Perspectives in a Rising Rate Environment › research... · AllianceBernstein.com CMO 4Q 2013 | 3...

2013

Investment Products Offered • Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed

The information herein refl ects prevailing market conditions and our judgments as of the date of this document, which are subject to change. In preparing this document, we have relied upon and assumed, without independent verifi cation, the accuracy and completeness of all information available from public sources. Opinions and estimates may be changed without notice and involve a number of assumptions which may not prove valid. There is no guarantee that any forecasts or opinions in this material will be realized. Information should not be construed as investment!advice.

Perspectives in a Rising-Rate Environment

2.4% 0.7% 2.1%

1.0% 1.3% 0.1%

–0.2%

1.1% 1.4% 2.5%

5.8% 11.6%

5.2% 10.2%

4.9% –6.7%

–8.6%

1.3% 2.1%

–2.0% –2.9%

–0.9% –5.2%

2.9%

–4.4% 16.1%

19.8% 27.7%

Year-to-Date Returns Annualized Returns Since February 2009

Returns in US dollars

Risk Assets Generally Fared Well in a Volatile Quarter

3Q:2013 Returns

Past performance does not guarantee future results. As of September 30, 2013 Global high yield, global corporates, Japan and euro-area government bonds in hedged USD terms. All other non-US returns in unhedged USD terms An investor cannot invest directly in an index and its performance does not reflect the performance of any AllianceBernstein portfolio. The unmanaged index does not reflect fees and expenses associated with the active management of a portfolio. *Europe, Australasia and the Far East. **Treasury Inflation-Protected Securities. †Global Real Estate Investment Trusts Source: Barclays, FactSet, FTSE, MSCI, S&P Dow Jones and AllianceBernstein

Japan

Global High Yield

US

Euro Area

Emerging-Market Debt Global Corporates

EAFE*

US Small-Cap

Emerging Markets

Equities

Credit

Government Bonds

Commodities Alternatives

Global REITs† TIPS**

Municipals

US Large-Cap

26.2% 6.7%

4.1%

4.5% 2.5% 3.3%

5.4%

8.6% 13.7%

19.3%

19.0% 17.6%

22.4% 26.5%

CMO 4Q 2013 | 1AllianceBernstein.com

Globally, Monetary Policy Stance Remains Accommodative

ECB Keeps Rates at Record Low Amid

Euro-Area Recovery September 5, 2013

Japan Vows to Press On With

Stimulus July 20, 2013

Carney toughens his dovishness August 28, 2013

Fed Stays the Course on Easy

Money September 19, 2013

Historical analysis does not guarantee future results. Through September 30, 2013 Source: Bloomberg, Financial Times, The Wall Street Journal and AllianceBernstein

–6

–4

–2

0

2

4

6

00 04 08 12

Per

cent

Nominal GDP

Official Rates

Developed Markets

CMO 4Q 2013 | 2AllianceBernstein.com

AllianceBernstein.com CMO 4Q 2013 | 3

4.5%

8.6%

1955–1981 1981–2012 Annualized Returns

1

4

7

10

13

16

55 69 83 97 11

Interest Rates Appear to Have Bottomed

Historical analysis does not guarantee future results. Through September 30, 2013 An investor cannot invest directly in an index and its performance does not reflect the performance of any AllianceBernstein portfolio. The unmanaged index does not reflect fees and expenses associated with the active management of a portfolio. Source: Barclays, Bloomberg and AllianceBernstein

US 10-Year Treasury Yields

Per

cent


US Corporate Credit

Outstanding

0

500

1,000

1,500

2,000

2,500

3,000

3,500

0

50

100

150

200

250

06 07 08 09 10 11 12 13

USD

Billi

ons U

SD Billions

–60

–30

0

30

60

07 08 09 10 11 12 13

Bonds Equities

USD

Billi

ons

Investors Are Selling Bonds into an Increasingly Illiquid Market

“Taper” Concern Has Drained Money from Bond Funds

Historical analysis does not guarantee future results. Left chart through September 4, 2013. Right chart through May 31, 2013 *Weekly cash flows are estimates that are adjusted to represent industry totals, based on reporting covering 95% of industry assets, while monthly flows are actual numbers. Source: Barclays, Bloomberg, Haver Analytics, Investment Company Institute and AllianceBernstein

