The information herein reflects 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 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 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.
Investment Products Offered
• Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed
4Q:2017 CAPITAL MARKETS OUTLOOK
1|CMO 4Q17
Strong Returns: Full Steam Ahead...to Be Continued?
As of September 30, 2017Past performance does not guarantee future results.Global corporates and 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 AB portfolio. The unmanaged index does not reflect the fees and expenses associated with the active management of a portfolio.*Europe, Australasia and the Far East†Returns reflect Morningstar US open-end fund category averages.Source: Bloomberg Barclays, Morningstar, MSCI, Standard & Poor’s (S&P) and AllianceBernstein (AB)
1.45.3
2.3
4.74.9
1.00.2
6.210.2
17.1
11.21.0
21.312.0
Returns in US Dollars
1.51.0
2.5
1.10.60.4
1.1
1.32.6
2.0
7.95.45.7
4.5
Equities
Government Bonds
Credit
Alternatives†
Full-Year 2016 Returns (Percent)
3Q:2017 Returns (Percent)
Japan
US High Yield
US
Euro Area
Emerging-Market Debt
Long/Short Equity
MultialternativeNontraditional Bond
Global Corporate
EAFE*
US Large-Cap
Emerging Markets
US Small-Cap
Municipals
3.93.9
6.9
1.01.0
2.34.7
4.59.0
7.0
27.820.0
10.914.2
Jan–Sep 2017 Returns (Percent)
2|CMO 4Q17
Back to the Beginning: Revisiting the Four Pillars
As of September 30, 2017For illustrative purposes onlySource: AB
Global Growth
Moderate, Below Trend,
Improving
Global Inflation
Low, Not
Deflationary
Traditional Monetary Policy
Highly Accommodative
Nontraditional Monetary Policy
HighlyAccommodative
3|CMO 4Q17
...Feeds Through to OutputManufacturing Output*
…as Broad-Based PMI Improvement...
Growth Pushes Through Trend…
Left display as of July 31, 2017; middle display as of September 30, 2017; right display: US and Japan manufacturing output as of August 31, 2017, euro-area manufacturing output as of July 31, 2017.Historical analysis and current forecasts do not guarantee future results. *January 2012 = 100Source: Haver Analytics, IHS Markit and AB
Moderate Below-Trend, Improving: Global Growth Reaches a Milestone
2.0
2.5
3.0
3.5
4.0
4.5
5.0
10 11 12 13 14 15 16 17
YoY
Per
cent
Cha
nge
92
94
96
98
100
102
104
106
108
12 13 14 15 16 17
Thre
e-M
onth
Rol
ling
Aver
age
46
48
50
52
54
56
58
10 11 12 13 14 15 16 17
Inde
x
EM
DM
Global
Japan
Euro
US
Real GDP
PMI
Trend
4|CMO 4Q17
Left display as of September 30, 2017; middle display as of June 30, 2017; right display as of July 31, 2017Historical analysis and current forecasts do not guarantee future results. Source: Haver Analytics, IHS Markit and AB
...Leaving Core CPI Without a DriverG7 CPI Inflation
…but Wages Have Not…Average Wage Growth in G7
Employment Keeps Improving…Developed-Market Unemployment
On the Other Hand: Inflation Remains (Structurally?) Low
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
07 09 11 13 15 17
Une
mpl
oym
ent (
Per
cent
)
Long-Term Avg. 6.4%
5.29%
–1.0
–0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
96 99 02 05 08 11 14 17
YoY
Per
cent
Cha
nge
–2
–1
0
1
2
3
4
07 09 11 13 15 17
Per
cent
Core
Headline
5|CMO 4Q17
Improving Growth and Low Inflation
EM Real Rates Much Higher than DM Rates TodayHeadline Consumer Price Index
Improved Current Account Quality Through Increased Foreign Direct InvestmentBasic Balance
