global capital markets outlook - …...shadow fed funds rate* historical monetary policy + fiscal...
TRANSCRIPT
GLOBAL CAPITAL MARKETS OUTLOOK
Third Quarter 2018
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 3Q18
As of 30 June 2018
Past performance does not guarantee future results.
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 AllianceBernstein (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: Bloomberg Barclays, HFR, J.P. Morgan, Morningstar, MSCI, Standard & Poor’s (S&P) Dow Jones and AB
Returns in US Dollars (Percent)
2Q 2018 Returns Recap: Rising Policy Risk Drives Return Dispersion
–1.8
2.4
1.6
1.2
0.5
0.0
1.9
1.8
–1.1
–1.9
–5.2
–2.5
–6.7
–2.0
–3.2
2.7
0.4
–0.2
2.3
1.2
0.8
6.4
0.4
–0.1
0.9
0.1
–0.5
–3.5
–2.2
–8.0
–2.8
–1.3
3.4
1.7
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
Jan–Jun 2018 Returns
(Percent) 2Q:2018 Returns
(Percent)
2|GCMO 3Q18
The Key Takeaways
Macro
Markets From beta to alpha: the great rising tide is receding...
Rising volatility, moderate returns, P/E contraction and rising dispersion drive the importance of security selection
...so focus on the better equity “boats”
For the rest of the cycle, equity returns will largely be about persistency and quality of growth, and strength of balance sheets
Don’t fight the wrong bond battles
The last thing you should worry about as rates rise is high-grade bonds. They can’t kill you; the math doesn’t allow it
Even so, core fixed-income exposure can be more efficient
Globalize rates to diversify economic-cycle risk; hedge the currency risk to remove the volatility from core
When spreads are tight relative to rates, don’t run from duration and overweight credit—balance them
Credit barbells are efficient structures and effective late-cycle navigators
Our base expectation is for moderate market returns over the next five years, but with substantial tail
risk
Portfolio construction needs to account for both—critical for those near, or early into, retirement/decumulation
As of 30 June 2018
Current analysis and forecasts do not guarantee future results.
*G3 is the US, the euro area and Japan.
Source: AB
Investors are right to be worried about rates
They drove the majority of the beta trade through valuations, net margins and share count
Fundamentally, the developed macro story is one of solid but moderating growth, rising core inflation
and rate increases/balance sheet reduction in the G3*
By the end of 2019, developed growth will be lower (but solid), core inflation at threshold and rates higher across the curve
The wild card and key source of tail risk is the impact of policy/politics on the speed/level of inflation
and rates
3|GCMO 3Q18
Left display from 1 October 2011, through 15 June 2016; right display as of 31 December 2017
Past performance and historical analysis do not guarantee future results. For illustrative purposes only
*Shadow fed funds rate as of year-end.
†T.I.N.A.: there is no alternative
Source: Bloomberg, Federal Reserve Bank of Atlanta, Federal Reserve Bank of St. Louis, Morningstar Direct, S&P and AB
...and the Asset Purchases Used to Create ThemThe Great Beta Trade Was Dominated by Rates…
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2.0
2.5
3.0
3.5
4.0
4.5
5.0
11 12 13 14 15 16
Pric
e L
eve
l
US
D T
rilli
ons
S&P 500 Index
Fed Balance-Sheet
Assets (Left Scale)
–1.47 –1.43 –2.13 –2.42 0.20 0.38
Shadow Fed Funds Rate*
Historical Monetary Policy + Fiscal Expectations =
Supercharged Net Margin and Valuation Gains
Average Annualized Growth Rate (March 2009–December 2017)
2.2%
3.1%
9.1%
17.3%
GDP SalesGrowth
EPSGrowth
S&P TotalReturn
3.8%Nominal
Real
EPS:
Net Margin Gains
Share Buybacks
Valuations:
Lower Uncertainty
Present Values
T.I.N.A.†
4|GCMO 3Q18
