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Weekly Equity Review

Ucap Hong Kong Asset Management Limited

28th Jun 2016

Equity Strategy Highlights

� Global Markets Highlights

� So the Brexit happened… forcing investors to reassess their scenarios; sending some stocks up (the UK

exporters) but most stocks down, starting with the financial sector.

� As we wrote yesterday, this is not a “Lehman moment” as relative stock and sector performances are

simply aligned with the macroeconomic impact of the Brexit and as liquidity has not dried up.

� It is another reason why rates are poised to stay low for a long time. And that should continue to penalize

banks and to support defensive stocks.

� A new month is starting this Friday but the job report will be published next week on the 8th of July. Also

note that the US earnings season is starting in two weeks.

� Important Events This Week

� Tuesday: US GDP

� Wednesday: US Personal Income

� Thursday: US Jobless claims, US Chicago PMI

� Friday: Japan Tankan, China Caixin PMI, US ISM Manufacturing, Markit manufacturing PMIs

28 June, 2016

Equity Strategy Highlights

� Global Leaders – 2016

� The US portfolio is still lagging. Most US active fund are underperforming this year as most popular long

position (as estimated by Goldman Sachs) are down 6% YTD. Our US Global Leaders portfolio suffers from

exactly the same issue as the market is driven by 2015 laggards and purely interest rate related stocks

such as utilities. We continue to believe that companies with robust growth profile and strong cash flow

generation will ultimately perform better over the long-term.

� The European Portfolio remains very resilient compared to indices.

� Europe: -5.0% YTD vs Euro Stoxx at -12.3% YTD (7.2% alpha).

� US: -2.7% YTD vs S&P at 0.8% YTD (-3.4% alpha).

� Stock-Picking List – 2016

� The average performance of our Stock-Picking YTD is +0.47%. The average alpha is +238 bps.

� We have closed positions for the time being.

28 June, 2016

EUROPEAN CONSUMER STAPLES

28 June, 2016

European Consumer Staples

� Much focus over the past year has been shifted towards consumer staples companies given their

attractive dividend yield along with a stable business model in today’s low interest rate

environment.

� Given that growth in developed nations is relatively stagnant, companies in the sector have been

investing heavily in emerging markets where growth is promising.

� A growing and consolidated middle class in countries such as China where more consumers are opting for

branded products is fuelling growth.

� Other companies such as Reckitt Benckiser, have been focusing on high growth businesses such

as consumer health, which benefits from an ageing population and high proactivity among young

generations.

� For example, the beauty and personal care business is a $38bn market per year projected to grow by 6%

per year in the years to 2020 as spending on products related to aging skin, hair and oral care increases

as these become a “necessity” and not a discretionary purchase.

� With the recent Brexit, companies with a geographically diversified revenue stream are likely to

benefit from a weaker Pound and Euro.

28 June, 2016

Reckitt Benckiser (RB/ LN)

� Reckitt Benckiser is a British multinational manufacturer and distributor of household, hygiene

and pharmaceutical products.

� The company is present in more than 60 countries across six continents.

� Its broad portfolio of products includes detergents, personal care, prescription drugs and disinfectant

spray with brands such as Dettol, Lysol, Nurofen, Durex, Finish and Air Wick.

� In 2012 shifted its business model by increasing its focus on consumer health which operates under

higher margins and growth is likely to remain on the rise in recent years.

� Reckitt enjoys from sector high operating margins, > 25%, and has introduced last year its Project

Supercharge expected to save £100M-£150M in the years to 2017.

� From 2011-2014 margins rose by 90bp, while in 2014 Reckitt experienced a 150bps benefitting from a zero-base

budgeting approach and the strong performance of its premium portfolio.

� The stock has been one of the top performers of the FTSE 100 in recent years, and has generated a total

return of over 145%.

� In Q1 2016 revenue rose roughly 4% boosted by the strong performance of its health & hygiene business

and demand from emerging markets.

28 June, 2016

2500

3000

3500

4000

4500

5000

5500

6000

6500

7000

7500

08.12.2011 08.12.2012 08.12.2013 08.12.2014 08.12.2015

Stock Performance

Growth and Performance

28 June, 2016

125% gain since 2011.

20%

22%

24%

26%

28%

30%

32%

34%

2011 2012 2013 2014 2015

Health as a % of Total Revenue

Grew at annual average rate of 10% in the past

four years and responsible for EBIT growth in

the past few years.