Primary Dealer Positions > 1 Year

(Left Scale)

Declining Secondary Liquidity Has Exacerbated Volatility

Monthly Net New Cash Flow* Growth of Market vs. Dealer Balance Sheets


30

35

40

45

50

55

60

06 07 08 09 10 11 12 13In

dex

Emerging Markets

Developed Markets

Global Growth Expected to Be More Balanced

Historical analysis does not guarantee future results. Left chart as of October 2, 2013; right chart through August 31, 2013 *Eastern Europe, Middle East and Africa; includes Hungary, Poland, Russia, South Africa and Turkey. **PMI: Purchasing Managers’ Index. An investor cannot invest directly in an index and its performance does not reflect the performance of any AllianceBernstein portfolio. Source: Bank of England, Bloomberg, Deutsche Bank, European Central Bank, Eurostat, Haver Analytics, International Monetary Fund, J.P. Morgan, Markit and AllianceBernstein

Moderate GDP Growth Is Expected to Continue

AllianceBernstein Global GDP Forecasts

Delinking of Developed and Emerging Economies

5.9%

4.5%

2.2%

2.3%

2.2%

2.6%

1.8%

1.3%

1.1%

–0.3%

6.2%

5.1%

2.6%

3.2%

3.8%

3.2%

3.0%

2.2%

2.2%

1.0%

Asia ex Japan

Emerging Markets

Japan

Global

EEMEA*

Latin America

US

UK

Developed Markets

Euro Area 20132014

PMI**


–6

–3

0

3

6

4Q:09 4Q:10 4Q:11 4Q:12

Year

-ove

r-Yea

r % C

hang

e

Private Sector GDP

Public Sector GDP

Historical analysis does not guarantee future results. Through June 30, 2013 *Four-quarter moving average. Capital expenditure (capex) funds are used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. Source: Haver Analytics and US Bureau of Economic Analysis (BEA)

US: Private Sector Growth Driven by Early-Stage Leaders

Public Sector Drag Remains Significant

Traditional Early-Stage Leaders Have Stepped Up*

–1

0

1

2

4Q:09 4Q:10 4Q:11 4Q:12C

ontri

butio

n to

GD

P

Capex and Exports

Consumer Durables and Housing


US: Strong Corporate and Household Fundamentals Bode Well

Historical analysis does not guarantee future results. Through June 30, 2013 *Disposable personal income (DPI) is the amount of money households have available for spending and saving after income taxes have been accounted for. Source: BEA, Deutsche Bank and Haver Analytics

Corporate Profits and Debt/Equity

Household Interest Payments

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

500

550

600

650

700

750

800

850

900

950

00 02 04 06 08 10 12

Percent

US

D B

illio

ns

Percent of DPI*

Household Interest Payments (Left Scale)

40

50

60

70

80

90

1,400

1,500

1,600

1,700

1,800

1,900

2,000

2,100

2,200

2,300

09 10 11 12

Percent

US

D B

illio

ns

Operating Profits (Left Scale)

Net Debt/ Shareholders’ Equity


Continued Recovery in the Housing Market

Historical analysis does not guarantee future results. Left and right charts through July 31, 2013; middle chart through December 31, 2012 *At 100, a family with a median income has enough money to make payments on a median-priced house with an 80% loan-to-value mortgage and a 25% debt-to-income ratio. Source: 1010data, BEA, Bloomberg, DISCERN, Lender Processing Services, Morgan Stanley, US Bureau of Labor Statistics and AllianceBernstein

100

120

140

160

180

200

220

89 97 05 13

Hou

sing

Affo

rdab

ility*

4.7% Mortgage Rate

5.5% Mortgage Rate

6.5% Mortgage Rate

Range 93–03

25–29-Year-Olds Living with Parents Homes Listed for Sale

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

99 01 03 05 07 09 11 13

Milli

ons

of H

omes

37

39

41

43

45

47

06 07 08 09 10 11 12

Per

cent

Housing Affordability as Price to Buy


Euro Area: Inching Out of Recession

35

40

45

50

55

60

65

05 06 07 08 09 10 11 12 13

Inde

x

Average

Business Activity Has Rebounded

Historical analysis does not guarantee future results. Left chart through August 22, 2013; right chart through August 30, 2013 *Measured on a scale of –100 to 100, where –100 indicates extreme lack of confidence, 0 neutrality and 100 extreme confidence. Source: Haver Analytics, Markit and AllianceBernstein