Left displays through 31 March 2018; right display as of 30 June 2018. Historical analysis and current forecasts do not guarantee future results. Long rates are 10-year yields
unless otherwise indicated. *G7 is the US, Canada, France, Germany, Italy, Japan and UK
Source: Bloomberg, Haver Analytics, IHS Markit and AB
The Global Macro Pillars: Growth, Inflation and Policy
AB Global Economic Forecast: June 2018
Real
Growth (%) Inflation (%)
Official
Rates (%)
Long
Rates (%)
18F 19F 18F 19F 18F 19F 18F 19F
Global 3.2 3.1 2.8 2.7 2.9 3.3 3.3 3.6
Industrial
Countries2.3 2.0 1.9 2.0 1.2 1.8 2.0 2.6
Emerging
Countries4.8 4.8 4.3 3.9 6.2 6.1 5.9 5.6
US 2.5 2.0 2.3 2.3 2.4 3.4 3.3 3.8
Euro Area 2.3 2.1 1.7 1.8 0.0 0.3 0.8 1.5
UK 1.5 1.5 2.5 2.0 0.8 1.3 1.8 2.3
Japan 1.3 1.4 0.9 1.6 –0.1 0.0 0.1 0.3
China 6.5 6.3 2.3 2.3 4.4 4.4 3.5 3.3
Global Growth Solid, but Has Likely Peaked
2.0
2.5
3.0
3.5
4.0
4.5
5.0
10 11 12 13 14 15 16 17 18
G7 CPI Inflation Advances Toward 2%*
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
10 11 12 13 14 15 16 17 18
Yo
Y P
erc
en
t C
ha
ng
eY
oY
Pe
rce
nt C
ha
ng
e
Real GDP
PMI Proxy
Core
Headline
5|GCMO 3Q18
Left display through 31 March 2018; middle and right displays as of 1 June 2018
Historical analysis and current forecasts do not guarantee future results.
Source: Citigroup, Haver Analytics, IHS Markit, Thomson Reuters and AB
Jobs/Wages Fuel Consumption…and (Creeping) Inflation
Macroeconomic Cycle
Transitioning from the Sweet Spot in
2018?
Inflation Expectations Reflect
Consumption
The Ongoing US Growth Story
16
17
18
19?
15
Growth
Rising/
Inflation
Low
Growth
Low/
Inflation
Falling
Growth
Slowing/
Inflation
High 19?
Workers Living Within Their Means
Earning vs. Spending
–6
–4
–2
0
2
4
6
8
10
00 02 04 06 08 10 12 14 16
Yo
Y P
erc
en
t C
han
ge
Personal Consumption
Expenditures (PCE)
Paychecks
0.9
1.1
1.3
1.5
1.7
1.9
2.1
2.3
11 12 13 14 15 16 17 18 19 20
Pe
rce
nt
Realized
Core PCE
High of
Forecast Range
Low of
Forecast Range
Growth
High/
Inflation
Rising
6|GCMO 3Q18
Left and middle displays through 31 January 2018; right display through 30 April 2018
Historical analysis and current forecasts do not guarantee future results.
*Historical data exclude Ireland, where huge swings in gross fixed-capital formation have distorted the underlying trend in the components of overall euro-area demand.
†Contribution to growth
Source: Haver Analytics, IHS Markit and AB
Domestic Demand Remains Solid*… …as Wages Continue to Rise… …Leading to Increased Consumer
Confidence and Activity
Euro-Area Growth: A Challenging, Likely Trade-Related, Start to 2018
Strong Consumer Fundamentals Support Domestic Demand
–6
–4
–2
0
2
4
6
8
10
05 07 09 11 13 15 17
Yo
YP
erc
en
t C
ha
nge
–3.0
–2.0
–1.0
0.0
1.0
2.0
3.0
10 11 12 13 14 15 16 17 18
Yo
Y P
erc
en
t C
ha
nge
–2
–1
0
1
2
3
4
5
6
05 07 09 11 13 15 17
Yo
YP
erc
en
t C
ha
nge
Real
Nominal
Domestic Demand
Net Exports†
Consumer
Confidence
Consumer Credit
Growth
7|GCMO 3Q18
Left and middle displays as of 30 June 2018; right display as of 31 December 2017. Historical analysis and current forecasts do not guarantee future results. Projections of
change in real GDP and both measures of inflation are percent changes from the fourth quarter of the previous year to the fourth quarter of the year indicated. Expectations for fed
funds rate are for December 2018 and December 2019. The projections for the fed funds rate are the value of the midpoint of the projected appropriate target range for the fed
funds rate or the projected appropriate target level for the fed funds rate at the end of the specific calendar year or over the longer run. *FOMC: Federal Open Market Committee;
market expectations are the fed funds rate priced into the Fed futures market as of 13 June 2018 FOMC meeting date. †Net issuance is the budget deficit less central bank
purchases.
