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GENERAL ADVICE DISCLAIMER

UGC HALF-YEARLY REPORT IS DESIGNED TO PROVIDE INSIGHT AND COMMENTARY ON THE MOST RECENT 6 MONTHLY
PERIOD IN FINANCIAL MARKETS AROUND THE GLOBE AND UGCs OUTLOOK FOR THE COMING 6 TO 12 MONTH PERIOD.

THE INFORMATION CONTAINED IN THIS REPORT IS GENERAL INFORMATION ONLY AND SHOULD NOT BE CONSIDERED
PERSONAL ADVICE. YOU SHOULD CONSULT YOUR ADVISER OR A UGC ADVISER BEFORE ACTING ON ANY OF THE
INFORMATION CONTAINED IN THIS REPORT.
UGC Half-Yearly Report
Half-year ended 30 June 2014

Dated: 22 August 2014
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2014 Financial Year in Review

Despite a range of economic and geopolitcal challenges
unsetling fnancial markets, most major equity markets
posted solid gains for the 12 months to 30 June 2014. Central
banks around the world contnued to provide support in some
form or another as benign levels of infaton allowed central
banks to keep interest rates low. This encouraged investors
seeking income into asset classes other than traditonal term
deposit or fxed income investments all in an atempt to
support their need for cash fow.

The Internatonal Monetary Fund (IMF) estmates that the
world economy grew by 3% in 2013 and will grow by 3.6% in
2014, which is consistent with long term average growth
rates.

Central bank policy contnued to drive market developments
as investors contnued to keep a keen eye on the US Federal
Reserves unwinding of its Quanttatve Easing (QE) program.
This program, which has been actvated on three separate
occasions since the Global Financial Crisis, is designed to allow
the Fed to buy government bonds in huge sums to artfcially
lower bond prices and infuence mortgage rates which are
priced of these US government bond prices.

The combinaton of extraordinarily low short-term interest
rates and a targeted bond buying program across the interest
rate curve provided signifcant support to asset prices across
the world. While the Federal Reserve steadily reduces the size
of its monthly bond purchases from US$85 billion a month to
zero (QE is expected to end this October), the fear is that it
could lead to lower share and bond prices as interest rates,
lef un-manipulated, are expected to rise. So far, however,
this has proven not to be the case as improved US and
European prospects have helped provide enough confdence
for investors to, at this stage, overlook the risk of a signifcant
decline.

United States

The IMF cut its forecast for US economic growth in 2014 from
2.8% to 2.0%, largely due to the harsh winter that dampened
growth in the 1st quarter of 2014. Apart from this speed
bump, there are encouraging signs that the US is undergoing a
modest but strengthening economic recovery.

The unemployment rate fell from 6.7% in December last
year to 6.2% in July, which compares to the peak
unemployment rate of 10% reached in 2009. It might
actually come as a shock to most but this is now less than
Australias unemployment rate which currently stands at
6.4%.

The S&P/Case-Shiller 20-City Composite Home Price Index
rose 10.8% over the past 12 months to April 2014 as US
housing now appears to be a tailwind behind US growth,
instead of a headwind.

Average weekly earnings in the US increased 2% for the
frst half of the year and is up 11% overall since the end of
2009. This improved rate of growth in wages this year is
consistent with the improvement witnessed in the labour
market and over tme should help support the consumer
in the US, which makes up approximately 70% of US GDP.
Figure 1 - US Unemployment Rate
(Source: Trading Economics, US Bureau of Labour Statstcs)

China

The Chinese economy grew 7.7% last year and the IMF
forecasts growth to be 7.5% in 2014 and to be slightly lower
again in 2015. There are increasing concerns over the short-
medium term economic outlook for China as its property
market cools in the wake of increased central bank regulaton
over its shadow banking system. Potental oversupply of
housing in Tier 3 and 4 cites and a slump in the housing
market could act as a drag on growth and could also lead into
subdued demand for Australian iron ore.

The ramp up in Chinese property development has been
fuelled by an explosion in credit, with the rato of credit to
GDP increasing from 128% to 217% over the past 5 years.
Much of this growth has come through the unregulated
shadow banks that provide capital to local government
fnancing vehicles, property developers and state-owned
enterprises. These loans are packaged and sold as deposit-
like products to investors seeking higher rates of return but
are ofen unaware of the credit risks atached to these
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Half-year ended 30 June 2014
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fnancial instruments.