Benign Inflation Allows Interest Rates to Stay Low—Good for Stocks and Bonds
Emerging Markets Playing a Similar Tune…with a Twist
0
1
2
3
4
5
6
7
8
9
10
00 02 04 06 08 10 12 14 16 18
YoY
Perc
ent C
hang
e
–2
–1
0
1
2
3
4
5
6
03 05 07 09 11 13 15 17
YoY
Perc
ent C
hang
e
–150
–100
–50
0
50
100
150
200
250
01 03 05 07 09 11 13 15Africa Asia ex ChinaEEMEA LatAmTotal
Left display as of June 30, 2017; middle display as of March 31, 2017; right display as of September 30, 2017Historical analysis and current forecasts do not guarantee future results. Source: Haver Analytics, IHS Markit and AB
GDP Headline Inflation
EM
Differential
DM
E
6|CMO 4Q17
Central Bank Watch: DM vs. EMThe Great Divergence
As of September 30, 2017Current analysis and forecasts do not guarantee future results.BOE: Bank of England; BOJ: Bank of Japan; ECB: European Central Bank; RBA: Reserve Bank of Australia; RBI: Reserve Bank of IndiaSource: AB
Canada
US
Mexico
Policy Direction:
Good growth, low rates, strong equities, weaker dollar
Gradual tightening of conditions likely into 2018
Well-communicated balance-sheet reduction
Policy Direction:
Canada has already tightened rates a few times, and they’re going to do more
Brazil
Policy Direction:
Unless growth slips further, some BOE tightening now looks likely
UK
Policy Direction:
Tightening cycle over; easing to start in 3Q:2018
Policy Direction:
Aggressive Selic rate easing priced in since 4Q:2016
Policy Direction:
ECB to announce tapering in the second half of 2017, and run down the program by mid-2018 Policy Direction:
QQE-YCC policy is in play for the foreseeable future. BoJ to lag ECB and Fed in normalization process
Policy Direction:
Despite weak growth and tame inflation, RBI’s inherent hawkish stance can be prolonged with the expected introduction of fiscal stimulus in the near term
Policy Direction:
Undershoot of inflation target opens door for bigger cuts
Policy Direction:
Clear desire to contain leverage risk, but supporting growth a priority for now. Overall, low risk of overtightening
India
China
Russia
Japan
Australia
Policy Direction:
Rate cut increasingly unlikely, particularly given mounting financial stability concerns. Equally, RBA in no hurry to hike
DM
EM
Euro Area
7|CMO 4Q17
High Valuations, Modest Returns†
After Periods of Top-Quartile Valuations, Large-Cap Stocks Delivered Single-Digit/Negative Returns 99% of the Time
–5
0
5
10
15
20
25
0 25 50 75 100
Ann
ualiz
ed R
etur
ns (P
erce
nt)
Valuation Quartiles
Valuations Are Ahead of Earnings—and Economic Output*
As of September 30, 2017Historical analysis and current forecasts do not guarantee future results. *US market cap to GDP is represented by S&P 500 market cap as a percent total US nominal GDP; P/E is represented by 12-month forward P/E (Bloomberg estimates).†Subsequent 10-year annualized S&P 500 returns and S&P 500 valuation percentile levels for the cyclically-adjusted price-to-earnings (CAPE) ratio are calculated from December 30, 1927, the inception of the S&P 500 Price Index. The bracketed area reflects the top-quartile (75%–100%). Source: Bloomberg, Robert J. Shiller, S&P and AB
Growth and Earnings Still a Ways from Catching Up to ValuationsGrowth and Valuations
0
20
40
60
80
100
120
140
10
12
14
16
18
20
22
24
26
28
30
97 99 01 03 05 07 09 11 13 15 17
Market C
ap to GD
P (P
ercent)
Pric
e to
Ear
ning
s (1
2-M
onth
For
war
d)
20-Year Avg.