Consumer Sentiment Improving

–40

–35

–30

–25

–20

–15

–10

–5

0

05 06 07 08 09 10 11 12 13In

dex

Euro-Area Composite PMI Euro-Area Consumer Confidence*


Japan: Continued Signs of Recovery

Historical analysis does not guarantee future results. Through August 31, 2013 *Based on Consumer Price Index Source: Bloomberg, Thomson Reuters Datastream and AllianceBernstein

Inflation Has Shown a Welcome Upturn

Key Inflation Measures*

–3

–2

–1

0

1

2

3

07 08 09 10 11 12 13P

erce

nt

Headline Inflation

Core Inflation (Excluding Food & Energy)

Manufacturing PMI

Manufacturing Remains Solid

25

30

35

40

45

50

55

60

07 08 09 10 11 12 13

Inde

x

Average


Emerging Markets: Growth Has Moderated and Inflation Is Stable

Growth Has Generally Declined in Key Economies

Historical analysis does not guarantee future results. Left chart through June 30, 2013; right chart through July 31, 2013 Source: Haver Analytics, national accounts and AllianceBernstein

Inflation Remains Relatively Moderate

0

4

8

12

16

Year

-ove

r-Yea

r % C

hang

e

Brazil MexicoRussia ChinaIndia

Real GDP

0

5

10

15

20

Year

-ove

r-Ye

ar %

Cha

nge

Brazil MexicoRussia ChinaIndia

Inflation Rate

10 11 12 13 10 11 12 13


US Rates: Likely a Long Path to “Normal”

Current analysis and forecasts do not guarantee future results. As of September 30, 2013 Taylor rule used to project the fed funds rate to 2020, based on an assumption that inflation will normalize at 2% and on consensus data for unemployment at 5.6% in 2020 and inflation at 2.3% in 2020 *Yield curves projected based on historical analysis of Treasury yield curves and on applying the slope to the fed funds rate forecast as illustrated in left chart. Source: Bloomberg, Blue Chip Economic Indicators and AllianceBernstein

Fed Funds Rate Expectations

0

2

4

6

Per

cent

30 10 2 .25 Years

Sep 30, 2013

Dec 31, 2014F

Dec 31, 2016F

Dec 31, 2018F

0

2

4

6

04 06 08 10 12 14 16 18 20

Actual Rate

F

Dec 31, 2016

Dec 31, 2014

Dec 31, 2018

F F F

Per

cent

US Treasury Yield Curve*


Fixed-Income Portfolios: It’s Time to Position…Not Panic!

Historical analysis does not guarantee future results. As of June 30, 2013 *Barclays Municipal 10-Year beta is calculated against the 10-Year US Treasury. US Treasuries represented by Barclays US Treasury (weighted index of all US Treasuries). An investor cannot invest directly in an index and its performance does not reflect the performance of any AllianceBernstein portfolio. The unmanaged index does not reflect fees and expenses associated with the active management of a portfolio. Source: Barclays and AllianceBernstein

0.9

0.7 0.7

0.5 0.5

–0.4

Barclays US TIPS Barclays US Credit Barclays USAggregate Bond

Barclays GlobalAggregate Hedged

Barclays Municipal10 Year*

Barclays US HighYield Credit Bond

Bond Index Betas vs. US Treasuries January 1999–June 2013


2.4%

-0.9%

2.2%

-0.6%

Average Quarterly ReturnWhen US Aggregate Index

Was Positive

Average Quarterly ReturnWhen US Aggregate Index

Was Negative

US Aggregate Index Global Aggregate IndexPast performance does not guarantee future results. Left chart through September 30, 2013. Right chart through December 31, 2012 These returns are for illustrative purposes only and do not reflect the performance of any fund. *Returns represented by respective Barclays government bond indices within each country. **Returns represented by Barclays US Aggregate and Barclays Global Aggregate Hedged to USD An investor cannot invest directly in an index and its performance does not reflect the performance of any AllianceBernstein portfolio. The unmanaged index does not reflect fees and expenses associated with the active management of a portfolio. Source: Barclays and AllianceBernstein