Much of this credit fuelled development in China was a
result of Chinese government interventon during the GFC as
China implemented policies aimed at staving of a US style
GFC type event. This infrastructure build out and property
development helped fuel demand for Australian iron ore and
contributed signifcantly to Australian GDP, which only
contracted for one quarter during the GFC, and avoiding a
technical recession.

For the moment, investors are wary of a potental credit or
debt servicing problem among these local government trusts
and Wealth Management Products. The potental is that if
enough of these debts default, this could spark an adverse
fnancial market reacton across China which could fow
across the globe similar to the GFC.

However, it should be noted that the Chinese government
has a vast pool of foreign exchange reserves and a relatvely
closed capital account, which should limit contagion to some
extent, and unlike the US and Europe, China could use this
signifcant fnancial fre power to manage large scale defaults
and smooth any fnancial market instability.

Europe

Economic conditons in the Eurozone have improved over
the past 12 months, although performance stll varies widely
across countries. Weak price growth and lowered infaton
expectatons have increased the risk of defaton, promptng
further monetary policy easing by the European Central Bank
(ECB).

In June, to encourage lending and jumpstart Europes weak
economic growth and low infaton, the ECB took the unusual
step of cutng the overnight bank deposit rate to below
zero. This means that with an interest rate of -0.1%,
commercial banks must pay to keep their money at the ECB.
The ECB has also indicated that it is looking at adoptng a
form of QE where it can purchase non-government asset
backed securites, essentally removing these burdens from
European banks and freeing up capital for them to lend in
material quanttes again.

If the script holds true in Europe as it has in the US and
Japan, we should expect to see equity markets in Europe
begin to outperform in Euro dollar terms versus other major
equity markets around the world, but this should be ofset to
some degree by declines in the Euro currency against other
major currencies.

At the tme of writng, we are currently assessing several
investment opportunites to beter optmise this thesis and
expect to make recommendatons in the coming days and
weeks to adjust internatonal direct investment client
portolios to take advantage of this opportunity.

Australia

In Australia, our economy grew by 2.7% in 2012/2013 and is
estmated to grow by 3.0% in 2013/2014. Overall growth has
accelerated in the past year, with the March quarterly result
surging to 3.5%, largely on the back of mineral exports
growth. Iron ore export volumes reached new record highs
which has ofset the fall in iron ore prices.
Figure 2 - Australia GDP Annual Growth Rate
(Source: ABS, Trading Economics)

As Australia moves from the investment phase to the export
phase of the mining cycle, it is clear that the best of the
boom is now behind us. To ofset a drag on future growth,
more heavy lifing from other sectors of the economy is
required and there are encouraging signs that this
rebalancing is underway. This is partcularly evident in
sectors of the economy that are sensitve to interest rates. In
the latest March quarter, housing constructon rose at an
annualised rate of 8% as investors piled into the local
property market.

Following a quarter percent rate cut in August last year, the
cash rate stands at a 54-year low of 2.5%, down from 2.75%
from June 2013. However, the unemployment rate has
contnued to steadily drif higher and is currently at 6.4%, up
from 5.8% at the beginning of the year.

Despite the ongoing coverage surrounding job losses, of
which ANZ economists predict 75,000 will be lost from the
mining sector over the next several years, the impact should
be relatvely benign. This is largely due to the expectaton
that many foreign workers will return home and constructon
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Half-year ended 30 June 2014
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actvity in a low interest rate environment should contnue to
strengthen, in which many skills tend to be easily transferrable.

The real area of concern in Australias employment market is
the high youth unemployment rate which is twice the natonal
average, at 12.4%.
Figure 3- Australian unemployment rate
(Source: ABS, Trading Economics)

The Australian Share Market

Headline returns for the Australian share market indicate a
very good year with the All Ordinaries rising 12.7% over the
2013/2014 fnancial year, and the Accumulaton index (which
includes dividends) generatng a total return of 17.6%.
Figure 4 S&P ASX 200
(Source: HUBB - Proft Source)

While the index provided solid headline returns, most of these
returns came in the early part of the new fnancial year.
Dissectng the numbers a litle further also shows that this
return may be a litle misleading as the ASX 200, almost to the
day, began the fnancial year recovering from a 10.5% decline
between the months of May and June 2013.