42%

33%

25%

Revenue Breakdown

Asia & Africa The Americas Europe

Unilever (ULVR LN/UNA.NA)

� Unilever is a worldwide leader in the Food and Home & Personal Care industries (HPC) counting

with renowned products such as Axe, Rexona and Dove in its HPC business and Hellmann’s,

Knorr, Lipton and Magnum in its Food business.

� The company operates in more than 190 countries, counting with more than 400 brands used by an

estimated two billion people on a daily basis.

� 75% of sales are generated outside of Europe, with a weaker euro expected to benefit growth.

� Emerging markets are expected to make up 70% of sales within the next few years.

� Unilever has increased its focus in its personal care business in recent years through acquisitions. The

company plans for personal care to make up half of its sales by 2020 compared to 37% today.

� Its recently introduced zero-based budgeting is forecasted to save the company $1.1bn by 2018, which

represents 12% of its core operating profit.

� Sales in Q1 of the year were up 4.7% YoY, with emerging markets growing 8.3% while developed markets

were slightly lower hurt by price deflation.

� The company trades in London and the Netherlands, making its London listing more attractive given the

strong fall in the Pound.

28 June, 2016

Growth Opportunities

28 June, 2016

2.5%

3.0%

3.5%

4.0%

4.5%

0

20

40

60

80

100

In G

Bp

Dividend Growth

12mth Div Yield

48.6% 51.0% 52.9% 54.2% 55.5% 56.8%

51.4% 49.0% 47.1% 45.8% 44.5% 43.2%

2010 2011 2012 2013 2014 2015

Revenue Breakdown

Home & Personal Care Foods & Refreshment

A higher focus on HPC is

leading to growth in margins.

43%

25%

18%

14%

Revenue Breakdown

Asia & Africa Europe North America South America

INVESTMENT IDEAS

28 June, 2016

Global Leaders

28 June, 2016

The Global Leaders are quality companies that we believe are fit for a long-term investment.

We launched this strategy in August 2011. Please read our special report for a full explanation of this strategy.

