Report Release Date: 13 Jul 2010
Analyst: Simon Nöth
Morningstar Opinion
Although we consider the greater freedom in managing UBS Emerging Markets a positive, high fees continue to dim our opinion.
High fixed costs are our biggest issue with this fund. The total expense ratio in the past few years has been 2.4% per year, which is significantly more than the typical fund in the Emerging Markets Equity category.
Fund manager Urs Antonioli has managed the fund since its inception. Antonioli has experienced multiple market cycles, and the fund is supported by a team that is both experienced and well-structured. The investment universe includes about 700 stocks, which is then reduced to 400 due to liquidity requirements. The investment process is bottom-up. The team determines the fair value of a company using a dividend discount model. Company visits and meetings with company managers are the standard tools the team uses to evaluate the business model. The analysts' stock picks are then re-examined by an investment committee.
The current portfolio differs from older portfolios. There have been no changes to the process, but changes have been made to the implementation of the strategy. The number of shares held is only half the number held in summer 2007, and the concentration in the top 10 holdings has been increased. This results in larger stock bets; therefore, stock analysis is taken into greater consideration in the portfolio. For example, Samsung, Petrobras, and Sberbank are weighted as much as twice as high in the portfolio than in the MSCI Emerging Markets benchmark. We like this trend.
The fund manager deviates from the benchmark and category peers in terms of sector and country weightings. These higher or lower weightings are the result of fundamental analysis. Macroeconomic aspects are factored into the overall picture and serve as risk control. The higher China weighting, for example, is the result of the fund's allocation to Chinese financial stocks, which the manager thinks look attractive relative to other financial stocks: They didn't suffer as much during the financial crisis and they should benefit from intra-Asian economic perspectives. Within the Morningstar Style Box, the strategy shows a bias toward blue chips from emerging markets. In all, Antonioli invests in very few stocks outside the benchmark.
The negative effects of the fund's high costs can be seen in rolling returns over one- and three-year periods. The strategy has almost always underperformed the benchmark and comparable funds, with the exception of last year, when the rebound in spring 2009 and the nowconcentrated portfolio resulted in good short-term performance. In order to change our rating, we would like to see the fund keep up with the competition over a longer period of time despite its high costs. We are maintaining our Inferior rating.
*The above returns are in EUR terms.
To learn more about the fund, please click here.
To read the summary report, please click here.