Stretching this data set out further, from Mid May 2013, the
ASX 200 was up just 3.8% to 30 June 2014 and at the tme of
writng sits just 5.7% higher over the past 15 months. Since the
start of March of 2013, the ASX 200 index is just 7.4% higher to
the date of writng.

There is no doubt that the speed at which the ASX 200 is
appreciatng from its lows of 2011 and 2012 has tempered
somewhat, however, this should be expected given the
Australian market generated a total return of 20.7% in the
2012/2013 fnancial year.

From November 2013 to 30 June 2014, returns have actually
been much more modest with the ASX 200 actually postng a
small negatve return to 30 June 2014.

The best performing sectors for the past 12 months were
Diversifed Financials +34.9%, Consumer Services +18.9% and
Banks +16.9%. It was a positve year across nearly all sectors
with the only industry to not see a gain being Food, Beverages
and Tobacco Manufacturing, -23.0%.

The US Share Market

US stocks made multple new highs over the past 12 months
with the S&P 500 index notching its sixth consecutve quarterly
rise during the fnancial year and fnishing the calendar year up
19.1% excluding dividends. This is its longest streak of quarterly
gains since 1998.
Figure 5 - S&P 500
(Source: HUBB - Proft Source)

At the date of writng, US stocks have also tempered their gains
this year with the S&P 500 up 5.5% for the year to date and the
mega-cap Dow Jones Industrial Average fat for the year so far,
up just 0.6%.

All 10 industrial sectors posted gains for the fnancial year with
the largest returns coming from Basic Materials +32.6%,
Technology +31.6% and Healthcare 30.1%. The only sector not
to see double-digit returns over the past 12 months was the
Telecommunicatons sector +5.1%.


Other Major Markets

UGC Half-Yearly
Half-year ended 30 June 2014
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World share markets have delivered their second consecutve
fnancial year of double digit returns. Furthermore, this has been
lead by developed markets outperforming emerging markets for
the second year running.

Developed countries averaged +22% returns while emerging
countries only saw +14%. On a regional basis Europe led the way
with +28% as markets bounced back on the slowly improving
economic conditons. The recent decision by the European
Central Bank to ofer negatve deposit rates also stmulated the
European Bourses. Japanese shares underperformed other
markets this year afer postng greater than 50% returns in the
previous fnancial year.

Australian bond returns were +6.1% for the 2014 fnancial year
with returns on government bonds lifing by 5.4%. Returns on
dwellings were +14.7% so overall Australia saw bonds, shares
and property all rising over the past year.

The Australian dollar was litle changed over the past 12 months,
rising 1.6% to US 94.2c and only trading within a range of US 11c.
Gold lifed 8% while the commodity index rose nearly 12%.

Economic Outlook

Global actvity has broadly strengthened and is expected to
improve further in 2014/2015 with much of the momentum
coming from developed economies.

In Australia, the coming year looks to be similar to 2013/2014
with economic growth likely to be around 3% with infaton
sitng at the top end of the Reserve Banks target range of 2-3%
and unemployment remaining at or above 6%. The current
consensus is that the next interest rate movement will be
upwards but that the RBA wont start lifing rates untl the frst
quarter of 2015. The RBA may hold of any acton for longer if
there are delays to the economic recovery outlook.

Risks include pessimism among consumers, partcularly afer the
Federal Budget, a relatvely high Australian dollar, slower global
growth and a slow rebalance away from mining investment as a
driver of economic growth.

The outlook in the US is positve despite the harsh weather
disruptng economic growth during the 2013/2014 winter. Fiscal
policy drag is likely to have less impact on economic growth this
year, with economists predictng the efect of government
expenditure cuts and tax increases to decrease GDP growth by
only 0.5% in 2014 rather than 1.5-2% in 2013. With infaton well
contained, the Federal Reserve is in no rush to lif interest rates
in the short term but it is expected they will start to lif rates late
in 2015. Actvity will be supported by stronger domestc demand,
refectng gains in household net worth and improving business
and household confdence.

