. Investors can use the liquid product to anticipate a rebound in the sector benchmark. A longer-term buy and hold strategy is also possible. Alphabet, along with Apple and Microsoft, is one of the underlyings for a new ER Worst of Kick-In GOAL (symbol: KCTKDU). An index reshuffle recently removed the Google parent company from the IT sector and put it in communication services. This has no impact on the opportunities for the subscription product: as long as none of the underlyings touch or fall below the 60% barrier, the investment ends with an annual return of 9.50%. The early redemption feature means early repayment with pro rata coupon is possible. This is conditional on all of Alphabet, Apple and Microsoft closing at or above the starting level on one of the quarterly observation days (first date: 7 November 2019).

Risks: The aforementioned products do not have capital protection. Should the underlying assets deliver a negative performance; the ETT will incur commensurate losses. If the underlyings on the Kick-In GOAL 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.

S&P 500™ Information Technology Index vs. S&P 500™ Index five years¹

Over the last five year, the IT sector has outperformed the broad US equity market by a considerable distance. The most recent correction has done little to reduce this massive differential.

Alphabet A vs. Microsoft vs. Apple five years¹

Microsoft enjoys a run: over five years the software stock has even done slightly better than Apple. Google
parent company Alphabet can no longer keep up with those two.

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 S&P 500™ Information Technology Index

9.50% p.a. ER Worst of Kick-In GOAL auf Alphabet / Microsoft / Apple

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.

Industrial metals
A steely trio

The commodity market overall has been stable year to date, but industrial metals stocks are mostly down. The segment has been hit by concerns about an economic slowdown as a result of the burgeoning trade dispute. Although actual demand for metal continues to be robust, stocks in the sector are under pressure. UBS has combined three sector representatives (US Steel, ArcelorMittal and Rio Tinto) in a Callable Worst of Kick-In GOAL (symbol: KCTUDU). The product pays an annual coupon of 11.00% regardless of price performance. This opportunity comes with a 46% safety buffer.

On 16 October, the World Steel Association published its short-term market outlook. They assume that global demand for steel will rise by 3.9% to 1,657.9 million tonnes this year. In 2019, the market will grow a further 1.4% to 1,681.2 million tonnes. Not surprisingly, the 2018 forecast sees the largest increase in demand in emerging markets. Growth in Asia-Oceania, the largest market for sales due to Chinese demand, is expected to be 5.0%. However, the association also points out that risks have risen too, mentioning rising trade tensions and volatile exchange rates. (Source: World Steel Association, press release, 16 October 2018)

These are precisely the factors holding the sector back on the stock market. Take ArcelorMittal: the world’s largest steel producer lost 20% of its capitalization in a month. According to Thomson Reuters, analysts expect the group to boost profit by 22% this year. Whether and to what extent this is realistic will become clearer on 1 November (after our publication deadline). That is when the company releases its third quarter figures. On Friday 2 November US Steel, another major sector player, announces its quarterly earnings.

Opportunities: The two steel producers and Rio Tinto have been selected as the underlyings for a new Callable Worst of Kick-In GOAL (symbol: KCTUDU). One of the miner’s products is iron ore, a key input for making steel. Provided none of the three stocks touch or fall below the barrier at a low 54% of the initial prices, the structured product pays a maximal return in line with the 11.00% annual coupon on maturity. Important: The issuer has a call option. If it exercises the callable function on one of two possible dates, holders receive nominal plus the pro rata coupon.

Risks: Kick-In GOALs do 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.

US Steel vs. ArcelorMittal vs. Rio Tinto 5 years¹

11.00% p.a. Callable Worst of Kick-In GOAL on US Steel / ArcelorMittal / Rio Tinto

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, 26.10.2018

Low-volatility strategy
Get off the roller coaster

Trade disputes, Brexit chaos and a controversial Italian budget proposal – these three factors have been making life uncomfortable for investors recently. They have also caused the turbulence on the global equity markets to rise sharply. Collective sentiment is reflected in implied volatilities. The range of fluctuation priced into options shot up at the start of the fourth quarter (see chart). In an environment like this, investment strategies targeting stocks with relatively low volatility could come into their own once again. The same goes for the K Switzerland Low Volatility NTR Index. Year to date this underlying has extended its long-term outperformance of the SMITM.1 A PERLES (symbol: SOLVZU) can give investors exposure to this benchmark in their portfolio.