US Market Cap to GDP
P/E
8|CMO 4Q17
As of September 30, 2017Current analysis does not guarantee future results. For illustrative purposes only*CRT: agency credit risk–sharing transactionsSource: AB
Today’s Environment Calls for a Balanced Approach
High-Yield Corporatesenhance income
Floating-Rate Bonds Like CRTs*benefit when rates rise
Emerging Markets provide diversification and access to higher yields
Long- and Short-Currency Positions enhance returns and help to manage risk
Manage Duration ActivelyGlobalize your exposure and take advantage of Treasury valuations
Focus on Roll and CarryEmphasize intermediate
maturities
Solid Economic Growth + Tighter Spreads + Uncertain Way Forward
Maintain Balance but Tilt Risks Toward Credit
9|CMO 4Q17
As of September 30, 2017Current analysis does not guarantee future results.*Eastern Europe, the Middle East and AfricaSource: AB
Favor LATIN
AMERICAN EMERGING-
MARKET bonds of countries
with improving fundamentals
Favor SECURITIZED
ASSETSand select
opportunities in US HY
CORPORATES
EUROPEAN CORPORATES
offer diversificationwith select
opportunities in SUBORDINATED
FINANCIALS
De-emphasize lower-yielding
ASIAN countries while favoring
SELECTCURRENCIES
Tactical opportunities
within EEMEA*
Select AFRICAN
SOVEREIGNS offer diversification within commodities
allocation and/or attractive yields
Globalized Credit for Maximum Access to Opportunities
10|CMO 4Q17
Corporates: Selectivity Is Key
Opportunities Exist Within Longer-Maturity High Yield
Yield Often Indicates Future ReturnsYield to Worst and Forward Return
–4
0
4
8
12
16
20
24
01 04 07 10 13 16
Per
cent
Left display as of September 30, 2017; except equity forecast as of June 30, 2017; middle and right displays as of September 30, 2017Historical analysis does not guarantee future results.Global high yield is represented by Bloomberg Barclays Global Corporate High Yield (USD Hedged); US high yield by Bloomberg Barclays US Corporate High Yield; BBB by Bloomberg Barclays US Aggregate BBB and BB by Bloomberg Barclays US High Yield BB. 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: Bloomberg Barclays and AB
Five-Year ForwardAnnualized Return
Yield to Worst
US Equity Five-Year
Forecast: 5.8%
Yield to Worst Global HY: 5.1%US HY: 5.5%
BBBs Offer Relative Value and Diversification to BBsUS Credit Bonds
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Sep
14
Dec
14
Mar
15
Jun
15S
ep 1
5D
ec 1
5M
ar 1
6Ju
n 16
Sep
16
Dec
16
Mar
17
Jun
17S
ep 1
7
Per
cent
Difference Between 10-Year+ and Shorter-Maturity Bond Yields
Average
2
3
4
5
6
7
8
Yiel
d to
Wor
st (P
erce
nt)
3,026Issues
815Issues
BBBBB
BBB Features: Select yields similar
to BBs Lower credit risk Lower extension risk Higher duration risk
11|CMO 4Q17
Try Agency Credit Risk–Sharing Transactions (CRTs)Floating-Rate Exposure?
Left and right displays as of September 30, 2017; middle display through December 31, 2016Historical analysis does not guarantee future results.*Last cash flow and equity coupons†FICO score is a type of credit score that helps lenders assess a borrower’s credit risk. Typically, scores above 650 indicate a very good credit history. FICO scores and debt-to-income ratios are for borrowers with low loan-to-value ratios backed by Freddie Mac. Bank loans are represented by Credit Suisse Leveraged Loans.Source: Bloomberg, Credit Suisse, Freddie Mac, J.P. Morgan and AB
Loans Have Not Benefited from LIBOR Rising but CRTs Have
Residential Mortgage Market Is Still Early in the Cycle
CRTs Have More Attractive Features than Loans...