In China, the trend of weaker economic growth contnues with
slowing industrial producton, retail sales and constructon
actvity. Although they would not be running too far below their
target of 7.5% growth in 2014, the IMF forecast for 7.3% in 2015
assumes that the authorites gradually rein in credit growth and
make progress in implementng their reforms in putng the
economy on a more sustainable and balanced growth path.

Europe contnues its slow recovery with projected growth in the
region of 1.2% in 2014 and 1.5% in 2015, due to an increase in
net exports, stabilised domestc demand and from reduced fscal
tghtening. The divergence in growth between countries has
widened with Germany expanding, Italy contractng and France
fat for the frst half of the year. The ongoing concerns are weak
credit growth and further declines in the infaton rate.

Outlook for Investment Markets

Developed equity markets, in partcular the US equity market,
have registered several strong years of appreciaton on the back
of low interest rates, low infaton and signifcant monetary
policy interventon. These factors have helped to support
markets on sell-ofs and encourage investors into assets which
provide beter cash fows than traditonal fxed income assets
which are ofering record low income yields.

However, against the backdrop of increased equity market
valuatons, the US Federal Reserves antcipated completon of
its Quanttatve Easing program and with markets now entering
the seasonally weakest months of the year, being September
and October, some commentators are suggestng that equity
markets are now vulnerable to a signifcant sell-of.

In this secton we examine the three phases of a cyclical bull
market to try and gauge how markets are positoned, apply the
evidence and form a big picture view to give some guidance as to
how we expect to be recommending clients positon their
portolios in the months ahead.

Three Phases of a Cyclical Bull Market

In this day and age of technology and innovaton, it is easy to
think we are in a world which is much diferent to that which we
have seen in the past. But the truth is, human nature is human
nature and that will never change. Markets have been and will
contnue to be driven by the emotons of fear and greed and
even though we have many computers running complex
algorithms to help improve our decision making, they are
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Half-year ended 30 June 2014
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ultmately designed, developed and programmed around the
nuances and biases of human psychology.

Today, as it has been in the past, there is perhaps no greater
example of human psychology in acton than in fnancial
markets. Numerous studies have shown that over the years,
decades and even centuries, collectve human psychology moves
through peaks and troughs of optmism to pessimism and back
again. But the one constant is that, for all our ills, progress
contnues to be made.

So how can we use this paterned behaviour to give us some
indicaton of what might lay ahead. Well through careful study
and research we know that there are certain stages and phases
of progression to a cyclical upswing in stock prices. Each phase
can be defned by its own characteristcs and each stage tends to
have its own DNA.

So the obvious questons are; what are these phases, what are
the key characteristcs and DNA of each stage and what are we
observing in todays markets to give us some guidance on how to
positon portolios in the months and years ahead.

Phase 1Disbelief and Sceptcism

This phase of any stock market recovery tends to be treated with
signifcant sceptcism and fear by investors. Ofen the disaster of
the most recent bear market leaves many investors hesitant to
move out of cash and into stocks, largely because most investors
have only just recently been panicked out of stocks and into
cash. Having sold at or near the botom, this investor
capitulaton paves the way for ofen strong price recoveries on
lower volumes than on the decline, as fewer buyers and sellers
brave the market. A lack of sellers rather than an a large infux of
buyers, ofen helps see in a signifcant, ofen V shaped bounce in
stock prices.

Monetary policy is ofen highly accommodatve, government
policy too. Gross Domestc Product is ofen stll negatve for
several quarters afer the low in stock prices.

Those that do buy tend to concentrate their buying on only the
largest most well-know and fnancially strongest companies.
Small-Cap and Mid-Cap companies, although they too recover, as
a group they tend to lag investor atenton for the most part.
Most of the buying is done in the large capitalisaton secton of
the market.

Those that are buyers are ofen professional investors or
insiders, known as the smart money. The retail investor is
ofen trapped out of this move due to a reluctance to risk further
losses or waitng for a pull back in prices that doesnt come. Or
when it does, they fear its not the pull back they have been
waitng for but a bear market rally before the next leg down
begins.

Once this short and sharp recovery completes, these early gains
then tend to be met with some form of price correcton. Ofen
the correcton in price at the end of this recovery phase can be
deep and painful and it can sometmes give back most of the
gains that were made during the frst rally phase. But the general
market indices will fnd a botom and the botom will be above
the bear market low.

