The UBS-ETF MAP Balanced 7 UCITS ETF SF-A provides the investor with an exposure to a rules based multi asset investment strategy investing in equities, commodities and bonds. It aims to provide a sustained performance with limited downside risk.
The Strategy is based on the UBS Multi Asset Portfolio (MAP) Index, originated by UBS AG. The concept of risk parity ensures that all portfolio components contribute equally to the risk/return of the Fund, as measured by its volatility. The Fund targets an annualized realised volatility of 7%
It is a fairly complex strategy, perhaps the most complex one I have seen in the ETP Space. Basically it is a regime dependent Risk Parity implementation, made up from two portfolios.
- Active Portfolio consisting of an Equity, Commodity and Bond allocation. And
- Riskfree Cash Portfolio
Exposure to the active portfolio is made conditional on a Sentiment proxy (UBS Dynamic Equity Risk Indicator (“DERI”). The commodity exposure is made via UBS Bloomberg CMCI Composite Index, a Second Generation Constant Maturity Strategy with exposure a bit out the term-structure, and the Equity exposure through a 50/50 split to UBS RADA Europe Long Index and the UBS RADA US Long Index. RADA stands for “Risk Adjusted Dynamic Alpha”.
Each of these two indices reflects the performance of an algorithmic strategy that can enter into either a market-neutral cash position or depending on the current market sentiment a long position in the target index, either the Euro STOXX 50® TR Index or the S&P 500® TR Index.
In addition, the Strategy balances the allocation of the Active Portfolio Portfolio and the reserve asset cash against each other on a daily basis. This dynamic process initiates a breaking manoeuvre when the volatility of the UBS MAP Portfolio increases. In contrast, falling volatilities may cause the UBS MAP T7 Index to switch to a higher gear.
The UBS MAP T7 Index targets a volatility of 5 percent p.a., hence “T7”.
Each trading day, UBS MAP measures and assesses the volatility of the UBS MAP Portfolio. As long as the volatility of the UBS MAP Portfolio is within the range of 6 percent to 8 percent, no adjustment is made as a result of the volatility control of the UBS MAP T7 Index. In this case, the UBS MAP T7 Index is invested around 100 percent in the UBS MAP Portfolio.
If the volatility leaves the target range of between 6 percent and 8 percent, however, adjustments take place. In the case of volatility falling below 6 percent, the exposure of the UBS MAP T7 Index to the UBS MAP Portfolio can increase up to a maximum of 200 percent of the funds invested. On the other extreme, if volatility breaks out up- ward and exceeds the threshold of 8 percent, the exposure of the UBS MAP T7 Index to the UBS MAP Portfolio is reduced accordingly in favour of a higher cash portion. This brings volatility back to the target level of 7 percent.
The additional funds required for the leveraged investment are borrowed at the current overnight rate (EONIA for Euro investments and USD LIBOR for U.S. Dollar investments) plus 1 percent per annum.