Source: Bloomberg, Haver Analytics, US Federal Reserve and AB
The Fed Is a Bit More Aggressive; the ECB Sets a Date
G3 Budget Deficit and Central Bank
Bond Purchases†
Central Bank Watch
Fed Funds Rate Expectations
FOMC and Market Expectations*
FOMC June 2018 Forecasts
18 19 20
Long
Run
Change in Real GDP 2.8 2.4 2.0 1.8
Unemployment Rate 3.6 3.5 3.5 4.5
PCE Inflation 2.1 2.1 2.1 2.0
2.4
3.1
2.2
2.7
2.9
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
14 15 16 17 18 19 20
Perc
ent
Fed Funds Rate
FOMC Expecations
Market Expectations
FOMC Long-Run Projection
–0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
08 09 10 11 12 13 14 15 16 17 18F19F
US
D T
rilli
ons Central Bank
Purchases
Budget Deficit
Net Issuance
The ECB Charts a Path
Asset purchases likely to end in
December
No balance-sheet unwind for an
“extended period of time after the
end of our net asset purchases…”
(Fed took 36 months)
Key policy rates expected “to
remain at their present levels at
least through the summer of
2019…” (Fed took 14 months)
8|GCMO 3Q18
Left display through 31 December 2017; right display as of 30 June 2018
Historical analysis and current forecasts do not guarantee future results.
*GDP is in US dollars. Germany is adjusted for the impact of reunification.
Source: Haver Analytics, World Bank and AB
2011 2018
Outright Monetary
Transactions
Long-Term
Refinancing
Operations
Quantitative
Easing
Vulnerable Country
(GDP)
Greece
($0.2 Trillion)
Italy
($1.9 Trillion)
Exposure of
European Banks to
Italy
Higher Lower
Real GDP per Capita*
This Time the ECB Has the Necessary Tools in Place to Intervene…Although Italy Is Not Greece
Populism, European-Style: Is a Full-Blown Crisis a la 2011 Coming Back?
60
70
80
90
100
110
120
130
80 85 90 95 00 05 10 15
19
99
= 1
00
Germany
Spain
France
Italy
9|GCMO 3Q18
As of 30 June 2018
Historical analysis and current forecasts do not guarantee future results.
Source: Haver Analytics, IHS Markit, Thomson Reuters Datastream and AB
Beyond Fundamentals: Structural and Policy-Based Inflation Tail Risk
Goods and Services Inflation
–5
–4
–3
–2
–1
0
1
2
3
4
5
93 95 97 99 01 03 05 07 09 11 13 15 17
Services
Durable Goods
Pe
rcen
t
Inflation Backdrop
Rearview
Mirror
Past 5–10
Years
Strategic
Horizon
Next 2–5
Years
Secular
Horizon
5+ Years
Demographics
Globalization/
Populism
Debt Overhang
Technology
Monetary Regime
Net Impact
10|GCMO 3Q18
Dow Jones Biggest Price Moves Were Trade (and Rates/Inflation) Driven
Wood & Metal Canaries: Inflationary Tariffs Ultimately a Tax
Tariff Dates and Summaries
22 Jan: US slaps tariffs on imported solar panels and washing machines
23 Mar: US implements tariffs on steel (25%) and aluminum (10%)
2 Apr: China implements tariffs on 128 US products
31 May: Canada announces retaliatory tariffs on US goods worth C$16.6 billion
15–16 Jun: US targets $34 billion of Chinese goods. China announces tariffs on $50 billion of US goods
18 Jun: Trump threatens to impose tariffs on $200 billion of additional Chinese goods
22 Jun: Trump threatens to impose 20% tariff on all vehicles imported from the EU
23,000
24,000
25,000
26,000
27,000
Jan 18 Feb 18 Mar 18 Apr 18 May 18 Jun 18
1
1
2
2
3
3
4
4
5
5
6
7
6
7
Left display through 30 May 2018; right display through 30 June 2018
Historical analysis and current forecasts do not guarantee future results.