Global Bonds Capture Greater Upside and Less Downside

Up Capture: 94% Down Capture: 65%

Go Global: Global Approach May Offer Better Risk-Adjusted Returns

Up vs. Down Capture: March 1990–December 2012** 2009 2011

9.8 10.0 6.9

Country Returns Vary Across Cycles

Global Bond Returns Hedged to USD (Percent)* 2010

13.5

Best Performer

Worst Performer

Gap between

best and worst

2012 Jan–Sep 2013

4.9

Euro Area 4.1

UK 7.2

UK 16.1

Euro Area 11.2

Japan 2.1

Japan 1.4

US 5.9

US 9.8

UK 2.4

Euro Area 1.3

UK –1.6

Canada 5.6

Australia 8.9

Japan 2.2

Australia –1.5

Canada –1.9

Japan 2.9

Canada 8.3

US 2.0

US –2.0

US –3.6

Euro Area 1.0

Japan 2.6

Australia 1.4

Canada –2.6

Australia –5.9

Australia 0.3

Euro Area 2.6

Canada 1.4

UK –2.8


–1.0

19.1 11.5 12.8

1.9 2.4

–5.8

5.5

–0.2

28.8

11.1 2.8

10.8 2.3

–25.9

58.8

14.9 5.0

15.8

–40

–20

0

20

40

60

80

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Per

cent

Increase Credit Exposure: Historically Strong Returns When Rates Rise

Past performance does not guarantee future results. Historical information provided for illustrative purposes only. Through December 31, 2012 US high yield represented by Barclays US Corporate High Yield 2% Issuer Capped. An investor cannot invest directly in an index and its performance does not reflect the performance of any AllianceBernstein portfolio. The unmanaged index does not reflect fees and expenses associated with the active management of a portfolio. Source: Barclays, Bloomberg and AllianceBernstein

US High-Yield Performance in Rising-Rate Environments 1994–2012

2.50 0.25 0.75 1.25 2.00 1.00 Fed Increases (%): 1.00


High Yield Seems Attractive, but Security Selection Is Key

Historical analysis does not guarantee future results. Left chart as of September 30, 2013. Excludes financials. Risk is annualized and returns are cumulative. Right chart through August 31, 2013 *Average loss from December 2007 through December 2012. The losses are based on issuer-weighted default rates and issuer-weighted senior unsecured bond recovery rates for all industries. A credit rating is a measure of the quality and safety of a bond or portfolio, based on the issuer’s financial condition. AAA is highest (best) and D is lowest (worst). Ratings are subject to change. Investment-grade securities are those rated BBB and above. Source: Barclays, J.P. Morgan, Moody’s and AllianceBernstein

High-Yield Risk Premium Remains Compelling

–2

0

2

4

6

8

10

AA A BBB BB B CCCto C

Implied PremiumAverage 5-Year Loss*

Per

cent

Default Rate Has Been Low in Recent Years

Aug 2013 1.3%

0

2

4

6

8

10

12

14

99 01 03 05 07 09 11 13

13-Year Average: 3.8% P

erce

nt

Current Risk Premium Par-Weighted High-Yield Default Rate


0

40

80

120

160

97 99 01 03 05 07 09 11 1H:13

US

D B

illio

ns

Are Bank Loans the Answer?

Historical analysis does not guarantee future results. Left chart through August 31, 2013; right chart through June 30, 2013 *Excludes existing tranches of add-ons and amendments, and restatements with no new money. Excludes debtor-in-possession, second liens and unsecured transactions. These numbers comprise loans denominated in US dollars and are subject to revision as S&P Capital IQ collects additional data. Source: Lipper, S&P Capital IQ and AllianceBernstein

