capital markets outlook - alliancebernstein...gcmo 2q 2016 | 2 past performance does not guarantee...

GLOBAL CAPITAL MARKETS OUTLOOK

Second Quarter 2016

The information herein reflects prevailing market conditions and our judgments, which are subject to change, as of the date of this document. In preparing this document, we have relied upon and

assumed, without independent verification, 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 that 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.

1 | GCMO 2Q 2016

Current assessment does not guarantee future results.

As of 31 March 2016

Source: AB

The Big Picture

Global economic growth remains modest, with the support of more monetary easing

Developed-market growth is mixed; emerging world faster than developed but with challenges

After The Beta Trade theme continues to play out, with higher volatility and muted returns

Key recent volatility drivers include concerns about oil, China and global growth challenges

Investors should embrace adding alpha and incorporating downside protection

Fixed Income: compelling credit opportunity; don’t abandon global rates

Equities: capture growth through meaningful high-conviction active opportunities

Alternatives: valuations support downside protection and security-selection opportunities

2 | GCMO 2Q 2016

Past performance does not guarantee future results.

As of 31 March 2016

Global high yield, global corporates, and Japan and euro-area government bonds in hedged USD terms. All other non-US returns in unhedged USD terms. Emerging-market debt

returns are for dollar-denominated bonds as represented by the J.P. Morgan Emerging Markets Bond Index Global. An investor cannot invest directly in an index, and its

performance does not reflect the performance of any AB portfolio. The unmanaged index does not reflect the fees and expenses associated with the active management of a

portfolio.

*Real Estate Investment Trusts †Returns reflect HFRI index returns (see disclaimer pages for index definitions).

Source: Barclays, FactSet, FTSE, HFR, J.P. Morgan, Morningstar, MSCI, S&P Dow Jones and AB

Returns in US Dollars

Another Volatile Quarter Ends in Mixed Returns

–1.3

–1.1

–0.3

–1.0

–0.4

–24.7

1.8

1.7

0.8

–0.2

0.0

–0.7

–14.9

11.7

–2.8

1.4

–0.9

2015 Returns (Percent) 1Q:2016 Returns (Percent)

1.2

–0.8

0.1

–1.7

5.1

0.4

3.7

4.6

3.2

3.4

4.5

4.2

5.7

–5.9

–2.5

1.4

–0.4

Equities

Government Bonds

Credit

Alternative Assets

Japan

Global High-Yield

US

Euro-Area

Emerging-Market Debt

Emerging-Market

Commodities

Global REITs*

Global Corporate

Europe

World

Japan

US

Alternative

Strategies†

Long/Short Equity

Event-Driven

Relative Value

Macro

3 | GCMO 2Q 2016

Past performance is not a guarantee of future results.

As of 31 December 2015

Source: Bloomberg

Earnings Recessions Don’t Always Equal Recessions…or Bad Markets

Equity Market Earnings Growth and Performance

–25

–20

–15

–10

–5

0

5

10

15

20

25

90 92 94 96 98 00 02 04 06 08 10 12 14

Returns During Earnings Recessions

Earnings

Recession Period

S&P 500

Returns

2Q 1990–4Q 1990 –0.1

2Q 1991–4Q 1991 +13.9

2Q 1992–4Q 1992 +10.4

2Q 1993–4Q 1993 +5.5

2Q 1996–4Q1996 +16.7

2Q 1998–4Q 1998 +12.8

2Q 1999–4Q 1999 +15.3

2Q 2001–4Q 2001 –9.7

2Q 2002–4Q 2002 –22.3

2Q 2008–1Q 2009 –38.1

1Q 2015–4Q 2015 +1.4

Median +5.5

Median ex Global

Financial Crisis +7.9

Earnings

Recessions

Pe

rce

nt

Economic and

Earnings

Recessions

–38

S&P 500

Returns

Earnings

Growth

4 | GCMO 2Q 2016

Historical analysis does not guarantee future results.

Left and middle displays through 29 February 2016; right display as of 31 March 2016

*Emerging, global and developed rates are December 31, 2015 estimates. Country rates are target policy rates as of 31 March 2016.