Performance on the Swiss equity market is something of a roller coaster at the moment. The SMITM gained 5.6% between July and September 2018. This was the strongest performance the domestic blue chip index had posted since the first three months of 2013. But it was not enough for a breakout to the upside. Instead, recent weeks have seen the SMITM move down smartly. Shortly before the end of October the performance for the month was down 3.5%.1 Over extended periods these ups and downs in prices reduce returns. Academic studies have demonstrated that portfolios of relatively low-volatility stocks beat the broader market in the long term. This puts them at odds with traditional capital market theory, which assumes that the more risk an investor takes, the higher the return on a diversified portfolio. Robert Haugen and James Heins documented the “low volatility anomaly” as long ago as 1972. Twenty years after that, US researchers Eugene Fama and Kenneth French published a three-factor model. One of the characteristics this featured as driving returns was low volatility.

Opportunities: The PERLES is listed on SIX (symbol: SOLVZU) and is a way of taking a diversified position in the 20 lowest-volatility stocks on the Swiss equity market. The product replicates the K Switzerland Low Volatility Index for an annual management fee of 1.00%. Any dividends on the constituents are reinvested net in the underlying. The term is limited to a total of seven years, but this can be extended by the same period.

Risks: This product does not have capital protection. With a PERLES, losses are incurred if the underlying index falls. 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.

K Switzerland Low Volatility NTR Index vs. SMI™ TR Index
(5 years; for illustrative purposes only; figures in %)¹

The K Switzerland Low Volatility Index has risen in the past. Over a five-year period the smart beta benchmark has outperformed the SMITM considerably.

Helvetia Holding vs. Lindt & Sprüngli vs. PSP Swiss Property
(5 years; for illustrative purposes only; figures in %)¹

Insurance, chocolate and real estate are the industries Helvetia, Lindt & Sprüngli and PSP operate in, all of which have contributed to the recent outperformance of the K Switzerland Low Volatility Index.

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 the K Switzerland Low Volatility Index

K Switzerland Low Volatility Index – Composition as of 31.08.2018

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.

Gold
The crisis currency moves up

The weather may have been nice in October, but things were less agreeable on the stock market. As discussed on the preceding pages, equity market corrections pushed volatility up sharply. At the same time, gold showed signs of life. The crisis currency has risen 3.4% since the end of September.¹ Logically, the ETC (Symbol: CGCCIU) on the UBS Bloomberg CMCI Gold CHF Monthly Hedged TR Index broke out to the upside of its downward technical trend. This participation product makes it possible to take roll-optimized positions in the precious metal.

Most investor showed little interest in gold as a safe haven until the end of the third quarter. The steep increase in interest rates in the USA and the associated strength of the dollar weighed on it in particular. While the greenback itself remains in demand as a crisis currency and is holding up at a high level, the gold price has shot up in recent weeks. Clearly the rise in general uncertainty factors has driven increasing numbers of investors to switch to risk-off mode. The situation in Italy is of special concern for financial markets. The government of the right-wing Lega party and the populist Five Star movement is planning to raise far more new debt in 2019 than its predecessor had indicated. The EU Commission has rejected Rome’s draft proposal, something which has never happened before in the history of the Eurozone. “If trust is eroded, all Member States take damage, our union takes damage,” said Commission Vice-President Valdis Dombrovskis of this unprecedented step. Italy now has three weeks to react to the criticism and submit a new budget for 2019 to Brussels. (Source: Thomson Reuters media report, 23 October 2018)

Opportunities: The ETC (Symbol: CGCCIU) on the UBS Bloomberg CMCI Gold CHF Monthly Hedged TR Index allows investors to diversify their portfolios simply and cheaply. The product underlying replicates the gold price by using various futures contracts. As is typical for the CMCI index family, positions are taken across the entire forward curve and all liquid maturities. A hedging mechanism ensures that fluctuations between the US dollar (the currency gold is priced in) and the Swiss franc (the product currency) are neutralized every month.