Loan Funds Continued to Attract Record Inflows

–15

–10

–5

0

5

10

Jan 11 Jan 12 Jan 13

US

D B

illio

ns

High Yield Leveraged Loan

New-Issue Volume of Covenant-Lite Loans* Monthly Fund Flows

Features of Many Issues Haven’t Been Investor Friendly

1H:12


Munis Offer Opportunity—with Active-Management Potential

Muni Yield Plus Roll* Potential Has Increased

Past performance is no guarantee of future results. Left chart through September 13, 2013; right chart as of September 30, 2013. Nominal yields. A credit rating is a measure of the quality and safety of a bond or portfolio, based on the issuer’s financial condition. AAA is highest (best) and D is lowest (worst). Ratings are subject to change. Investment-grade securities are those rated BBB and above. *Roll is the natural price gain that a bond experiences as it ages, assuming interest rates are unchanged. Source: Barclays, Bloomberg, Delphis Hanover, J.P. Morgan, Municipal Market Data, The Yield Book and AllianceBernstein

2.9 2.8

5.0 5.4

7.6

Treasury AAA Muni Taxable-EquivalentYield AAA

Muni

BBBCorporates

Taxable-EquivalentYield BBB

Muni

0.7

2.6

4.0 4.1 4.1 4.2 3.8 3.9

0.4

1.9

1.2 1.4 1.2 1.3

1.3 1.3

1.2

2 5 8 9 10 15 20 30Maturity (Years)

4.5

5.2 5.5 5.3 5.5

5.2 5.2

March 28, 2013 Change as of September 30, 2013

Muni Yields Are Attractive vs. Taxable Equivalents

Roll Plus Yield Percent

10-Year Maturities Percent


–20,000

–15,000

–10,000

–5,000

0

5,000

10,000

15,000

07 08 09 10 11 12 13

US

D B

illio

ns

$37.5 billion, 6.2% of assets since May

Historical analysis does not guarantee future results. As of August 31, 2013 *California includes Vallejo—2008, San Bernardino—2012 and Stockton —2012. Source: Barclays, The Bond Buyer, Investment Company Institute, Distressed Debt Securities newsletter, Moody’s Analytics, US Federal Reserve and AllianceBernstein

Default Rates Have Historically Been Low

Headline Credits: A Tiny Fraction of the Muni Market

0.07%

2.78%

Investment-GradeMunicipals

Investment-GradeCorporates

Concerns over Muni Defaults Seem Overdone

Recent Investor Outflows Have Been Substantial

Municipal Fund Flows

Total Muni Debt Outstanding: $3.7 Trillion

0.02% 0.01% 0.11% 0.21%

1.87%

California* Harrisburg,PA (2011)

JeffersonCounty,

AL (2011)

Detroit,MI (2013)

Puerto Rico(Aug 30,

2013)

10-Year Average Default Rate

Distressed Debt as a Percent of Total Market


2.0

5.2 7.2

5.8

3.2 9.0

Global Sov.Bonds

Equity RiskPremium

Global Stocks Global Sov.Bonds

Equity RiskPremium

Global Stocks

We Believe Equities Look Attractive vs. Sovereign Bonds

Data do not represent past performance and are not a promise of actual results or range of future results. Global sovereign bonds are represented by global, developed, sovereign, seven-year constant-maturity nominal bonds; global stocks by a universe similar to MSCI World; both are reported in and hedged into US dollars. Source: AllianceBernstein

Median Annualized Growth Rates 10-Year Outlook (Percent)

Equity risk premium is attractive, while short-term equity volatility is slightly above normal

First-Year Volatility

3.6% 16.6% 4.1% 15.4%

As of June 30, 2013 Normal Market Conditions


Equity Fundamentals Appear Strong

Historical analysis does not guarantee future results. Left chart through August 31, 2013; right chart through September 5, 2013 *Time-weighted average of the consensus estimates for current and next year An investor cannot invest directly in an index and its performance does not reflect the performance of any AllianceBernstein portfolio. The unmanaged index does not reflect fees and expenses associated with the active management of a portfolio. Source: Bloomberg, MSCI, S&P Dow Jones, Thomson Reuters I/B/E/S, Yardeni Research and AllianceBernstein