Source: Bloomberg, Haver Analytics, Markit, national sources and AB

Modest Growth, Low Inflation and Accommodative Policy

Key Policy Interest Rates*

Percent

Purchasing Managers’ Index Inflation

Year-over-Year Percent Change in CPI

4.9

2.0

0.3

–0.1 –0.4 –0.5

–0.7 –0.8

Em

erg

ing

Glo

bal

De

ve

lop

ed

Japa

n

Euro

pe

Sw

ede

n

De

nm

ark

Sw

itzerl

and

47

49

51

53

55

57

59

61

63

10 11 12 13 14 15 16

0

1

2

3

4

5

6

7

10 11 12 13 14 15 16

EM

DM

EM

DM

Global

Global

5 | GCMO 2Q 2016

Country/

Region

GDP (%) Inflation (%)

Expected

Policy

Rate Path

FX Change

(%)

FX

Forecast

(%) The Latest 2015 2016 2015 2016

Global 2.6 2.6 1.6 1.9 — — — Moderate global growth in 2016—but the

pace isn’t uniform regionally

Developed

Countries 1.9 1.9 0.2 0.9

—

—

—

Developed-market growth expected to be

dominated by US

Emerging

Countries 3.7 3.6 3.9 3.5

—

—

—

Growth challenged by commodities,

geopolitical and policy risks

US 2.4 2.7 0.1 1.4 — — US growth remains solid; rate hikes delayed

owing to global economic/financial concerns

UK 2.3 2.0 0.0 0.7 –4.1 –1.5 Solid growth but political noise and risk of

Brexit likely to dominate the headlines

Euro Area 1.5 1.3 0.0 0.2 5.7 –3.4 Negative rates and expanded QE purchases

designed to combat low inflation

Japan 0.5 0.6 0.8 0.5 6.9 –4.4 Debate about even more negative rates likely

to continue amid slower growth and inflation

China 6.9 6.3 1.4 1.6 –4.4 1.3 More policy stimulus as weak “old economy”

sectors weigh on growth

Brazil –3.8 –3.5 9.3 8.2 –10.9 –10.1 Continued fiscal, political and monetary

struggles

Historical and current analysis and forecasts do not guarantee future results.

As of 1 April 2016

GDP represents year-over-year change in real terms. Inflation represents year-over-year change in Consumer Price Index. Expectations for monetary policy are through end of

2016. FX change is currency spot return for last 12 months vs. US dollar; FX forecast is AB economists’ return projections for next six months vs. US dollar.

Source: AB

Modest Global Growth Projected for 2016

6 | GCMO 2Q 2016

China: No Hard Landing Expected, but Question Marks Remain


Left and middle displays through 31 December 2015; right display through 30 March 2016

*China Foreign Exchange Trading System

Source: Bloomberg, China Real Information Corp., National Bureau of Statistics of China and AB

China’s Economy Rebalances

GDP by Sector (Percent)

Divergence Continues to Widen

Key 30 Cities 2015 Inventory Level

(Months of Sales)

32

34

36

38

40

42

44

46

48

50

52

90 92 94 96 98 00 02 04 06 08 10 12 14

Secondary

(Industry) Sector

Tertiary (Services) Sector

0

5

10

15

20

25

30

Nan

jing

Sh

an

gh

ai

Hefe

i

Don

gg

uan

Xia

me

n

Zh

en

gzh

ou

Gu

ang

zho

u

Fu

zh

ou

Che

ng

du

Be

ijing

Nin

gb

o

Cha

ng

zho

u

Cha

ng

chu

n

Qin

gd

ao

Haik

ou

Tier 1 Tier 2 Tier 3

RMB Remains Steady Against

Currency Basket

RMB Exchange Rate

92

94

96

98

100

102

104

Oct

15

Nov 1

5

Dec 1

5

Jan

16

Fe

b 1

6

Ma

r 1

6

December 31, 2014 = 100

CFETS RMB Basket*

CNH/USD

CNY/USD

7 | GCMO 2Q 2016

US: Recession Worries Not Supported by Data Readings

…or in Housing

Building Permits and Home Prices


Left display through March 31, 2016; middle and right display through December 31, 2015

*S&P/Case-Shiller U.S. National Home Price Index; January 2000 = 100

Source: Federal Reserve Bank of St. Louis, Haver Analytics, Institute for Supply Management, US Census Bureau, S&P, US Department of Labor and AB

Recession Watch: Not in Orders…

ISM New Orders Index Level

…or in Jobs and Income…

Jobless Rate and Wage Growth

20

30

40

50

60

70

80

85 88 91 94 97 00 03 06 09 12 15

Recession

50

100

150

200

400

900

1,400

1,900

2,400

85 88 91 94 97 00 03 06 09 12 15

Recession

0

1

2

3

4

5

60

2

4

6

8

10

12

00 02 04 06 08 10 12 14

Perc

ent

YoY

Perc

ent C

hange Unemployment

Rate

(Left Scale,

Inverted)

Private Sector

Wage Growth

Thousands

Home

Price Index*

New Building

Permits

(Left Scale)

8 | GCMO 2Q 2016

Neither past nor forecast performance is a guarantee of future results.