Both have a floating-rate structure but CRTs offer:
Better liquidity
Better fundamentals
Better portfolio diversification
...and Comparable Yields
0
2
4
6
8
10
12
14
16
18
680
690
700
710
720
730
740
750
760
770
00 02 04 06 08 10 12 14 16
Percent
FIC
O S
core
The vast majority of borrowers have FICO scores above 700†
FICO (Left Scale)
Debt to Income 50+%
Asset
ApproximateLoss-Adjusted Yield
(Percent)
CRTs 3.5–7.0
Bank Loans 4.0–15.0
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
4.5
4.7
4.9
5.1
5.3
5.5
5.7
5.9
6.1
Jan
16M
ar 1
6M
ay 1
6Ju
l 16
Sep
16
Nov
16
Jan
17M
ar 1
7M
ay 1
7Ju
l 17
Sep
17
One-M
onth LIBO
R
Cou
pon
One-Month LIBOR
Average Loan Coupon (Left Scale)
CRT Coupon*(Left Scale)
12|CMO 4Q17
EM Real Rates Have Risen, Offering Income PotentialPolicy Rates and Inflation
0
1
2
3
4
5
6
7
8
9
10
Jan 10 Jul 11 Jan 13 Jul 14 Jan 16 Jul 17
Per
cent
Emerging Markets: Select Opportunities
Select High-Yield USD Sovereigns Are Attractive
As of September 30, 2017Historical analysis does not guarantee future results.EM local is represented by J.P. Morgan Government Bond–Emerging Markets Global Diversified. 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.*EM FX valuations generally peaked in April 29, 2011.†Yields are for representative sovereign bonds close to 10-year maturities for Argentina; 7-year maturities for Gabon and Ukraine.Source: Bloomberg, J.P. Morgan and AB
EM FX Rates Generally Trade at a Discount and Some Offer Attractive Carry
EM Local
US High Yield
Supported by: High carry Some stability in commodity prices Stable global growth
Examples:†
Brazil: Opportunities in corporates
EM Inflation
Argentina: 5.8% Yield
Gabon: 6.8% Yield
–4
–2
0
2
4
6
8
10
12
–150 –100 –50 0
Car
ry (P
erce
nt)
Percent Change in Spot Rate Since EM FX Peak*
TRY
RUB MXN
ZARBRL
IDR
PLN KRW
NTDCZK
HUF
Less Favorable
More Favorable
Real PolicyRate
Ukraine: 6.9% Yield
13|CMO 4Q17
Take a Worldview on Interest-Rate Exposure, Too
Left display as of September 27, 2017; middle and right displays as of September 30, 2017Past performance does not guarantee future results. *The scenario analysis assesses the potential impact of instantaneous changes in US high-yield spreads and a parallel shift in the US Treasury yield curve on the Bloomberg Barclays US Aggregate and US High Yield indices. Expected returns incorporate the impact of roll and carry over the subsequent 12 months. †Bar height might differ due to rounding. Global bonds hedged is represented by Bloomberg Barclays Global Aggregate Hedged to USD; US bonds by Bloomberg Barclays US Aggregate. 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.Source: Bloomberg Barclays and AB
Global Outperforms When US FallsUp vs. Down Capture†
(March 1990–September 2017)
Rising Rates Don’t Always Have to Derail Bonds*Expected Total Returns (Percent)
2.2
–1.0
2.1
–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: 71%
US Aggregate
Change in US High-Yield Spreads (b.p.)
–50 0 50 100
Cha
nge
in
US
Trea
sury
Yi
elds
(b.p
.) 100 –1.5 –1.8 –2.2 –2.5
50 0.9 0.6 0.2 –0.2
0 3.2 2.9 2.5 2.2
USHigh Yield
Change inUS High-Yield Spreads (b.p.)