Benchmark: S&P 500Benchmark: Euro Stoxx 50

� European Portfolio � US Portfolio

*Since

August 2011

Portfolio Benchmark Delta Annualized Portfolio Benchmark Delta Annualized

Performance 85% 48% 37.1% 14% Performance 103% 85% 17.3% 16%

Performance YTD -5.0% -12.3% 7.2% Performance YTD -2.7% 0.8% -3.4%

Volatility 55.6% 42.8% 12.8% Volatility 60% 53% 7%

Max DrawDown -53.9% -49.8% -4.1% Max DrawDown -55% -50% -5%

-15

5

25

45

65

85

105

EU Global Leaders Benchmark

-11

9

29

49

69

89

109

US Global Leaders Benchmark

Global Leaders – Current List

� European Portfolio � US Portfolio

28 June, 2016

Name Weight Mkt Cap ($bn) Sector

Apple 7.81% 529 Information Technology

Alphabet 7.68% 489 Information Technology

Microsoft 7.36% 395 Information Technology

Exxon 7.26% 370 Energy

Facebook 7.12% 333 Information Technology

Johnson & Johnson 7.00% 308 Health Care

JP Morgan 6.62% 232 Financials

Merck & Co 6.08% 152 Health Care

Pepsico 6.02% 145 Consumer Staples

Bristol Myers 5.77% 116 Health Care

Nike 5.54% 95 Consumer Discretionary

Honeywell 5.43% 86 Industrials

Starbucks 5.34% 80 Consumer Discretionary

Accenture 5.29% 76 Information Technology

Costco 5.09% 63 Consumer Staples

Amazon 3.55% 330 Consumer Discretionary

Wells Fargo 3.35% 247 Financials

AT&T 3.32% 236 Telecommunication Services

Verizon 3.22% 201 Telecommunication Services

Visa 3.16% 184 Information Technology

Walt Disney 3.08% 162 Consumer Discretionary

Philip Morris 3.04% 152 Consumer Staples

Altria 2.91% 124 Consumer Staples

CVS 2.83% 106 Consumer Staples

Mastercard 2.82% 105 Information Technology

Walgreen 2.69% 83 Consumer Staples

Reynolds 2.61% 71 Consumer Staples

Goldman Sachs 2.58% 67 Financials

Time Warner 2.50% 57 Consumer Discretionary

Name Weight Mkt Cap ($bn) Sector

Novo Nordisk 7.08% 141 Health Care

Sanofi 6.68% 103 Health Care

Inditex 6.61% 100 Consumer Discretionary

Nestlé 5.91% 239 Consumer Staples

Vinci 5.60% 44 Industrials

Fresenius 5.52% 40 Health Care

Unilever 5.29% 137 Consumer Staples

Essilor 5.13% 28 Health Care

BATS 5.10% 115 Consumer Staples

Philips 5.00% 24 Industrials

L'Oréal 4.99% 102 Consumer Staples

Dassault Systemes 4.80% 20 Information Technology

Reckitt Benckiser 4.62% 70 Consumer Staples

Roche 3.87% 217 Health Care

Ab InBev 3.82% 202 Consumer Staples

Novartis 3.79% 199 Health Care

LVMH 3.20% 84 Consumer Discretionary

Allianz 3.10% 72 Financials

AXA 2.97% 58 Financials

Heineken 2.93% 54 Consumer Staples

Daimler 2.05% 72 Consumer Discretionary

BMW 1.95% 55 Consumer Discretionary

Stock-Picking List – Performance

� Hit Ratio 35%

� Hit Ratio Alpha 58%

� Average Perf. 0.47%

� Average Alpha 2.38%

� Nb. of Trades 31

� Open Trades 0

28 June, 2016

Average alpha of each stock strategy when compared to its

index (S&P or Euro Stoxx) over the same holding period.

Average performance of each stock strategy.

Please ask for more details.

Latest Equity Research

28 June, 2016

Date Document Strategy Stocks Covered Date Document Strategy Stocks Covered

June, 20 Company Primer Global Leaders Heineken April, 14 Key Highlight Global Leaders JPMorgan

June, 16 Key Highlight Global Leaders Inditex April, 13 Key Highlight Global Leaders Facebook

June, 14 Key Highlight Global Leaders Apple April, 05 Weekly Report Thematic View Ctrip, Expedia, Priceline

June, 14 Weekly Report Global Leaders Accenture April, 01 SWOT Analysis Thematic View Ctrip

June, 09 Company Primer Global Leaders Starbucks April, 01 SWOT Analysis Thematic View Expedia

June, 09 Company Primer Global Leaders Facebook April, 01 SWOT Analysis Thematic View Priceline

June, 09 Company Primer Global Leaders Amazon March, 31 Key Highlight M&A Hon Hai

June, 09 Company Primer Global Leaders Alphabet March, 16 Key Highlight Global Leaders Apple

June, 07 Key Highlight Thematic View Bristol-Myers, Juno Therapeutics, Kite Pharma March, 10 Key Highlight Global Leaders Inditex

June, 07 Weekly Report Tech Leaders Adobe, Broadcom, PayPal March, 08 Weekly Report Thematic View 3M, GE, Honeywell, UTC

June, 03 Key Highlight Global Leaders Johnson & Johnson March, 07 Key Highlight Global Leaders Novo Nordisk

May, 31 Weekly Report Global Leaders Alphabet, Amazon, Facebook March, 04 Key Highlight Global Leaders Time Warner

May, 27 Key Highlight Global Leaders Costco February, 23 Weekly Report Thematic View IBM

May, 24 Weekly Report Thematic View Swisscom, Deutsche Telekom, Vodafone, BT Group February, 19 Key Highlight M&A IBM

May, 17 Weekly Report Thematic View Heineken February, 02 Key Highlight Global Leaders Alphabet

May, 11 Key Highlight Global Leaders Amazon January, 29 Key Highlight Global Leaders Microsoft

May, 05 Key Highlight Global Leaders Time Warner January, 28 Key Highlight Global Leaders Facebook

May, 04 Key Highlight Global Leaders CVS January, 27 Key Highlight Global Leaders Apple

April, 29 Key Highlight Global Leaders Amazon January, 25 Key Highlight Earnings Eiffage

April, 28 Key Highlight Global Leaders Facebook January, 15 Key Highlight Global Leaders JPMorgan

April, 27 Key Highlight Global Leaders Apple January, 13 Key Highlight Global Leaders Time Warner

April, 22 Key Highlight Global Leaders Essilor January, 08 Key Highlight Global Leaders Walgreens

April, 20 Key Highlight Global Leaders Johnson & Johnson January, 07 SWOT Analysis Thematic View Siemens

SECTOR VIEWS

28 June, 2016

Our Strategic Views – Sectors

28 June, 2016

GICS

SectorUS EUROPE

Information

Technology

US Technology remains the most attractive investment space in

terms of:

� Growth potential,

� Reasonable valuation,

� Potential cash return,

� Stock picking opportunities.