Phase 2Broader Acceptance

This second phase of the recovery typically starts once again with
the large sized businesses leading the recovery. Monetary policy
and government interventon contnues to support the recovery,
but gradual improvements are seen in the economy as it moves
from bad to less bad. Stock prices and company performance
also contnue to improve. Eventually policy makers will begin to
look for ways to withdraw support, in the hope the economy and
the stock market can support itself. As investors start to look
outside the larger companies, investor preference remains
towards those which are of the highest quality next ter
businesses which tend to be in less economically sensitve
sectors.

Eventually governments will look at measures to unwind support
for the economy by reducing spending. Monetary policy begins
to faten out and over tme interest rates are gradually
increased. Investors take these signs to mean that the economy
and the fnancial markets are strengthening and this tends to
lead to a broadening out of the breadth of companies that are
beginning to partcipate in the uptrend. Eventually by the tme
this phase completes, mid-cap companies are now leading the
market higher in performance while large cap companies,
although stll increasing, tend to lag the performance of this next
ter of businesses. Second ter markets such as emerging markets
tend to fnd investor support and by mid to late in this phase are
startng to outperform developed markets such as the US and
European markets.

This phase in the bull market will ofen last for the longest period
of tme out of all of the three phases, but not always. Eventually,
as valuatons become a litle detached from earnings, stock
markets will then enter into a phase of correcton/consolidaton,
as investors take profts and look for where the next phase of
market strength might arise. This correctve phase is ofen
characterised by mild oscillatons in peaks and troughs in price,
with the net efect that most stocks will tend to have gone
nowhere for a period of tme. The correcton generally lasts for
between 6 months to 2 years before profts have had a chance to
catch up to price, at which stage this then sets the stage for the
fnal phase.

Phase 3Euphoria

Comforted by seeing news artcles of rising stock prices and
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perhaps all tme record profts in the previous phase of the
market, a generally upbeat mood and increasing investor
confdence encourages investors to become more daring. They
become comfortable with the idea that stock markets are now
well in trenched in a bull market and they begin to seek out
much riskier stocks. Bio-Tech companies in the early phases of
trials and resource companies with only tenements to their
name tend to outperform. Commodity prices tend to strengthen
as emerging market growth fuels demand for resources as these
countries consume resources to build new buildings and
infrastructure.

Retailers tend to outperform as the improved economy increases
wages and people begin to spend more. The amount of
borrowed money for consumpton and investment accelerates
and policy makers contnue increasing interest rates in the hope
of staving of an uncontrollable economic boom. Eventually
investor euphoria peaks around the same tme interest rates get
to the point of maximum pain and then the bust cycle begins.

Bull markets always end when central banks end them.

So where are we today?

Using this blue print as our road map, where are we today? At
UGC we believe that we have probably just past the middle of
Phase 2 of the recovery. In local currency terms, Emerging
Markets and Emerging Asia has only just started to outperform
developed markets in the past 12 months, but it is clear that
much of the gains in stocks from the lows of 2009 have come
from the developed world.

Figure 6 Equity returns across various geographic markets
(Source: Capital Economics)

While there are concerns that the recovery is weak across the
globe, nevertheless there is a recovery underway as evidenced
by the upward trends in GDP across the developed world.








This is also consistent with the persistently positve Purchasing
Managers Index (PMI) readings across the developed world,
where a reading above 50 means the manufacturing industry in
that country is expanding.
Figure 7 Changes in GDP of developed countries since 2008
(Source: Capital Economics, Markit)
Figure 8 Composite PMIs of the US, UK, Japan and the Eurozone since 2010
(Source: Capital Economics, Markit)

Across the developed world, none of the developed economies
such as the US, Europe, UK, Australia or Japan have begun raising
interest rates. In fact, given recent weak economic fgures in
Europe, its likely that the European Central Bank will announce
further supportve measures. It is true that rising interest rates
kill bull markets, but only afer a period of sustained interest rate
rises. In fact, equity markets tend to do quite well in the early
phase of an interest rate raising cycle as this is seen as evidence
of the economic recovery which is underway and just a
normalisaton in interest rates.