Trailing returns as of June 30, 2015. Current yields as of April 1, 2016. Median forecast based on proprietary AB forecasts as of December 31, 2015.

Current yield represented by yield to worst. Annualized returns in US dollars. Markets are represented from left to right by Barclays US Aggregate, Barclays US High Yield, S&P

500, MSCI EAFE (unhedged). An investor cannot invest directly in an index, and its performance does not reflect the performance of any AB portfolio. The unmanaged index does

not reflect the fees and expenses associated with the active management of a portfolio.

Source: Barclays, FactSet, MSCI, S&P and AB

Lower Expected Returns…

Outlook for Returns (Percent)

The Great Beta Trade Is Likely Over

…Result in an Inconvenient Beta Truth

Expected Returns for a 60/40 Blend

Expected Return 4%–5%

Standard Deviation

Inflation and Taxes ??

Bonds

40%

Stocks

60%

2.2

8.2

5.9

5.9 3.4

8.6

17.3

10.0

US IGBonds

US HYBonds

USEquities

DevelopedInt'l Equities

Fixed-Income Yield to Worst/Five-Year Equity

Median Forecast

Past Five-Year Average Return

9 | GCMO 2Q 2016

Option-Adjusted Spreads: 31 March 2013–31 March 2016

Credit Valuations Remain Attractive…

656 588

418

622

1,306

163 215

607

455 420

712

131

452

0

200

400

600

800

1,000

1,200

1,400

1,600

US Corp.HY

US Corp.HY

ex Energy

US Corp.HY BB

HY B HY CCC US Corp.IG

US Corp.IG

BBB

BBBCMBS

CRT EMDCorp.

EMDLocal

EURCorp. IG

EUR HY

US High Yield

Investment-Grade

Corporate Securitized

Emerging-

Market Debt

European

Credit

Current Spread

Low

Basis

Poin

ts

High


All nongovernment sectors are represented by Barclays indices except for CRT (Credit risk transfer), which is represented by the STACR 2014-DN1, Class M-3 security. BBB

CMBS is represented by a custom CMBS New Issue Index created from Barclays. EMD Corp. is represented by J.P. Morgan CEMBI Broad Diversified and EMD Local is

represented by J.P. Morgan GBI-EM.

An investor cannot invest directly in an index, and its performance does not reflect the performance of any AB portfolio. The unmanaged index does not reflect the fees and

expenses associated with the active management of a portfolio.

Source: Barclays, J.P. Morgan and AB

10 | GCMO 2Q 2016

…Even After the Recent Market Rebound

US High Yield Typically Rebounds

Swiftly from Negative-Return Periods

Total Returns (Percent)

–1

19

11 13

2 2

–6

5

–1

29

11

3

12

2

–26

58

15

5

16

7 2

–4

94 96 98 00 02 04 06 08 10 12 14 16

Past performance is not a guarantee of future results. Individuals cannot invest directly in an index.

Left display as of 31 March 2016, middle and right display as of 31 December 2015

*US High Yield is represented by BofA Merrill Lynch US High Yield Master II.

The above returns are calculated based on month-end option-adjusted spread levels that are greater than 600, or 800 basis points (b.p.).

Source: Barclays, Bank of America Merrill Lynch, Morningstar and AB

Current Valuations Historically Have

Translated to Attractive Returns

Historical Average Forward Returns

?

Spreads 600 b.p. to 800 b.p.

6-Month 12-Month

US HY S&P500 US HY S&P500

0.65% –2.48% 6.04% –1.42%

Spreads Above 800 b.p.

6-Month 12-Month

US HY S&P500 US HY S&P500

17.91% 8.15% 30.33% 15.93%

Despite Recent Gains, Valuations

Still Near Year-End Levels

Option-Adjusted Spread*

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

00 02 04 06 08 10 12 14 16

Average

Basis

Poin

ts

11 | GCMO 2Q 2016


Left and right displays as of 31 December 2015; middle display as of 31 March 2016

Source: Barclays, J.P. Morgan and AB

High-Yield Returns More Like 2002 Than 2008

High-Yield Sector Returns

2002 2008 2015

US High-Yield Corporates –1.4 –26.2 –4.5

Basic Industry 7.6 –33.6 –17.6

Capital Goods 15.6 –19.3 0.1

Communications –19.9 –28.9 –1.7

Consumer Cyclicals 11.0 –32.5 1.7

Consumer Non-Cyclicals 6.2 –13.7 2.1

Energy 8.2 –26.3 –23.5

Financial Institutions 5.7 –26.3 2.4

Technology –2.3 –34.9 0.7

Transportation –17.9 –29.5 –0.5

Utilities –13.2 –16.7 –5.2

2016 Volatility More Pronounced

in Energy (Percent)

