Hello, my name is Themis Themisistocleus and I'm the head of the European Investment Office here at UBS. Today I would like to take you through how we approach investing in equities. If you look at equities, their source of returns tends to come from two places. Is the share price performance, and also any dividend that the company might pay. However, if you look at the volatility of this asset class, it tends to be much bigger than any dividend paid. And as a result, the share price appreciation tends to be the main driver for the returns you get out of this asset class. So the first step in analyzing equities is to try and establish what is fair value. And theory would tell you that fair value is the discounted cash flow of any future cash flows the company generates over its life, discounted to today. To put it in other words it's to adjust for the time value of money. So how do you focus cash flows for a company? The starting point is to try and understand how the sales and costs and ultimately profits and cash flow would develop over a long period of time. To understand the sales development, you need to understand what drives the company's sales of the key products. But to make it easy, let's take two concrete examples. Let's take two large Swiss companies, Nestle and Syngenta. Nestle, if you think about their key products these include coffee, chocolate, baby food, dog food, ice cream some very very interesting products and what defines the demand for these products for starters is how wealthy the consumer feels. If you're wealthy, and you feel well off, you tend to spend more money on these products. You buy more ice cream, more chocolate, more coffee. But the other key driver is consumer taste. If you look at what has happened over the last 50 years, people drink a lot more coffee, they eat a lot more chocolate, and that's important in understanding where the future might lie. And also, you need to understand what costs are doing. What labor costs are doing, what the cost of raw materials like cocoa for coffee are also developing to be able to estimate the profits. For Syngenta, the situation is completely different because what they produced is used on crops and what drives demand for those products are things like what's happening to the price of crops. If the price of wheat, of corn, of maize is very high, the farmer will be a lot more inclined to spend money to protect those crops. And also, the other things, like the weather, that can have an influence. So for every company, the unique drive is the drive the future, sales, costs and cash flows. Once you establish that, then you need to understand how these companies sit within the competitive environment. Because consumers have a choice, they can buy a Nestle chocolate, or they can buy Elite chocolate. So if one company does a better job in marketing these products that would do much better in selling their products, capture market share take a bigger bite of the pie. So that's important. And the last factor I wanted to highlight here is to assessing the quality of management. This is absolutely crucial, because these are the teams that are going to drive the future of the company through the decisions they are making. Is a very difficult factor to access, but it's absolutely crucial for the future, for the company. So once you've done all of that, we take these inputs, put them into a bottle which generates full cashflow sales, and cashflow for the company, and ultimately, that, using the discounted cashflow analysis would give us fair value for the company. But you have to understand discounted cash flow makes a lot of assumptions over many years. So, that people find very cumbersome and it's also prone to mistakes. So they tend to take short cuts, they tend to take simpler evaluation methodologies, like price to earnings, cash flow yield, dividend yield to get an answer to what the fair value is. So you establish the fair value. But reality is, companies don't often trade at fair value in the short term. So there are other factors that can drive the performance in the short term, like alternative investment opportunities. If you can get 5% by putting your money in the bank why should you take a risk investing equities? Well let's put it in another way. If you offer to invest inequities you want a much better price so you pay a low price so you can have high returns if you go to invest in equities. So that would drive the short term performance. Other things like behavior of can also have an impact. So taking the two together, you need to establish the fair value of the company, you need to understand what might happen in the short term before you invest and decide also on the timing of that investment. But ultimately, understanding the fundamentals translated that into fair value and understanding the short term dynamics is what really we take into account when we invest in equities. Thank you. [MUSIC]