*Import Price Index for lumber & wood in the rough; Producer Price Index three-month percent change: aluminum sheet & strip, steel mill products
Source: Bloomberg, Federal Reserve Bank of St. Louis, US Global Investors and AB
Price Impact of Tariffs*
–2
0
2
4
6
8
10
12
180
185
190
195
200
205
210
215
220
225
Nov17
Jan18
Mar18
May18
3-M
onth
Perc
ent C
hange
Index Lumber & Wood
(Left Scale)
Steel
Aluminum
11|GCMO 3Q18
Valuations Compress on Rising Uncertainty and Rates
As of 30 June 2018
Historical analysis and current forecasts do not guarantee future results.
Source: Bloomberg, Chicago Board Options Exchange, Cornerstone Macro, FactSet, Federal Reserve Bank of St. Louis and AB
Volatility Rising and Rates Rising
VIX vs. 10-Year Yields
Corporate-Profit Growth Is Robust
but Projected to Slow
Recent Earnings Growth (Percent)
10.9
24.3
28.9
22.0
10.79.59.9
7.4
11.6
US DevelopedMarkets ex US
EmergingMarkets
2017 2018E 2019E
The Mystery of Strong Earnings and Modest Market Returns, Part I:
~10%
boost
since
tax
cuts
Modest YTD Returns
Lower P/Es Have Offset Higher EPS
1.7%
14.0%
–12.4%
PriceReturn
ForwardEPS Change
Forward P/EChange
Glass
Half Full
Glass
Half Empty
Slowing Growth Prospects &
Higher Risks Have Contributed to
P/E Contraction This Year
Declining P/Es
Have Offset
Most of the Rise
in Earnings
2.0
2.2
2.4
2.6
2.8
3.0
3.2
0
5
10
15
20
25
30
35
40
Jan17
May17
Sep17
Jan18
May18
Perc
ent
Index L
evel
VIX
(Left Scale)
10-Year
Yields
12|GCMO 3Q18
We Were Already Paid for It. But That Doesn’t Mean the Future Is Bleak
Left and right displays as of 31 December 2017; middle display as of 1 June 2018
Historical analysis does not guarantee future results.
Source Bloomberg, Federal Reserve Bank of St. Louis, Morningstar Direct, S&P, Thomson Reuters I/B/E/S and AB
Stock Returns Have Been Resilient
in Lower-Earnings Environments
S&P 500 Average Total Return (1990–
2017)
Average Annualized Growth Rate
1 January 2017–31 December 2017
S&P 500 YoY Growth Rates
Percent
The Mystery of Strong Earnings and Modest Market Returns, Part II:
2.8%
5.8%
13.1%
21.8%
GDP SalesGrowth
EPSGrowth
S&P TotalReturn
Nominal
Real
4.7%
15.4%
9.4%
EPS Growth >10% EPS Growth <10%
–10
–5
0
5
10
15
20
25
30
1Q
:16
2Q
:16
3Q
:16
4Q
:16
1Q
:17
2Q
:17
3Q
:17
4Q
:17
1Q
:18
2Q
:18
3Q
:18E
4Q
:18E
1Q
:19E
2Q
:19E
3Q
:19E
4Q
:19E
Earnings
Revenue
13|GCMO 3Q18
Strong Earnings Growth Historically Linked to Rising
Inflationary Pressures
0
10
20
30
40
50
60
70
80
90
100
–50
–30
–10
10
30
50
70
91 93 95 97 99 01 03 05 07 09 11 13 15 17In
de
x L
eve
l
Pe
rce
nt
As of 30 June 2018
Historical analysis does not guarantee future results.