Defaults Mostly Contained to

Single Sector

Percent of Defaults

25.8

45.2

60.0

Telecom2001

Telecom2002

Energy2015

–19.0

27.0

–3.0

6.9

YTD Ending11 Feb 2016

11 Feb 2016 to31 Mar 2016

Energy US High Yield ex Energy

High-Yield Challenges Focused in a Few Sectors, Similar to 2002

12 | GCMO 2Q 2016



Source: Barclays, Bloomberg, Morgan Stanley and S&P LCD

…and CCC Issuance Is Well Below

2007 Peak

0

5

10

15

20

25

00 03 06 09 12 15

…but LBO Volumes Are Well Below

2006–2007 Levels…

0

50

100

150

200

250

300

350

400

450

06 09 12 15

Leverage Has Increased…

High-Yield Gross Leverage

2.8

3.0

3.2

3.4

3.6

3.8

4.0

4.2

4.4

04 06 08 10 12 14

Ratio (

×)

US

D B

illio

ns

Perc

ent

Credit Is in Late Stages of the Cycle, but Excesses are Limited

13 | GCMO 2Q 2016

Not All Lower Rated Securities Are Created Equal

Historical information provided for illustrative purposes only.

Left display as of 31 December 2015; middle display defaults through 15 September 2015 and US home price index through 31 July 2015; right display as of 31 March 2016. 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. Corporate default rates are for global issuers, which were originally issued with the shown credit rating. *Credit Risk Transfer security represented by STACR 2014-DN3 M3.

Source: Barclays, Bloomberg, Citigroup, Credit Suisse, Freddie Mac, Intex Solutions, J.P. Morgan, Moody's Analytics, National Association of Realtors, S&P/Case-Shiller, S&P

Capital IQ, US Federal Reserve Board and AB

Mortgages Provide Less-Volatile

Diversification than Corporates

Option Adjusted Spread (b.p.)

High Defaults Make Lower-Rated

Corporate Bonds Unattractive

Five-Year Cumulative Default Rates

1983–2015 (Percent)

Mortgages Supported by Declining

Defaults and Rising Home Prices

9

22

36

BB B CCC–C 130

150

170

190

0

1

2

3

4

08 09 10 11 12 13 14 15

Index

Curr

ent

to 3

0-D

ay D

efa

ult R

ate

(P

erc

ent)

Default Rate

(Left Scale)

400

500

600

700

800

900

De

c 0

1

De

c 1

3

De

c 2

5

Jan 0

6

Jan 1

8

Jan 3

0

Feb

11

Feb

23

Ma

r 06

Ma

r 18

Ma

r 30

High Yield

Narrows More

Third Avenue

Makes the News,

High Yield

Widens More

CRT Security—Issued by FNMA*

High Yield US Home

Price Index

14 | GCMO 2Q 2016

Current analysis does not guarantee future results.

Left and middle displays as of 31 December 2015; right display as of 31 March 2016

Global bonds hedged is represented by the Barclays Global Aggregate Hedged to USD. US bonds is represented by Barclays US Aggregate. Global bonds unhedged is

represented by Barclays Global Aggregate USD Unhedged. An investor cannot invest directly in an index, and its performance does not reflect the performance of any AB portfolio.

The unmanaged index does not reflect fees and expenses associated with the active management of a portfolio.

*Credit rating is represented by the Barclays methodology.

Source: Barclays, Bloomberg, Morningstar and AB

As US Policy Shifts, Time to Look Globally for Interest-Rate Exposure

Currency Hedging Can Make Low-

Yielding Bonds More Attractive

Global Outperforms When US Falls

Up vs. Down Capture

March 1990–December 2015

2.3

–0.9

2.2

–0.7

Average QuarterlyReturn When

US Aggregate IndexWas Positive

Average Quarterly Return When

US Aggregate IndexWas Negative

US Aggregate Index Global Aggregate Index

Up Capture: 96%

Down Capture: 70%

10-Year

Bond Yield

10-Year

Yield

(Hedged)

Credit

Rating*

Australia 2.61 0.89 AAA

US 1.77 1.77 AAA

Canada 1.22 1.27 AAA

Germany 0.15 1.26 AAA

New Zealand 2.94 0.99 AA+

UK 1.41 1.50 AA+

France 0.49 1.60 AA+

Japan ‒0.03 0.96 A+

Spain 1.43 2.54 BBB

Italy 1.22 2.33 BBB

Portugal 2.93 4.04 BB

Why Limit Opportunities to the US as

Policy Tightens?