Stay long but the Tech sector is tiny in

Europe.

Financials

US Banks will ultimately benefit from the US economic recovery and

rising interest rates. However, despite the expected rate hike,

inflation remains low and yield curves continue to flatten.

The Brexit has a short term negative impact but we believe that

ultimately, US banks will came out stronger. Stay neutral.

European banks continue to face headwinds

from low rates and structural issues….

And the Brexit has worsened things … avoid

the sector.

Healthcare

Pharma are on multi-years upcycle:

� Earnings, M&A activity and positive drug developments continue to support the sector.

� Prices and valuations have risen, but the sector has lagged over the past quarters, offering investors an

attractive entry point.

Our Strategic Views – Sectors

28 June, 2016

GICS

SectorUS EUROPE

Consumer

Discretionary

Consumer Discretionary stocks benefit from the relatively resilient

US market. But valuation is a bit too high to warrant some further

outperformance.Those three sectors are heavily tilted

towards exporters.

Overweight Staples as they continue to be

supported by low rates and by weaker

European currencies following the Brexit.

Consumer

Staples

Consumer Staples are expensive but continue to be supported by

low US long rates.

IndustrialsOverweight as 2015 headwinds are abating. Stay long defense stocks

as geopolitical factors will keep the pressure on defense spending.

Energy Oil prices have stabilized but the CAPEX remain low. Stay long the integrated Big Oils but avoid services.

MaterialsCommodities remain under pressure due to declining emerging markets demand, overcapacity and a strong dollar.

-> Be careful with miners. Stay neutral chemicals.

UtilitiesStay Neutral as the sector is a play on long rates and other sectors

offer better fundamentals.

Avoid the sector as it is plagued by political

intervention in France and Germany.

Telecom

ServicesStay Long on low interest rates.

Stay Long on low interest rates and as the

weaker European currencies are supporting

some carriers.

Our Strategic Views - Sectors

28 June, 2016

The Following charts are a recap of our sector view as well as the relative size of each sector.

How to Invest

28 June, 2016

GICS Sector US EUROPE

Information

Technology

Best Investment proxy:

• Technology SPDR ETF (XLK).

Favorite Stocks:

• Payment Technologies: Visa, MasterCard, PayPal.

• Software: Microsoft, Adobe.

• Hardware: Apple.

• Media: Facebook, Alphabet.

• IT Services: Accenture, IBM.

Best Investment proxy: No Liquid Tracker.

Favorite Stocks:

• Software: Dassault Systèmes.

• Semis : ASML

Financials


• Financials SPDR ETF (XLF).

• Banks only: Banks SPDR ETF (KBE).

Favorite Stocks:

• Banks: JPM Morgan, Wells Fargo, Goldman Sachs.


• Eurozone Banks: iShares Estoxx Banks ETF (SX7EEX

GY Index).

• Pan-European Banks: Lyxor Stoxx 600 Banks (BNK

FP).

Favorite Stocks:

• Insurance: Allianz, AXA.

Healthcare


• Healthcare SPDR ETF (XLV).

• Pharmas only: Pharmaceuticals SPDR ETF (XPH).

Favorite Stocks:

• Pharmaceuticals: Bristol-Myers, J&J, Merck.


• Lyxor Stoxx 600 Healthcare (HLT FP).

Favorite Stocks:

• Pharmaceuticals: Novo Nordisk, Roche, Sanofi.

• Equipment and Services: Fresenius, Essilor.

How to Invest

28 June, 2016


Consumer

Discretionary


• Cons. Disc. SPDR ETF (XLY).

Favorite Stocks:

• Media: Disney, Time Warner.

• E-Commerce: Amazon, Priceline, Ctrip.

• Restaurant: Starbucks.

• Apparel: Nike.


• No Liquid Tracker.

Favorite Stocks:

• Apparel: Inditex, LVMH.

• Carmakers: BMW, Daimler.

