Managerkommentar: UBS (Lux) EF - Technology

Within the MSH index, the strongest performing sectors were leisure products, up 13.7%, electronic equipment, up 13.2%, and internet retail, up 9.2%. The weakest sectors were internet services, down 4.8%, application software, down 4.5%, and entertainment, down 4.1%. The fund´s performance was helped by its underweight positions in internet services and its overweight position in IT consulting, but hurt by its underweight position in electronic equipment and overweight positions in computer hardware and data processing.

The most positive individual contributors to relative fund performance were our positions in Yahoo (underweight), KLA-Tencor (overweight), Broadcom (underweight), Intuit (underweight) and Rohm (overweight). The most negative contributors to performance were our positions in Hewlett-Packard (overweight), Computer Associates (underweight), Intel (underweight), Applied Materials (underweight) and Peoplesoft (overweight).

Outlook and Strategy

At current price levels, technology stocks are discounting a significant, sustained acceleration in revenues and earnings that is not substantiated by the outlooks of the end customers of the technology sector constituents or by observable demand trends.

The degree of acceleration implicit in current market prices appears, based on our analysis, to be unsustainable. We remain sceptical that a sustained recovery in technology industries of sufficient magnitude to justify current technology stock prices is likely. We expect technology stocks to remain highly volatile and will continue to exploit our price-value discipline to identify relatively over and undervalued securities.