–50 0 50 100
Cha
nge
in
US
Trea
sury
Yi
elds
(b.p
.) 100 5.4 3.9 2.4 0.9
50 6.4 5.0 3.5 2.0
0 7.4 6.0 4.5 3.0
Time Erases Pain of Rising Rates24-Month Rolling Returns (Percent)
0
1
2
3
4
5
6
0
5
10
15
20
25
01 04 07 10 13 16
US Generic Government 10-Year
Bloomberg Barclays US Aggregate (Left Scale)
Bloomberg Barclays Global Aggregate—USD Hedged (Left Scale)
Fed Hike
Taper Tantrum
2013
14|CMO 4Q17
Below-Average Supply Has Supported Muni Market TechnicalsSupply (USD Billions)
Be Selective in Muni Credit & Reduce High-Yield Tobacco Bonds ExposureJan–Sep 2017 Returns (Percent)
Tax Reform Shouldn’t Significantly Disrupt Municipal ValuationsAfter-Tax Yield Advantage: 10-Year AAA vs. 10-Year Treasury (Percent)
Technicals Remain Strong, Tax Reform on Horizon & Selective on Credit
As of September 30, 2017Past performance does not guarantee future results.Source: Bloomberg Barclays and AB
0
50
100
150
200
250
300
350
400
450
08 09 10 11 12 13 14 15 16 17E
0.8
0.7
0.5
Five-YearAverage
Current 43.4%Tax Rate
35% TopTax Rate
18.1
7.7 7.5
4.7
14.2
High-Yield
TobaccoBonds
High-YieldIndex
SeniorLiving
IG Muni S&P 500
Yield to Worst (YTW)Tobacco: 5.9Senior Living: 5.7High Yield: 5.4
15|CMO 4Q17
Municipals: Balance Intermediate Quality with Longer-Maturity Credit
Roll Plus Yield (Percent)
As of September 30, 2017Historical analysis does not guarantee future results.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. Bloomberg Barclays long indices are used for each respective rating category. *Roll is the natural price gain that a bond experiences as it ages, assuming interest rates are unchanged. Yield advantage shown is for 10-year municipal securities. Short taxable bonds are represented by Bloomberg Barclays US Aggregate 1–3 Year ex Government.Source: Bloomberg Barclays, Investment Company Institute, J.P. Morgan, Municipal Market Data, US Federal Reserve and AB
Shorter Bonds: Consider short-maturity municipals vs. comparable-maturity taxable bonds
Intermediate Bonds: Focus on rolland carry
Longer Bonds: Dip down in credit for an extra yield pickup—avoid longer-maturity high grades, which may remain volatile owing to possible changes to tax rates
0.99 1.34 1.63 1.78 1.91 2.01 2.39 2.67 2.870.090.74
0.861.05 1.02 0.86
0.62 0.350.09
3.54
2 5 7 8 9 10 15 20 30Maturity (Years)
Yield Roll* BBB Muni
16|CMO 4Q17
Valuations Elevated, but Supported by Earnings Improvement
As of September 30, 2017Past performance, historical analysis and current forecasts do not guarantee future results. Not all sectors perform the same.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. *EPS: earnings per shareSource: Bloomberg, MSCI and S&P
Equity Valuations Are Elevated… ...but Improving Earnings Are an OffsetOut-of-Stall Mode (EPS*)
$119 $119 $119
$141 $146
2014 2015 2016 2017 2018
Index P/FE20-Year Median
S&P 500 19.3× 16.5×
S&P MidCap 400 21.0 18.3
S&P SmallCap 600 23.7 19.0
MSCI EAFE 15.5 14.3
MSCI World 17.7 16.1
MSCI ACWI 17.1 15.3
MSCI EM 13.6 11.8 Actual Estimated
17|CMO 4Q17
Left display as of September 30, 2017; right display through December 31, 2016Past performance and historical analysis do not guarantee future results.Source: Ned Davis Research, Northern Trust, S&P and AB
Time Between Market CorrectionsUS Large Cap Stocks (Since 1928)
Worried About a Correction? Prepare Accordingly
Stocks Usually Rebound After Large Intra-Year DeclinesS&P 500 Total Return by Calendar Year (Percent)
Weeks Between 5% Correction
Weeks Between 10%
Correction
Weeks Between 20%
Correction
Current Period
Avg. Number of Weeks
–40
–30
–20
–10
0
10
20
30
40
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
S&P 500 Return Drawdown < 5%
DrawdownCount
Drawdown Depth