Per-Share Earnings Have Been Rising

Profit Margins Have Been Strong

S&P 500 Index Forward Margins* Trailing 12-Month Earnings-Per-Share

0

20

40

60

80

100

120

90 93 97 01 05 09 13

S&P 500

MSCI World

USD

6.0

7.5

9.0

10.5

12.0

06 07 08 09 10 11 12 13P

erce

nt


Capital Discipline and Shareholder-Friendly Actions Prevail

Historical analysis does not guarantee future results. Through June 30, 2013 An investor cannot invest directly in an index and its performance does not reflect the performance of any AllianceBernstein portfolio. The unmanaged index does not reflect fees and expenses associated with the active management of a portfolio. Source: S&P Dow Jones, Yardeni Research and AllianceBernstein

S&P 500 Index Dividends & Buybacks

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Dividends Buybacks S&P 500 Index Level

US

D B

illio

ns, A

nnua

lized


Stocks Don’t Appear Expensive Today

Valuations Seem Reasonable Globally…

…and Quality Is Higher This Time Around

Past performance does not guarantee future results. Left chart through September 30, 2013; right chart as of August 31, 2013 *Total debt less cash and cash equivalents. **Based on data from AllianceBernstein US large-cap universe; capitalization weighted, excluding financials. An investor cannot invest directly in an index and its performance does not reflect the performance of any AllianceBernstein portfolio. The unmanaged index does not reflect fees and expenses associated with the active management of a portfolio. Source: Bloomberg, Center for Research in Security Prices (CRSP), Deutsche Bank, FactSet, MSCI, S&P Dow Jones and AllianceBernstein

Price/Forward Earnings Ratio

8

13

18

23

28

05 06 07 08 09 10 11 12 13

S&P 500 IndexS&P MidCap 400 IndexS&P SmallCap 600 IndexMSCI World Index

Rat

io (×

)

Mar 24, 2000

Oct 31, 2007

Aug 31, 2013

What’s Different?

Price/Forward Earnings 25.6× 15.4× 14.5×

More reasonable valuations

Price/Cash Flow 18.0× 12.0× 10.7×

Price/Book 5.5× 2.9× 2.4×

Cash Flow per Share $74 $85 $185

Higher quality Net Debt/Equity* 177% 156% 46%

Return on Equity** 19% 24% 24%


Equity Interest-Rate Sensitivity: Is History the Right Barometer?

Past performance does not guarantee future results. Left chart through September 30, 2013; right chart as of July 31, 2013 *Total percentage-point change in nominal 10-year US Treasury bond yield **Average annualized global stock returns from 1970 through July 31, 2013: 8.95% An investor cannot invest directly in an index and its performance does not reflect the performance of any AllianceBernstein portfolio. The unmanaged index does not reflect fees and expenses associated with the active management of a portfolio. Source: Bloomberg, MSCI, S&P Dow Jones and AllianceBernstein

Historical Link Between Earnings and Rates

Equities Have Held Up Well When Interest Rates Have Risen

Annualized Global Stock Returns When Rates Have Risen

0

4

8

12

7

14

21

28

35

85 89 93 97 01 05 09 13

S&P 500 Price/Forward Earnings (Left Scale)

10-Year Treasury Yield

Rat

io (×

) Percent

18.6% 31.7% 31.2%

14.8% 18.7%

30.1% 10.3% 10.1%

3.0% –2.8%

21.9% 41.5%

20.3% 9.9%

2.2%

Jul 12–Jun 13 Aug 10–Mar 11 Dec 08–Dec 09 Sep 02–Jun 06 Oct 01–Mar 02 Sep 98–Jan 00 Nov 96–Mar 97 Dec 95–Aug 96 Sep 93–Nov 94

Jul 89–Apr 90 Feb 88–Feb 89 Aug 86–Sep 87 Oct 82–Jun 84 Dec 76–Oct 81 Jan 71–Sep 75

Rising-Rate Cycles

Change in Treasury Yields

(Percentage Points)* 2.4 7.8 3.1 2.7 1.1 1.2 2.5 1.4 0.9 2.2 1.2 1.5 1.6 1.0 1.0

Average “Rising Rate” Stock Return

= 17.4%

! Stocks Outperformed Long-Term Average

! Stocks Lagged Long-Term Average

Average Long-Term Return for Market**


Active Management Is Key P Active Management Has Thrived in High Dispersion

–5

0

5

10

15

20

0.0

0.2

0.4

0.6

95 97 99 01 03 05 07 09 11

Inde

x

Percent

Manager Alpha*

Dispersion** (Left Scale)