Consumer Staples


• Cons. Staples SPDR ETF (XLP).

Favorite Stocks:

• Pharmacies: CVS, Walgreens.

• Food & Beverage: Pepsi.

• Packaged Food: Kraft Heinz, Mondelez, ConAgra,

Tyson.

• Tobacco: Altria, Reynolds.

• Retail: Costco, Wal-Mart, Kroger, Dollar Tree.

• Confectionary: Hershey.



Favorite Stocks:

• Food & Beverage: Nestlé, AB Inbev, Heineken,

Danone.

• HPC: Unilever, Reckitt, L'Oréal.

• Tobacco: BAT.

• Retail: Carrefour.

• Confectionary: Lindt, Barry Callebaut.

Industrials


• Industrials SPDR ETF (XLI).

Favorite Stocks:

• Conglomerates: GE, Honeywell, 3M, United Tech.



Favorite Stocks:

• Infrastructure: Vinci.

• Diversified: Philips.

How to Invest

28 June, 2016


Energy


• Energy: Energy SPDR ETF (XLE).

• Oil services: Market Vectors Oil services ETF (OIH).

Favorite Stocks:

• Exploration & Production: Occidental, Hess, Noble

Energy, Anadarko.

• Oil Refining: Philips 66, Valero.

• Integrated: Exxon, Chevron.

• Equipment & Services: Schlumberger, Halliburton.



Favorite Stocks:

• Integrated: Total, RDSA.

• Refining: Neste OYJ.

Materials


• Materials: Materials SPDR ETF (XLB).

• Gold Miners: Market Vectors Gold Miners ETF

(GDX).

Favorite Stocks:

• Gold Miners: Newmont, Barrick Gold, Newcrest.



Favorite Stocks: na.

• Gold Miners: Randgold.

Utilities


• Utilities SPDR ETF (XLU).





Telecom Services



Favorite Stocks:

• Diversified: Verizon, AT&T.



Favorite Stocks:

• Diversified: Vodafone, Deutsche Telekom.

Disclaimer

28 June, 2016

Ucap Hong Kong Asset Management Ltd has issued this document for information purposes only. This document may not be distributed to the United States, Canada,

Australia or to any other jurisdiction in which its distribution is unlawful. If you require investment advice or wish to discuss the suitability of any investment decision,

you should contact your professional advisers for financial, legal or tax advice when appropriate. This document is not and should not be construed as an offer to sell or

a solicitation of an offer to purchase or subscribe for any investment or service.

Ucap Hong Kong Asset Management Ltd has based this document on information obtained from sources it believes to be reliable but which it has not independently

verified. Ucap Hong Kong Asset Management Ltd makes no guarantees, representations or warranties, and accepts no responsibility or liability as to its accuracy or

completeness. Expressions of opinion herein are subject to change without notice.

Members of the Ucap Hong Kong Asset Management Ltd and/or their officers, directors and employees may have positions in any securities mentioned in this

document (or any related investment) and may from time to time add to or dispose of any such securities (or investment).

In the case where this document is distributed in the United Kingdom by a person who is not authorized by the United Kingdom Financial Services Authority; it is only

intended for persons who (i) have professional experience in matters related to investments or (ii) are persons falling within Article 49(2)(a) to (d) ("high net worth

companies, unincorporated associations, etc") of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (as amended) or to whom it may

otherwise lawfully be communicated by such an unauthorized person (all such persons together being "relevant persons"). This communication must not be acted on

or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant persons and

will be engaged in only with relevant persons.

Past performance is not necessarily a guide to future performance. The value of any investment or income may go down as well as up and you may not receive back

the full amount invested. When an investment is denominated in a currency other than your local or reporting currency, changes in exchange rates may have an

adverse effect on the value, price or income of that investment. In the case of investments for which there is no recognized market, it may be difficult for investors to

sell their investments or to obtain reliable information about their value or the extent of the risk to which they are exposed. Investment in any market may be

extremely volatile and subject to sudden fluctuations of varying magnitude due to a wide range of direct and indirect, influences. Such characteristics can lead to

considerable losses being incurred by those exposed to such markets.

© Copyright. Ucap Hong Kong Asset Management Ltd 2015 ALL RIGHTS RESERVED

No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, whether electronic, mechanical, photocopying,

recording or otherwise, without the prior written permission of Ucap Hong Kong Asset Management Ltd.

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