Length(Days)
Time to 50%
Rebound (Days)
Time to 100%
Rebound(Days)
Fwd. 3-Mo.Return Post-
Drawdown
Fwd. 12-Mo. Return Post-
Drawdown
S&P 500 39 –8% 17 7 69 11% 16%
64
10
83
33
432
127
Drawdown > 5%
18|CMO 4Q17
Left display as of December 31, 2016; right display through September 30, 2017Past performance and historical analysis do not guarantee future results.*The forecasted figures utilize book value and price-to-book valuations instead of earnings and price to earnings.†Historical data are for the S&P 500. ‡Next five years is the median AB proprietary forecast for a similar group of stocks.Source: Bloomberg Barclays, FactSet, S&P and AB
Equities: Look to Earnings Growth, Not Multiple Expansion
Earnings: Critical Component of Forecasted Returns*US Large-Cap Annualized Returns (Percent)
Yet Large Gap Between Stock and Bond Yields PersistsStock Earnings Yields vs. Bond Yields (Percent)
0
2
4
6
8
10
12
14
83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17
S&P 500 Earnings Yield
US 10-Year Treasury Yield
2.4 2.2
2.45.0
9.3
–1.3
Jul 2012–Dec 2016 Next Five Years
Dividends EPS Growth P/E Expansion
14.1
5.9
† ‡
19|CMO 4Q17
Muted Volatility: Low Rates, but High Stock Rotation
As of September 30, 2017Past performance and historical analysis do not guarantee future results. Not all sectors perform the same. Source: Bloomberg, Chicago Board Options Exchange, Morningstar, Russell Investments, S&P and AB
Double Impact from Low RatesBond Yields (Percent)
Implied Stock Volatility Is Muted…VIX
0
10
20
30
40
50
60
07 08 09 10 11 12 13 14 15 16 17
…yet Stock Rotation Actually SharpPercent
Average
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
07 08 09 10 11 12 13 14 15 16 17
US 10-Year Treasury Yield
0
5
10
15
20
25
1H:16 2H:16 Jan–Sep 17
High Yield ValueGrowth S&P 500
20|CMO 4Q17
Large-Stock Volatility Much Higher than Broad Market
Beneath the Surface, All Is Not Calm
Left display through September 30, 2017; right display as of November 30, 2016Historical analysis does not guarantee future results. 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.*Correlation of S&P 500 option prices and prices of single-stock options on the 50 largest S&P 500 constituents (January 2018 maturities). Correlations represented by CBOE implied correlation Index (KCJ). KCJ CBOE Index represents the expected average correlation of SPX option prices and prices of single-stock options on the 50 largest components of the S&P 500. Correlation is calculated using January 2018 equity options and December 2017 SPX options. Source: Bloomberg, Empirical Research Partners, FactSet, Russell Investments, Thomson Reuters I/B/E/S and AB
0
2
4
6
8
10
12
14
16
18
20
30
40
50
60
70
80
Dec15
Feb16
Apr16
Jun16
Aug16
Oct16
Dec16
Feb17
Apr17
Jun17
Aug17
Annualized Volatility (Percent)
Cor
rela
tion
Correlation of 50 largest stocks to S&P 500 Index*
Rising Rates Amplify Passive Sector Exposure VolatilityShare of US Large-Cap Stocks in Highest Quintile of Passive Ownership
80%
59%
21% 19% 18%
REITs Utilities Energy ConsumerStaples
Materials
Current S&P 500Volatility: 5.46%
Current Top 50 Stocks Average Volatility: 17.22%
21|CMO 4Q17
Instead, Look for ProfitabilityPrice/Earnings Ratio of Highest-ROE Companies vs. Market†
Payout Ratios Are UnsustainablePayout Ratio, Trailing 12 Months
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
78 87 96 05 14
High Yielders Remain Expensive vs. High ROE and Persistent Growers
As of September 30, 2017Historical analysis does not guarantee future results.*Highest 20% of dividend payers among 1,500 US-listed stocks in the AB equity universe, excluding 33 companies that do not currently have a P/E ratio because they are not profitable†Highest 20% of earnings growth and ROE among 1,500 US-listed stocks in the AB equity universe, excluding 33 companies that do not currently have a P/E ratio because they are not profitableSource: FactSet, Russell Investments and AB