Take a look at what happened the last tme the US Federal
Reserve began raising interest rates.





UGC Half-Yearly
Half-year ended 30 June 2014
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Figure 9 S&P500 vs. Fed Funds Rate 2004-2007
(Source: Capital Economics, Markit)

Final Thoughts

Today, we believe investng conditons are currently ideal for
further stock price gains, albeit with some consolidaton likely in
the months ahead. While gains will likely contnue over the next
12 months, its likely that a moderaton in performance across
the developed world and large cap companies will begin to occur
as investors begin to seek out opportunites in developing
markets and Tier 2 and 3 companies. Infaton is benign and
interest rates are low and yet to start rising. These are
circumstances under which equites generally do quite well.

Large caps have lead the market higher but we expect quality
mid-cap stocks to begin leading the market higher shortly as the
market broadens out. There is clear evidence that this is now
startng to happen in the Australian market as mid-caps are now
beginning to lead in recent weeks.

Our direct internatonal equity portolios have generally been
invested in large cap companies, but we antcipate an increase
into some smaller growth companies over the coming months,
taking profts on some large caps. These will stll be very good
businesses, but due to their size and industry positon will have
the potental for higher revenue and proft growth.

We also expect a move into emerging markets and developed
and developing Asia as there is signifcant value being ofered in
these markets compared to the US which has led equity market
gains over the past 5 years.

As part of our broadening search horizon, we may also look at
some selectve purchases of minerals opportunites with
improving charts and dirt cheap valuatons ofering an
opportunity to take advantage of a Bad to Less Bad investment
thesis. These stocks can be partcularly volatle and will be
approached with cauton but the conditons are almost ripe for
big gains in these heavily beaten down stocks.

Update on United Global Capital (UGC)

On a personal level Im delighted to advise that United Global
Capital has now been in operaton for 2.5 years with huge
progress being made during that period of tme.

We are also pleased to announce two new additons to our staf
this year. The frst being Alexander Shopov, who in April joined
UGC in an adviser support role focusing primarily on investment
research while he completes his studies towards achieving the
Masters of Finance from Melbourne University. Alex is currently
on course to fnish these studies at the end of this year. Alex
joins UGC afer previously being employed as a graduate mining
engineer with Rio Tinto before embarking on a career change
into fnance.

We are also pleased to welcome Jeanne Peng, who has only just
recently joined the team in August. Jeanne also joins us in an
advisor support role but with a focus on technical fnancial
strategy advice support. Jeanne joins UGC having successfully
completed RMITs Bachelor of Business program, with majors in
Economics and Finance. She is also completng Deakin
Universitys Masters of Commerce program with a specialisaton
in Accountng.

The past 12 months has seen enormous change in our industry
with signifcant new regulatons being introduced under the
Future of Financial Advice (FOFA) reforms. Upgrading and
adaptng to these new regulatons has not been without some
challenges, and has slowed the release of your reports this year.
However, this upgrade phase has now completed and we do not
antcipate any further delays to reports moving forward.

At UGC, in our relatvely short existence, we are proud to be the
only advisory frm that we are aware of in Australia that provides
fnancial and investment advice in both Australian and
internatonal direct equites, Australian and internatonal
derivatves and Australian and internatonal direct real estate.

We have invested signifcantly in new technology and research
capabilites as well as highly talented staf. Over the short to
medium term we will contnue to work towards improving the
standard of the delivery of our services, strengthen our
investment research capabilites and technical fnancial advisory
capabilites, all with a view to delivering frst class results and
client experiences.

Id like to take this opportunity to thank you for your contnued
support and we look forward to helping you take your next
signifcant steps towards fnancial independence.

Joel Hewish B.Bus (Bank & Fin), GDipAppFin, GCertFinPlan
Managing Director / Chief Financial Strategist
Authorised Representatve No. 416387
UGC Half-Yearly
Half-year ended 30 June 2014
Where do you want to be?
United Global Capital Pty Ltd, Level 39, 385 Bourke Street, Melbourne VIC Australia 3000

Corporate Authorised representatve (416388) of Avestra Capital Pty Ltd (AFSL 292464)

Phone: 61 3 8459 2121 | Fax: 61 3 8459 2121 | Website: www.ugc.net.au | Email: info@ugc.net.au