Cut or Stable Hikes

Australia US

Euro Area Brazil

Japan Mexico

Norway

Sweden

UK

Canada

https://en.wikipedia.org/wiki/File:Flag_of_Australia_(converted).svg

15 | GCMO 2Q 2016

Past performance and current forecasts do not guarantee future results.


*Five-year annualized expected return for US equities uses proprietary AB forecasts. Display reflects composition of expected US equity returns.

†Represents relative performance of Morningstar Open-End US Large-Cap managers vs. S&P 500 starting 1 January 1995, when the one-year (YoY) change in P/E was positive or

negative when the market return was positive or negative over that same one-year period.

An investor cannot invest directly in an index, and its performance does not reflect the performance of any AB portfolio. The unmanaged index does not reflect fees and expenses

associated with the active management of a portfolio. Numbers may not sum due to rounding.

Source: Morningstar, S&P Dow Jones and AB

Equity Returns Will Likely Be Modest, but Active Management Can Help

Active Management Likely Poised to Outperform

Relative Return (Percent)†

P/E

Compression

P/E

Expansion

Market

Up +0.8% –2.5%

Market

Down +2.9% +2.5%

Equity Returns Are Driven by Different Factors over Time

S&P 500 Returns: Attribution by Source (Percent)

–0.1

8.4

14.1

2.7

3.7

2.4

2.4

2.2

Jul 2009– Jun 2012

Jul 2012– Sep 2015

Median Forecast* Jan 2016–Dec 2020

Income Returns

Price Return

Earnings Growth

Valuation Change16.4

13.5

5.9

16 | GCMO 2Q 2016

Historical and current analysis and forecasts do not guarantee future results.

As of 31 March 2016

Source: Barclays, Morningstar, S&P and AB

Equity Markets Saw Big Moves During the Year

Number of Days Market Moved +/–1.5% or Greater

6

4

2 2

1

2

6

1

2

9

4

1

13

7

15

3Q:12

4Q:12

1Q:13

2Q:13

3Q:13

4Q:13

1Q:14

2Q:14

3Q:14

4Q:14

1Q:15

2Q:15

3Q:15

4Q:15

1Q:16

Volatility Persists at Market and Sector Levels

Reversal of Fortune: Defense in Favor

Sector Returns: 1Q2016

Three-Year

Average

16.6

15.6

5.6

5.0

2.6

1.6

–5.1

–5.5

Telecom

Consumer Staples

Technology

10.1

6.9

6.6

5.9

–2.5

–4.8

–8.4

–21.1

Consumer Staples

Energy

Industrials

Utilities

Materials

Financials

Healthcare

Sector Returns: 2015

Technology

Consumer Discretionary

Healthcare

Utilities

Industrials

Consumer Discretionary

17 | GCMO 2Q 2016

Equity Landscape Favors Profitability and Dividend Growth

Dividend Growers Look Cheap†

0.5

1.0

1.5

2.0

2.5

3.0

52 59 66 73 80 87 94 01 08 15

Ratio (

×)

Dividend Growth Is Cheap

Dividend Yield Is Cheap

Safety Is Expensive, Profitability Is Not

Valuation (P/E)

Percentile Rank vs. History*

Safety Profitability

81

35

Expensive

Cheap


As of 31 March 2016

*Price-to-forward earnings discount/premium to market was compared to its history (1990 to 2015) to calculate the current attractiveness percentile within regions. Market

capitalization-weighted attractiveness percentile averages (across US, Europe, and Japan) are reported. Free-cash-flow-to-assets used to measure profitability; beta used to

measure safety.

†Large-Capitalization Stocks; Highest Quintiles of Dividend Growth and Yield Ratio of Trailing-P/E Ratios

Source: MSCI, Empirical Research Partners, S&P Compustat, Worldscope and AB

18 | GCMO 2Q 2016


Left display through 31 December 2015; right display as of 9 March 2016

Forecast sales per share based on Bloomberg reported consensus

An investor cannot invest directly in an index, and its performance does not reflect the performance of any AB portfolio. The unmanaged index does not reflect the fees and

expenses associated with the active management of a portfolio.

*Based on 457 of 502 companies reporting earnings for the fourth quarter of 2015. Numbers may not sum due to rounding.