Bond Proxies Are CostlyPrice/Earnings Ratio (×)*
Average
Highest (Q1)
0
5
10
15
20
25
30
35
40
80 86 92 98 04 10 16
Highest-DividendPayers Trading Well
Above Average
Average13.8×
89%
74%
Current 10-Year Average
The most-held dividend stocks are paying out almost 90% of their earnings, a huge jump
from their historical average
Top 10 ETF Dividend Stocks
22|CMO 4Q17
A Few Sectors Loom Large in Smaller-Cap IndicesFinancials/Utilities/REITs Weight in Russell 2500†
22
23
24
25
26
27
28
29
30
31
32
01 03 05 07 09 11 13 15 17
Per
cent
Small-Caps: Potential Policy Boost, but an Active Edge Required
As of September 30, 2017Historical analysis does not guarantee future results.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 median 2017 effective tax rate for S&P 500 and Russell 2000. Excludes real estate and negative-pretax-income companies.†Real estate sector adjusted for mortgage REITs post–GICS sector reconstitution to make it comparable with historical.Source: Bloomberg, FactSet, Russell Investments, Thomson Reuters I/B/E/S and AB
Historical Average in
R2500
Historical Percentiles Price-to-Forward-Earnings Multiple Relative to Russell 2000
Small-Cap Cyclicals
Small-Cap Defensives
16 19
40
7078 79
Consumer Discretionary
Industrials
Technology
Real Estate†
Healthcare
Utilities
23|CMO 4Q17
It Pays to Be Active in Moderate-Return Environments
Intra–Stock Market Correlations*Well Below Precrisis Levels
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
90 93 96 99 02 05 08 11 14 17
Sep2017
Left and middle displays as of September 30, 2017; right display as of December 31, 2016Historical analysis does not guarantee future results.*Correlation uses a six-month moving average. Latest figure is from September 30, 2017. Precrisis average is from 1990 to 2007. †Measured by the average outperformance of active managers in the Large Value/Growth/Blend, Mid Value/Growth/Blend and Value/Growth/Blend Morningstar categories vs. the respective benchmarks. ‡Measured by the average annual outperformance of active managers in the Large Blend Morningstar category vs. each fund’s primary prospectus benchmark over the past 20 years.Source: Bloomberg, FactSet, Morningstar, Russell Investments, Thomson Reuters I/B/E/S and AB
Active Managers Snap Back in 2017†
Active Managers Outperforming (Percent Beating Benchmark)
Active Managers Tend to Do Best in Challenging Markets‡
Percent Beating Benchmark
Avg.Since2008
PrecrisisAverage
34
51
Five-YearAverage
Jan–Sep2017
36
53
Strong (10%+) Moderate & Down(<10% or Negative)
24|CMO 4Q17
I/B/E/S Five-Year Growth Forecast†
Percent
More Attractive
Less Attractive
As of September 30, 2017Past performance and historical analysis do not guarantee future results.MSCI World earnings yield calculated using reciprocal of the price/earnings ratio for the next 12 months*Indices are used for comparison purposes only. An investor generally cannot invest in an index.†Excludes energySource: Bloomberg Barclays, FactSet, MSCI, S&P Compustat, Thomson Reuters I/B/E/S, Worldscope and AB
Large Gap Between Stock and Bond Yields Persist Globally—Be Selective
Globally, Yield Is Best Found with Equities
0
1
2
3
4
5
6
7
8
9
10
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Per
cent
MSCI World Earnings Yield*
Bloomberg BarclaysGlobal Aggregate Yield
0
2
4
6
8
10
12
14
16
18
12 13 14 15 16 17 18 19 20 21
P/FE
Slo
w G
row
thFa
st G
row
th
Potentially Cheap Potentially Expensive
Healthcare
Cons. Disc.