Past performance is no guarantee of future results. Left chart through August 31, 2013. Right chart through September 30, 2013 *Alpha is a measure of performance of a manager’s excess returns. Six-month rolling premium of top quartile of US large-cap managers versus the S&P, ending June 2013. An investor cannot invest directly in an index and its performance does not reflect the performance of any AllianceBernstein portfolio. The unmanaged index does not reflect fees and expenses associated with the active management of a portfolio. **Three-month rolling dispersion of returns within the Bernstein US large-cap universe †Cyclicals consist of capital equipment, construction & housing, consumer cyclicals, technology and transportation. Defensives consist of consumer staples, medical, telecom and utilities. Cumulative returns, cyclicals minus defensives, indexed to 100 at June 30, 2012 Source: CRSP, eVestment Alliance, S&P Dow Jones and AllianceBernstein

Cyclical and Defensive Sectors Have Traded Leadership

–4 –3 –2 –1 01234567

90

95

100

105

110

115

120

125

130

Jun 12 Dec 12 Jun 13

Defensives Outperform

Inde

x (J

une

30, 2

012

= 10

0)

Percent

Cyclicals vs. Defensives†

MSCI World (Left Scale)

Cyclicals Outperform


A Word About Risk

The information contained here reflects the views of AllianceBernstein L.P. or its affiliates and sources it believes are reliable as of the date of this publication. AllianceBernstein L.P. makes no representations or warranties concerning the accuracy of any data. There is no guarantee that any projection, forecast or opinion in this material will be realized. Past performance does not guarantee future results. The views expressed here may change at any time after the date of this publication. This document is for informational purposes only and does not constitute investment advice. AllianceBernstein L.P. does not provide tax, legal or accounting advice. It does not take an investor’s personal investment objectives or financial situation into account; investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer of solicitation for the purchase or sale of any financial instrument, product or service sponsored by AllianceBernstein or its affiliates. Important Risk Information Related to Investing in Emerging Markets and Foreign Currencies Investing in emerging-market debt poses risks, including those generally associated with fixed-income investments. Fixed-income securities may lose value due to market fluctuations or changes in interest rates. Longer-maturity bonds are more vulnerable to rising interest rates. A bond issuer’s credit rating may be lowered due to deteriorating financial condition, which may result in losses and potentially default or failure to meet payment obligations. The default probability is higher in bonds with lower, noninvestment-grade ratings (commonly known as “junk bonds”). There are other potential risks when investing in emerging-market debt. Non-US securities may be more volatile because of the associated political, regulatory, market and economic uncertainties; these risks can be magnified in emerging-market securities. Emerging-market bonds may also be exposed to fluctuating currency values. If a bond’s currency weakens against the US dollar, this can negatively affect its value when translated back into US-dollar terms. Bond Ratings Definition A measure of the quality and safety of a bond or portfolio, based on the issuer’s financial condition, and not based on the financial condition of the fund itself. AAA is highest (best) and D is lowest (worst). Ratings are subject to change. Investment-grade securities are those rated BBB and above. If applicable, the Pre-Refunded category includes bonds which are secured by US government securities and therefore are deemed high-quality investment grade by the advisor.


Index Definitions

! Barclays EM USD Aggregate Index: A flagship hard-currency emerging-market-debt benchmark that includes USD-denominated debt from sovereign, quasi-sovereign and corporate EM issuers. The index is broad based in its coverage by sector and by country, and reflects the evolution of EM benchmarking from traditional sovereign bond indices to aggregate-style benchmarks that are more representative of the EM investment choice set. (Represents emerging-market debt on slide 1.)

! Barclays Global Aggregate Index: A flagship measure of global investment-grade debt from 23 different local-currency markets. This multicurrency benchmark includes fixed-rate treasury, government-related, corporate and securitized bonds from both developed and EM issuers.

! Barclays Global Aggregate–Corporate Index: Tracks the performance of investment-grade corporate bonds publicly issued in the global market found in the Global Aggregate. (Represents global corporates on slide 1.)