Source: Bloomberg, Center for Research in Security Prices (CRSP), FactSet, Russell Investments, S&P Compustat, S&P Dow Jones and AB

It’s Challenging for Companies to Find Growth Today

S&P 500 Revenue Growth Is Generally Slowing…

S&P 500 Trailing 12-Month Sales per Share

600

700

800

900

1,000

1,100

1,200

2000 2003 2006 2009 2012 2015

US

D

…and Half of the Index Has Negative Revenue Growth

S&P 500 (Percent of Companies Reporting)*

21%

33%

31%

16%

<–10%

0% to –10%

0% to 10%

>10%

Reve

nu

e G

row

th

19 | GCMO 2Q 2016

Firms That Can Grow Are Poised to Lead—and They’re Cheap

Persistent Growth Is Inexpensive Today

Relative Price/Forward Earnings of High-Persistent-Return

Growth Stocks vs. Market†

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

90 93 96 99 02 05 08 11 14

Ratio (

×)

Average


Left display as of 31 December 2015; right display through 29 February 2016

*Universe consists of the top 1,000 companies by market cap each year from 1979 to 2015, with annual rebalancing.

†Price to forward earnings of highest quintile of persistent profitability stocks relative to Russell 1000

Source: CRSP, FactSet, Russell Investments, S&P Compustat, S&P Dow Jones and AB

Sustainable Growth Is Uncommon, but Rewarding

Top 1,000 Companies with Earnings Growth Rates ≥10%*

350

77

22

0.0

0.3

0.6

0.9

1.2

1.5

1.8

2.1

2.4

2.7

3.0

0

50

100

150

200

250

300

350

400

One Year Three Years Five YearsE

xcess (P

erc

ent)

Num

ber

of

Com

panie

s

0.9%

1.2%

2.7%

Number of

Companies

(Left Scale) Annualized

Excess

Returns vs.

S&P 500

20 | GCMO 2Q 2016

Smaller-Caps Have Given Back Performance Gains of

Recent Years

Index Returns 1 July 2015–31 March 2016

After a Pullback, Small-Cap Valuations Are More Attractive

Smaller-Cap Stocks Are Attractively Valued After Correction

Relative Valuations*

Russell 2000 vs. Russell 1000


Left display as of 31 March 2016; right display through 28 February 2016

*Valuation composite is one-third price to forward earnings, one-third price to book and one-third price to sales.

Source: Bloomberg, Russell Investments, Thomson Reuters I/B/E/S and AB

–10.1% Russell 2000

0.4% Russell 1000

0.50

0.75

1.00

1.25

1.50

79 83 87 91 95 99 03 07 11 15

Ratio (

×) Average

Small-Cap Is Cheap

Large-Cap Is Cheap

21 | GCMO 2Q 2016

High-Conviction Strategies Have Outperformed Passive

Factors

Annualized Relative Performance vs. S&P 500 (Percent)

Jan 2004–Dec 2015

Higher-Conviction Equity Strategies Can Make a Big Difference

Even a Little Alpha Can Go a Long Way

By Annual Equity Market Gains

100

125

150

175

200

225

250

1 2 3 4 5 6 7 8 9 10

US

D

Years from Initial Investment

Equities at 6% Equities at 8% Equities at 9%

+21

+32

1.9

1.6

2.0

2.4

3.0

0.0

–0.3

0.6 0.7

1.4

Dividend Yield Value Quality Low Beta Momentum

Active High-Conviction Strategy Passive Factor Index Strategy



Using data from Style Research, high-conviction strategies are defined as the top 20% of managers who consistently display a high-conviction characteristic in the

eVestment US Large Cap Equity universe. Within each high-conviction category universe, the representative performance of skilled high-conviction strategies is the

average of all managers whose performance is greater than that of the median manager over the period in which they reported. Monthly outlier returns are capped at the

fifth percentile. A manager may be classified in more than one category. These numbers do not represent the performance history of any AB-managed product, but do

include AB services if they meet the criteria of one of the universes.

Factor index performance represents the returns of the MSCI indices—dividend yield: MSCI USA High Dividend Yield; value: MSCI USA Value; quality: MSCI USA Quality;

low beta: MSCI USA Minimum Volatility; momentum: MSCI USA Momentum. These indices may not be investable and do not take into account transaction costs.

Source: eVestment, MSCI, S&P, Style Research and AB

22 | GCMO 2Q 2016


Left display as of 31 January 2016; right display as of 31 March 2016. Dispersion calculated between top- and bottom-decile managers. Asset classes represented by Morningstar

categories. Large Cap Blend category includes active managers only.


associated with the active management of a portfolio.