Risks: This product does not have capital protection. With an ETC, losses are incurred if the underlying index falls. 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.

Gold (in US dollars per fine ounce) 5 years¹

ETC on the UBS Bloomberg CMCI Gold CHF Monthly Hedged TR Index

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, 19.10.2018

Microchip equities
Opportunity to get involved in this sector thanks to the sell-off

There was recently a wave of sales in the microchip sector. The Philadelphia Semiconductor Index fell by more than 4% within a single week. Infineon was hit even harder, with the DAX equity declining by around twice as much in the same period. AMS has also been on the “to sell” list of stock exchange speculators for some time now, and the microchip specialist has lost more than a quarter of its market capitalization in the space of a month.¹ Following the general sell-off in the sector, it might now make sense to consider entering the market at this low base. In view of the uncertain situation on the stock markets, however, conditional partial protection is a must. The Double Coupon Kick-In GOAL (symbol: KCRRDU) in subscription on AMS, Infineon and Intel has attractive conditions. In addition to a risk buffer of 40% and a coupon of 10% p.a., the product also offers the additional opportunity of being able to double the return. For those who prefer a product with only one underlying, should take a look at the Early Redemption Kick-In GOAL (symbol: KCSEDU) on AMS, with which a coupon of 10% p.a. is possible within just two years.

Although semiconductor companies are currently exposed to severe fluctuations on the stock market, the industry continues to grow. According to the experts at IC Insights, the global microchip market is expected to grow by 14% to USD 509.1 billion this year, exceeding the half trillion US dollar mark for the very first time. In light of new technology trends such as Big Data, the Internet of Things (IoT) and artificial intelligence, the demand for microchips could continue to remain high. IC Insights estimates that the percentage of electronic products being fitted with semiconductors will increase from 28.8% in 2017 to 31.5% in 2022. (Source: IC Insights, July 18, 2018)

Opportunities: In order to achieve a double-digit percentage return with the Early Redemption Kick-In GOAL (symbol: KCSEDU) on AMS, the equity does not need to grow. If the risk buffer of 40% is maintained, the maximum return of 10% p.a. will be paid out in just under a year. The new Double Coupon Kick-In GOAL (symbol: KCRRDU) on AMS, Infineon and Intel offers a lofty 20% return opportunity. If the three equities are at least level with or above the initial price upon maturity, the traditional coupon of 10% p.a. will be doubled. The barrier stands at a comfortable 40% of the initial fixing price.

Risks: Kick-In GOALs do 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.

AMS vs. Infineon vs. Intel (5 years; for illustrative purposes only; figures in %)¹

The three microchip equities are ultimately showing clear upward growth over the next 5 years, with AMS faring the best. Nevertheless, the Apple supplier recently suffered significant losses.

AMS (5 years)¹

Austrian semiconductor manufacturer AMS has enjoyed a steep upward trend, which started some two years ago. A correction phase subsequently set in when prices rose above 100 francs.

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.

10.00% p.a. Double Coupon Worst of Kick-In GOAL on AMS, Infineon, Intel

10.00% p.a. ER Kick-In GOAL on AMS

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.

BMW & Tesla
Premium manufacturers revved up

The automotive industry is currently being hit from all sides. In addition to international risks as a result of the customs conflict and Brexit, regulators are also exerting pressure on manufacturers with new exhaust emission tests. Although day-to-day business is consequently suffering, the companies are not losing sight of their future opportunities. BMW made a massive statement of intent recently. The German firm was the first foreign car company to succeed in acquiring a majority stake in a Chinese joint venture. In contrast, Tesla is making headlines in the US thanks to its rising production figures. From July to September, 53,239 bodies of the Model 3 cars on which the company has pinned its hopes rolled off the production line – more than twice as many as in the second quarter. UBS is now packaging the two premium manufacturers into a Callable Worst of Kick-In GOAL (symbol: KCRQDU), offering amazing conditions. The barrier stands at 50% of the initial price and the coupon totals 20% p.a.

