Leverage the financial crisis

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Equity markets are becoming increasingly efficient as mispricings, where stock prices do not reflect their underlying fundamental values, tend to be discovered quickly and acted upon, especially in developed markets. The occurrence of a crisis however, typically creates a situation where stock prices can move well out of line with their underlying fundamentals for a longer period of time.

Like all other financial crises, the US sub-prime crisis has created significant mispricings in the financial markets. The share prices of US and European banks, which lie at the heart of the crisis, have suffered in particular. Apart from concerns about huge losses, investors are also worried about the serious pressure that these banks face on their profit margins.

Financial crises bring with them financial and economic costs, but we are of the view that a swift and effective policy response may contain the impact and the market can look ahead to recovery. In developed economies, financial crises tend to be resolved more swiftly than in emerging economies.

In a financial crisis, investors'sentiments may be dominated by fear and uncertainty. This may result in missing potentially large opportunities that are present in the financial markets.

While profitability in the financial industry has generally been affected by the US sub-prime crisis, we believe that the sharp fall in the banks' share prices globally is likely to have been excessive and that the markets should see a rebound in share prices of the financial industry in time to come.

In order to leverage the recovery potential in the financial sector, the United Financials Opportunities Fund seeks to achieve capital appreciation through an investment in 10 to 20 equity or equity linked securities of institutions in the financial industry globally and may also, from time to time, invest in debt securities issued by institutions in the financial industry.

Specifically, the investment strategy is to invest mainly into:

• companies with strong individual franchises with a margin of safety in terms of strong solvency and liquidity
• companies with strong core profitability albeit experiencing cyclical contraction in performance
• businesses that can improve their competitive position during difficult operating periods
• companies with strong growth drivers in terms of product mix or market exposure
• stocks which are at significant discount to their intrinsic franchise values

Fund Details

Source:UOBAM

[1] The hurdle rate refers to 8% p.a. increase above the relevant Benchmark Value as described in the Fund's prospectus
[2] Net proceeds upon liquidation of the United Financials Opportunities Fund may be lower than the NAV on the Maturity Date or the Early Termination Date as described in the Fund's prospectus.