Source: Morningstar, S&P and AB

Alternatives: Downside Protection, but Mind the Dispersion

Higher-than-Normal Dispersion Today

Annualized Return Dispersion

1.8

5.7

3.8

5.6

7.8

3.6

12.8

10.8

12.8

19.4

Intermediate-Term Bond

Large-Cap Blend

Nontraditional-Bond

Multi-alternative

Long/ShortEquity

Three Years July 2015–March 2016

Traditional Asset Classes Alternative Asset Classes

Lower Drawdowns than Broad Markets

Returns (Percent)

–4.7

–2.3

–1.2 –1.4 –1.6

–8.4

–6.0

–2.5

–1.6

–5.0

2015 MaxDrawdown

Aug 2015Return

Sep 2015Return

Dec 2015Return

Jan 2016Return

Multialternative S&P 500

23 | GCMO 2Q 2016


Left display shows 2015 annual total returns; right display as of 31 March 2016


associated with the active management of a portfolio.

Source: Barclays, Bloomberg and AB

Environment More Supportive of Alternative Strategies

Increase in Deal Volume Reflects Opportunities for Event-

Driven Managers

Merger & Acquisition Volume (Millions)

Large Range of Opportunities for Credit Managers

Dispersion of Returns: 2015 (Percent)

–15

–10

–5

0

5

10

15

US HighYield

US IGCorporates

GlobalCredit

Number of

Issuers 1,195 823 3,161

Top Quintile

Index Returns

Bottom Quintile

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2004 2006 2008 2010 2012 2014 2016

24 | GCMO 2Q 2016

Prescription Within Asset Classes

Equities: Be Active

Be concentrated

Seek downside protection

Fixed Income: Be Balanced

Rates: combine Global Core and US Core

Manage yield curves/positioning

Hedge currencies

Credit: use Global Multi-Sector

Take advantage of attractive valuations

Manage liquidity risk

Alternatives: Be Selective

Focus on relative-value strategies

Focus on strong up/down-capture

approaches

Contrarian’s Corner: If the

Economy… …Grows Faster than Expected

Equities: favor a more cyclical approach,

such as value, as well as lower quality

sectors like financials and energy

Fixed Income: tilt a bit more toward credit

risk, but still avoid stretching for yield

…Grows Slower than Expected

Equities: emphasize income and quality

attributes

Fixed Income: tilt more toward interest

rates and remain global

Current analysis does not guarantee future results.

As of 31 March 2016

Source: AB

Putting It All Together: Strategy for Modest Growth, Low Inflation

Return Seeking

Risk Reducing Risk Reducing

Return Seeking

Fixed Income Equities

Alternatives

25 | GCMO 2Q 2016

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 or

solicitation for the purchase or sale of any financial instrument, product or service sponsored by AllianceBernstein L.P. or its affiliates.

Important Risk Information Related to Investing in Equity and Short Strategies

All investments involve risk. Equity securities may rise and decline in value due to both real and perceived market and economic factors as well as general

industry conditions.

A short strategy may not always be able to close out a short position on favorable terms. Short sales involve the risk of loss by subsequently buying a security at a

higher price than the price at which it sold the security short. The amount of such loss is theoretically unlimited (since it is limited only by the increase in value of

the security sold short). In contrast, the risk of loss from a long position is limited to the investment in the long position, since its value cannot fall below zero. Short

selling is a form of leverage. To mitigate leverage risk, a strategy will always hold liquid assets (including its long positions) at least equal to its short position

exposure, marked to market daily.

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; this 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.

26 | GCMO 2Q 2016

Index Definitions

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 AB mutual fund.

Barclays Global Aggregate—Corporate Bond Index: Tracks the performance of investment-grade corporate bonds publicly issued in the global market found in the Global

Aggregate. (Represents global corporate on slide 2.)

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.

Barclays Global Treasury Bond Index: Tracks fixed-rate, local-currency sovereign debt of investment-grade countries. The index represents the Treasury sector of the Global

Aggregate Index and currently contains issues from 37 countries denominated in 23 currencies. The three major components of this index are the US Treasury Index, the Pan-

European Treasury Index and the Asian-Pacific Treasury Index, in addition to Canadian, Chilean, Mexican and South African government bonds.

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 2.)

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 2.)

Barclays Investment Grade CMBS Index: Designed to mirror commercial mortgage-backed securities of investment-grade quality (Baa3/BBB-/BBB- or above) using

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 (MBS [agency fixed-rate and hybrid ARM pass-throughs]), asset-backed securities

(ABS), and commercial mortgage-backed securities (CMBS).

Barclays US Corporate Bond Index: A broad-based benchmark that measures the investment-grade, US dollar–denominated, fixed-rate, taxable corporate bond market. It

includes US dollar–denominated securities publicly issued by US and non-US industrial, utility and financial issuers that meet specified maturity, liquidity and quality

requirements.

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.