! Barclays Global High Yield Index: Provides a broad-based measure of the global high-yield fixed-income markets. It represents the union of the US High Yield, Pan European High Yield, US Emerging Markets High Yield, CMBS High Yield and Pan European Emerging Markets High Yield Indices. (Represents global high yield on slide 1.)

! Barclays Global Treasury: Australia Bond Index: Includes fixed-rate, local-currency sovereign debt that makes up the Australian Treasury sector of the Global Aggregate Index.

! Barclays Global Treasury: Canada Bond Index: Includes fixed-rate, local-currency sovereign debt that makes up the Canadian Treasury sector of the Global Aggregate Index.

! Barclays Global Treasury: Euro Bond Index: Includes fixed-rate, local-currency sovereign debt that makes up the Euro Area Treasury sector of the Global Aggregate Index. (Represents euro-area government bonds on slide 1.)

! Barclays Global Treasury: Japan Bond Index: Includes fixed-rate, local-currency sovereign debt that makes up the Japanese Treasury sector of the Global Aggregate Index. (Represents Japan government bonds on slide 1.)

! Barclays Global Treasury: United Kingdom Bond Index: Includes fixed-rate, local-currency sovereign debt that makes up the UK Treasury sector of the Global Aggregate Index.

! Barclays Municipal Bond Index: A rules-based, market value–weighted index engineered for the long-term tax-exempt bond market. (Represents municipals on slide 1.)

! Barclays US Aggregate Bond Index: A broad-based benchmark that measures the investment-grade, US dollar–denominated, fixed-rate taxable bond market, including US Treasuries, government-related and corporate securities, mortgage-backed securities (MBSs [agency fixed-rate and hybrid ARM passthroughs]), asset-backed securities (ABSs) and commercial mortgage-backed securities (CMBSs).

! Barclays US Corporate High-Yield 2% Issuer Capped Bond Index: A component of the US Corporate High-Yield Bond Index, which covers the universe of fixed-rate, noninvestment-grade corporate debt of issuers in developed-market countries. It is not market-capitalization weighted—each issuer is capped at 2% of the index.

Following are definitions of the indices referred to in this presentation. It is important to recognize that all indices are unmanaged and do not reflect fees and expenses associated with the active management of a mutual fund portfolio. Investors cannot invest directly in an index, and its performance does not reflect the performance of any AllianceBernstein mutual fund.


Index Definitions (continued)

! Barclays US Treasury–US TIPS Index: Consists of inflation-protected securities issued by the US Treasury. (Represents TIPS on slide 1.)

! Barclays US Treasury Index: Includes fixed-rate, local-currency sovereign debt that makes up the US Treasury sector of the Global Aggregate Index. (Represents US government bonds on slide 1.)

! DJ-UBS Total Return Commodity Index: Consists of exchange-traded futures on 19 physical commodities that are weighted to account for economic significance and market liquidity. (Represents commodities on slide 1.)

! FTSE EPRA/NAREIT Global Real Estate Index: Designed to represent general trends in eligible real estate equities worldwide. (Represents global REITs on slide 1.)

! MSCI EAFE Index: A free float–adjusted, market capitalization–weighted index designed to measure developed-market equity performance, excluding the US and Canada. It consists of 22 developed-market country indices. (Represents EAFE on slide 1.)

! MSCI Emerging Markets Index: A free float–adjusted, market capitalization–weighted index designed to measure equity-market performance in the global emerging markets. It consists of 21 emerging-market country indices.

! MSCI World Index: A market capitalization–weighted index that measures the performance of stock markets in 24 countries.

! Russell 2000 Index: Measures the performance of the small-cap segment of the US equity universe. It is a subset of the Russell 3000 Index representing approximately 8% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. (Represents US small-cap on slide 1.)

! S&P 500 Index: Includes a representative sample of 500 leading companies in leading industries of the US economy. (Represents US large-cap on slide 1.)

! The CBOE Volatility Index® (VIX ®): A key measure of market expectations of near-term volatility conveyed by S&P 500 Index option prices.

MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices, any securities or financial products. This report is not approved, reviewed or produced by MSCI.

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Perspectives in a Rising Rate Environment › research... · AllianceBernstein.com CMO 4Q 2013 | 3...

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