Financials
Technology
Materials
Telecom
Utilities
IndustrialsConsumer
Staples
Bond Yields Are Not Keeping Up with Equity Yields in Most Countries
–1
0
1
2
3
4
5
6
7
8
9
CN JP DE
DK NL FI AT FR SE UK
NO HK
CA
SG US
AU NZ
Per
cent
10-Year Bond Yield MSCI World Earnings Yield
25|CMO 4Q17
FAANG Stocks: Not Exclusive to the USFAANGs Dominate US and EM
EM Stocks Compelling, but Beware of Concentration Risk
As of September 30, 2017Past performance and historical analysis do not guarantee future results.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: Bloomberg, MSCI, S&P and AB
EM Stocks Are Now Trading at a Substantial DiscountMSCI EM vs. MSCI World Price/Earnings (Next 12 Months) and Price/Book Value
–40
–30
–20
–10
0
10
20
07 08 09 10 11 12 13 14 15 16 17
Perc
ent
P/B Ratio
P/E Ratio
EM “FAANGs”:Baidu, Tencent, Alibaba, Samsung Electronics, Taiwan Semi, Naspers YTD 2017 Avg. Return: 64% EM De-FANGed: 15.5%
US FAANGs:Facebook, Apple, Amazon, Netflix, Alphabet (Google) YTD 2017 Avg. Return: 34% S&P 500 De-FANGed: 10.8%
EM “FAANGs” contributed more to index returns at 44% of MSCI EM performance vs. US FAANGs withonly 24% of index performance contribution
26|CMO 4Q17
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.
27|CMO 4Q17
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. Bloomberg Barclays Global Aggregate Bond Index: Measure of global investment-grade debt from 24 local currency markets and includes treasury, government-related,
corporate and securitized fixed-rate bonds from both developed- and emerging-markets issuers.
Bloomberg Barclays Global Aggregate Corporate Bond Index: Tracks the performance of investment-grade corporate bonds publicly issued in the global market and found in the Global Aggregate. (Represents global corporate on slide 1.)
Bloomberg Barclays Global High-Yield Bond 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.
Bloomberg Barclays Global High-Yield Corporate Index: A multi-currency measure of the global high yield corporate debt market. The index represents the union of the US High Yield, the Pan-European High Yield, and the corporate sector of the Emerging Markets (EM) Hard Currency High Yield Indices. The high yield and emerging markets sub-components are mutually exclusive. The Global High Yield Corporate Index is a component of the Global High Yield Index and subsequently a component of the Multiverse Index, along with the Global Aggregate, Euro Treasury High Yield and EM Local Currency Government Indices.
Bloomberg 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.)
Bloomberg 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.)
Bloomberg 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.)
Bloomberg 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).
Bloomberg Barclays US Corporate High-Yield Bond Index: Represents the corporate component of the Bloomberg Barclays US High Yield Index. (Represents US high yield on slide 1.) Bloomberg Barclays US Corporate Bond Index: Measures the investment-grade, fixed-rate, taxable corporate bond market and includes USD-denominated securities publicly issued by US and non-US industrial, utility and financial issuers.
28|CMO 4Q17
Index Definitions (continued)
Bloomberg 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.)
Bloomberg Barclays US Treasury Inflation-Linked Bond Index: Measures the performance of the US Treasury Inflation-Protected Securities market.
J.P. Morgan Emerging Market Bond Index Global: A benchmark index for measuring the total return performance of government bonds issued by emerging-market countries that are considered sovereign (issued in something other than local currency) and that meet specific liquidity and structural requirements. In order to qualify for index membership, the debt must be more than one year to maturity, have more than $500 million outstanding, and meet stringent trading guidelines to ensure that pricing inefficiencies don’t affect the index. (Represents emerging-market debt on slide 1.)
J.P. Morgan Government Bond-Emerging Markets Global Diversified Index: A comprehensive global emerging markets index of local government bond debt. To qualify, a country’s Gross National Income (GNI) per capita must be below the GNI per capital level that is adjusted yearly by the growth rate of the World GNI per capita, provided by the World Bank, for three consecutive years.
MSCI All Country World Index: A market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world.
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. (Represents emerging-markets on slide 1.)
MSCI World Index: A market capitalization–weighted index that measures the performance of stock markets in 24 countries.
Russell 2500 Index: A broad index featuring 2,500 stocks that cover the small and mid cap market capitalizations. The Russell 2500 is a market cap weighted index that includes the smallest 2,500 companies covered in the Russell 3000 universe of United States-based listed equities.
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.)
S&P MidCap 400 Index: Provides investors with a benchmark for mid-sized companies. The index measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment.
S&P SmallCap 600 Index: Measures the small-cap segment of the U.S. equity market. The index is designed to track companies that meet specific inclusion criteria to ensure that they are liquid and financially viable.
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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