Source Bloomberg, Cornerstone Macro, Federal Reserve Bank of St. Louis, Institute for Supply Management, Morningstar Direct, S&P, Thomson Reuters I/B/E/S and AB
Rising Earnings and Inflation, Plus Fed Tightening, Equals Lower P/Es
S&P 500—
EPS Growth
(Left Scale)
ISM Manufacturing Prices
Paid Index
Fed Tightening
Rising Inflationary Pressures Have Led to Fed Tightening
and P/E Contraction
Period
31/01/94–
28/02/95
31/05/99–
31/05/00
31/05/00–
31/07/06
16/12/15–
30/06/18
Begin 14.9× 23.5× 16.5× 17.6×
End 12.6× 22.2× 14.0× 17.1×
Change –2.3 –1.3 –2.5 –0.5
Average change in P/E over the past four Fed tightening
cycles: 1.7 P/E Points
P/Es have actually declined in 8 of the past 8 Fed
tightening cycles
14|GCMO 3Q18
As of 31 December 2017. Past performance is not necessarily indicative of future results. There is no guarantee that any estimates or forecasts will be realized.
Based on AB’s estimates of the range of returns for the applicable capital markets.
The forecasted figures in the left display utilize book-value growth and price-to-book valuations as representations of earnings growth and valuation. Data do not represent past
performance and are not a promise of actual future results or a range of future results. Based on proprietary AB forecasting system. *Represents projected median compound
annual growth rates over the next 10 years. †Global stocks are modeled as 18% US diversified, 18% US value, 18% US growth, 6% US small-/mid-cap, 30% developed
international, and 10% emerging markets. ‡Probability of a 20% peak-to-trough decline in pretax, pre-cash-flow cumulative returns within the next 10 years. Because the AB
system uses annual capital-market returns, the probability of peak-to-trough losses measured on a more frequent basis (such as daily or monthly) may be understated. The
probabilities depicted above include an upward adjustment intended to account for the incidence of peak-to-trough losses that do not last an exact number of years. §Represents
projected median compound annual growth rates over the next 10 years. || 100% return-seeking allocation is all stocks; 80%/20% allocation is 80% stocks/20% bonds; 60%/40%
allocation is 60% stocks/40% bonds; 30%/70% allocation is 30% stocks/70% bonds; and 100% risk-mitigating allocation is all bonds. #Normal conditions reflect AB’s estimates of
equilibrium capital-market conditions, which are typically close to a very long-term historical average.
Source: AB
The Risk/Return Trade-Off Is More Important than Ever
Projected Median
10-Year Annualized Return§
Asset Allocation||
Probability of 20% Peak-to-Trough
Loss Within Next 10 Years‡
Median Index Return Decomposition:
Next 10 Years*
Valuation
Earnings
Growth
Dividends
Global Stocks US Stocks
2.4%
5.2%
–0.7%
6.8%
2.2%
5.9%
–2.0%
6.1%
†
100%
Risk-Mitigating
30%/70%
60%/40%
80%/20%
100%
Return-Seeking61.0%
40.0%
17.0%
<2.0%
<2.0%
6.8%
6.1%
5.3%
3.9%
2.3%
Normal# Normal#
15|GCMO 3Q18
As of 30 June 2018
Historical analysis does not guarantee future results.
Treasury (TSY) is represented by Bloomberg Barclays Global Treasury and high yield (HY) by Bloomberg Barclays Global High-Yield hedged to USD.