27 | GCMO 2Q 2016

Index Definitions (continued)

Barclays US Corporate High Yield Index: Represents the corporate component of the Barclays US High Yield Index. (Represents US high yield on slide 2.)

Barclays US Corporate Investment Grade Index: Represents the performance of US corporate bonds within the US investment-grade fixed-rate bond market.

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 2.)

BofA Merrill Lynch US High Yield Index: Tracks the performance of US dollar–denominated below-investment-grade corporate debt publicly issued in the US domestic

market.

Bloomberg Commodities Index (formerly Dow Jones-UBS 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 2.)

FTSE EPRA/NAREIT Global Real Estate Index: Designed to represent general trends in eligible real estate equities worldwide. (Represents global REITs on slide 2.)

HFRI Equity Hedge (Total) Index: Investment Managers who maintain positions both long and short in primarily equity and equity derivative securities. A wide variety of

investment processes can be employed to arrive at an investment decision, including both quantitative and fundamental techniques; strategies can be broadly diversified or

narrowly focused on specific sectors and can range broadly in terms of levels of net exposure, leverage employed, holding period, concentrations of market capitalizations and

valuation ranges of typical portfolios. EH managers would typically maintain at least 50% exposure to, and may in some cases be entirely invested in, equities, both long and

short. (Represents Long/Short Equity on slide 2.)

HFRI Relative Value (Total) Index: Investment Managers who maintain positions in which the investment thesis is predicated on realization of a valuation discrepancy in the

relationship between multiple securities. Managers employ a variety of fundamental and quantitative techniques to establish investment theses, and security types range

broadly across equity, fixed income, derivative or other security types. Fixed income strategies are typically quantitatively driven to measure the existing relationship between

instruments and, in some cases, identify attractive positions in which the risk adjusted spread between these instruments represents an attractive opportunity for the

investment manager. RV position may be involved in corporate transactions also, but as opposed to ED exposures, the investment thesis is predicated on realization of a

pricing discrepancy between related securities, as opposed to the outcome of the corporate transaction. (Represents Relative Value on slide 2.)

HFRI Event-Driven (Total) Index: Investment Managers who maintain positions in companies currently or prospectively involved in corporate transactions of a wide variety

including but not limited to mergers, restructurings, financial distress, tender offers, shareholder buybacks, debt exchanges, security issuance or other capital structure

adjustments. Security types can range from most senior in the capital structure to most junior or subordinated, and frequently involve additional derivative securities. Event

Driven exposure includes a combination of sensitivities to equity markets, credit markets and idiosyncratic, company specific developments. Investment theses are typically

predicated on fundamental characteristics (as opposed to quantitative), with the realization of the thesis predicated on a specific development exogenous to the existing capital

structure. (Represents Event-Driven on slide 2.)

.

28 | GCMO 2Q 2016

Index Definitions (continued)

HFRI Macro (Total) Index: Investment Managers which trade a broad range of strategies in which the investment process is predicated on movements in underlying economic

variables and the impact these have on equity, fixed income, hard currency and commodity markets. Managers employ a variety of techniques, both discretionary and

systematic analysis, combinations of top down and bottom up theses, quantitative and fundamental approaches and long and short term holding periods. Although some

strategies employ RV techniques, Macro strategies are distinct from RV strategies in that the primary investment thesis is predicated on predicted or future movements in the

underlying instruments, rather than realization of a valuation discrepancy between securities. In a similar way, while both Macro and equity hedge managers may hold equity

securities, the overriding investment thesis is predicated on the impact movements in underlying macroeconomic variables may have on security prices, as opposes to EH, in

which the fundamental characteristics on the company are the most significant are integral to investment thesis. (Represents Macro on slide 2.)

J.P. Morgan Emerging Markets Bond Index Global (EMBI Global): Tracks total returns for traded external debt instruments in the emerging markets, and is an expanded

version of the J.P. Morgan EMBI+.

MSCI Europe Index: A free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed markets in

Europe. (Represents Europe on slide 2.)

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. (Represents Emerging Markets on slide 2.)

MSCI World Index: A market capitalization–weighted index that measures the performance of stock markets in 24 countries. (Represents World on slide 2.)

Russell 1000 Index: A stock market index that represents the highest-ranking 1,000 stocks in the Russell 3000 Index, which represents about 90% of the total market

capitalization of that index.

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.

S&P 500 Index: Includes a representative sample of 500 leading companies in leading industries of the US economy. (Represents US on slide 2.)

TOPIX Index: Measures stock prices at the Tokyo Stock Exchange (TSE). (Represents Japan on slide 2.)

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.

The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner,

AllianceBernstein L.P.

© 2016 AllianceBernstein L.P.

www.abglobal.com

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