The charismatic boss of the electric car pioneer Tesla is always good for a surprise. Elon Musk is currently trying to retrofit the on-board computer in the Tesla to include a video game console. Although this is still a long way off from bearing fruit, investors are eagerly awaiting the figures for the third quarter. After a weak first half-year, Musk had promised “sustainably profitable” work from now on. Tesla will publish its interim report on October 30. Although remaining in the black is no problem for competitor BMW, the Munich-based company did scare off investors with a profit warning. Nevertheless, the car company has decided not to stick its head in the sand, but continue to put the pedal to the metal instead. For example, BMW is increasing its stake in the joint venture with its Chinese partner Brilliance by 25% to 75%, paying EUR 3.6 billion in return. We expect to be able to fully consolidate BMW Brilliance Automotive in the balance sheet from 2022 onwards,” said BMW CEO Harald Krüger. (Source: Thomson Reuters media report, October 11, 2018)

Opportunities: BMW and Tesla don’t have to switch to the fast lane for the new Callable Worst of Kick-In GOAL (symbol: KCRQDU) to be profitable. On the contrary: The two automotive equities have a downward margin of 50% before the brakes are put on the potential maximum return of 20% p.a. The maximum term of one year can be shortened by a maximum of half a year due to the callable function.

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.

BMW vs. Tesla
(5 years; for illustrative purposes only; figures in %)¹

20.00% p.a. Callable Worst of Kick-In GOAL on BMW and Tesla

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, 12.10.2018

Cybercrime
Security on the information superhighway

Hacker attacks are currently a hot topic in the media. For example, the UK is accusing Russia of being responsible for cyber attacks made against political institutions. (Source: Thomson Reuters media report, October 10, 2018) A data scandal on Facebook is also causing quite a stir. According to the US company, hackers exploited a breach in security, which enabled them to spy on approximately 50 million profiles (Source: https://newsroom.fb.com/news/2018/09/security-update/). These examples show that the protection mechanisms used need to be improved and become more effective. Consequently, the demand for IT security services – from private users and companies to entire countries – is likely to remain high in the future. This long-term trend could also be a good capital investment. The Open End PERLES on the Solactive Global Cyber Security Index make it easy and cost-effective to invest in the sector. The products, which can be traded in Swiss francs (symbol: KCFJDU) and US dollars (symbol: KCFKDU), have a management fee of 0.75% p.a.

Siemens is an impressive example of the significance of cybersecurity. A total of 1,275 employees are responsible for IT security at the industrial group. After all, Siemens records around 1,000 attacks a day. It is rapidly becoming clear that IT security is a global market worth billions. According to the «Cybersecurity Market by Solution» report, global spending in this area will reach a volume of USD 152.71 billion in the current year – and this figure is set to increase in the future. Estimates state that the market will grow to USD 248.26 billion by 2023, corresponding to an average annual growth rate of 10.2% between 2018 and 2023. The main drivers behind this are the increasing number of hacker attacks and stricter data protection guidelines. (Source: MarketsandMarktes, September 2018) Internet security is a wide-ranging field. Encryption, anti-virus protection, firewalls and data recovery are just a few of the areas that IT security companies need to address. It could therefore make sense to diversify your portfolio by investing in this growth trend. The Solactive Global Cyber Security Index includes a total of 14 international security companies, all of which are specialists in their fields. For example, Japanese company Trend Micro is best known for its antivirus software, while Israeli firm Check Point Software excels in firewall and VPN products. The current heavyweight in the index is Fortinet. The company, which last year even founded an independent subsidiary that focuses solely on cybersecurity products for government agencies, recently received a fillip from the index provider S&P Dow Jones. As of October 11, 2018, Fortinet replaced Envision Healthcare Corp. on the S&P 500™ indices. The “promotion” came as a result of a strong share price performance, as the market value of Fortinet increased by a huge 113% within the space of a year.¹

Opportunities: The price curve of the Solactive Global Cyber Security Index is likewise trending strongly upward. Although the barometer also paid the price for the recent market weakness, the index reached a new record high until mid-September. Positive growth of 21.4% has been recorded since the end of the year 2017.¹ The Open End PERLES in Swiss francs (symbol: KCFJDU) and US dollars (symbol: KCFKDU) give investors easy access to companies offering promising IT security solutions. The products track the performance of the Solactive Global Cyber Security NTR Index. Although there is an annual management fee of 0.75%, the net dividends distributed to members are reinvested.

Risks: The aforementioned products do not have capital protection. Should the underlying assets deliver a negative performance; the Open End PERLES will incur commensurate losses. The currency risk must also be taken into account, as the trading currency of the products may differ from the currencies of the index members. 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.

Solactive Global Cyber Security USD NTR Index since October 18, 2013 (launch day)¹

The IT security sector benefits from the increase in spending on security. This is impressively reflected in the Solactive Global Cyber Security Index, which has achieved an average return of 19.9% p.a. since its launch.

Check Point Software vs. Fortinet vs. F5 Networks (5 years) ¹
(for illustrative purposes only; figures in %)

The current heavyweights on the Solactive Global Cyber Security Index – Check Point Software, Fortinet and F5 Networks – are posting significant growth on a five-year basis. Fortinet has even recorded growth in excess of 400%.

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.

Open End PERLES on Solactive Global Cyber Security NTR Index (CHF)

Open End PERLES on Solactive Global Cyber Security NTR Index (USD)

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.

Medical technology
A sector in upheaval

Commotion on the hearing aid market: The US company Bose, known for its speaker systems, has received FDA approval for a hearing aid. People with mild to moderate hearing loss can adjust the settings of this device to meet their needs. The increase in the competition on the market has placed the shares of Sonova under pressure, with the Swiss company’s equities losing about a tenth of their value following the announcement. Medical technology company Straumann also experienced a similar situation.¹ Weak tidings from the industry, among other things, has had a negative impact here. For example, Stratec Biomedical provided a huge surprise by issuing a profit warning. In view of the now reduced share prices of Sonova and Straumann, a partial protection product on the duo might make sense. The Early Redemption (ER) Worst of Kick-In GOAL (symbol: KCQVDU) in subscription offers attractive conditions in this regard. If the barrier remains intact at 69% of the starting prices, the product will yield a maximum amount of 5% p.a. in 18 months at the latest.

Two factors should not be overlooked in the current weakness of Sonova’s share price: Firstly, the group started its extensive share buy-back program on October 10. The hearing aid manufacturer would like to spend up to 1.5 billion Swiss francs on this program. Secondly, an important investors’ day will be held on October 16. Market participants hope that Sonova will use the meeting to announce a new hearing aid that will outperform competing products. At Straumann, on the other hand, things will only start getting exciting at the end of October, as this is when the implant specialist will publish its results for the third quarter. The company’s half-year figures delivered a positive surprise, as management increased its forecast for organic growth in 2018 by some 15%.

Opportunities: The two aforementioned medical technology equities do not need to post price gains for the new ER Worst of Kick-In GOAL (symbol: KCQVDU) to yield the maximum return of 5% p.a. All that is required is that both equites remain above the barrier of 69% of the initial fixing levels during the 18-month term. However, due to the early redemption function, the maximum return can also be achieved earlier. For this to happen, Sonova and Straumann both have to be at or above the initial fixed price on one of the quarterly observation days (first date: October 24, 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.

Sonova vs. Straumann (5 years) ¹
(for illustrative purposes only; figures in %)

5.00% p.a. ER Worst of Kick-In GOAL on Sonova / Straumann

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.