Source: Bloomberg Barclays and AB
Near-Term Volatility Is Likely in Rates
and Credit Markets
Government and Credit Bonds Rarely
Underperform at the Same Time
Today’s Environment Calls for a
Balanced Approach
Cloudy Outlook Warrants Balance Between Rates and Credit Risks
–20
–15
–10
–5
0
5
10
15
20
–8 –4 0 4 8
Quart
erly H
igh-Y
ield
Retu
rns (
Perc
ent)
“Normal”
TSY = Negative
HY = Positive
19% of the Time
Balance Works
“Normal”
TSY = Positive
HY = Negative
24% of the Time
Balance Works
“Good Times”
TSY = Positive
HY = Positive
51% of the Time
Balance Works
“Bad Times”
TSY = Negative
HY = Negative
5% of the Time
Balance Doesn’t
Work
Sources of Volatility:
Monetary policy normalization and
tighter liquidity in DM (rates)
Possible inflation pressures (rates
and credit)
Corporate credit continues to move
later in the credit cycle (credit)
Increased geopolitical risk, e.g.,
Italy and EM (select rates, credit)
Headlines around trade war (credit)
Global
Rates
Global
Credit
Quarterly Treasury Returns (Percent)
16|GCMO 3Q18
As of 30 June 2018. Past performance does not guarantee future results. *Bloomberg consensus forecast is for year-end 2018. It is an average of 60 forecasts from sell-side
analysts and academics. †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. 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
Putting Rising Rates in the Right Context
Big Spikes in Rates Are Sparse
Frequency of Monthly Changes in the
10-Year US Treasury Yield
Rates Have Already Risen
Meaningfully
Rising Rates Don’t Have to Derail
Bonds†
Expected Total Returns (Percent)
34%
15%
21%
11%
8%
5% 5%
De
clin
e >
10
b.p
.
Declin
e 0
–10 b
.p.
Incre
ase 0
–10 b
.p.
Incre
ase 1
0–20 b
.p.
Incre
ase 2
0–30 b
.p.
Incre
ase 3
0–40 b
.p.
Incre
ase
> 4
0 b
.p.
Historically, yield
increases of more
than 30 b.p. occurred
only 10% of the time
US
Aggregate
Change in
US High-Yield Spreads (b.p.)
–50 0 50 100
Ch
an
ge
in
US
Tre
as
ury
Yie
lds
(b
.p.) 100 –1.0 –1.4 –1.7 –2.1
50 1.3 1.0 0.6 0.3
0 3.7 3.4 3.0 2.7
US
High Yield
Change in
US High-Yield Spreads (b.p.)
–50 0 50 100
Ch
an
ge
in
US
Tre
as
ury
Yie
lds
(b
.p.) 100 5.7 4.1 2.5 0.9
50 6.9 5.3 3.8 2.1
0 8.2 6.6 5.0 3.41.8
2.0
2.2
2.4
2.6
2.8
3.0
3.2
3.4
Jun 17 Sep 17 Dec 17 Mar 18 Jun 18
Perc
ent
AB Year-End 2018 Forecast: 3.25%
(Range 3.0%–3.5%)
Bloomberg Consensus
Forecast: 3.16%*
17|GCMO 3Q18
As of 30 June 2018
Past performance does not guarantee future results.
*Bar height may differ due to rounding. Global bonds hedged is represented by Bloomberg Barclays Global Aggregate hedged to USD and 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.
†B/E: break-even.
Source: Bloomberg Barclays and AB
Take a World View on Interest-Rate Exposure
Global Outperforms when US Falls
Up vs. Down Capture
March 1990–June 2018 (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: 66%
Select Opportunities Exist in Global
Inflation-Linked Bonds
B/E Inflation for 10-Year Rates (Percent)†
0.0
0.5
1.0
1.5
2.0
2.5
Dec 13 Jun 15 Dec 16 Jun 18
US
Japan
Japan Inflation
2018 Forecast
US Inflation
2018 Forecast
Actively Managing Your Exposure to
Avoid Troubled Areas Is Key
10-Year Bond Yields (Percent)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Mar 18 Apr 18 May 18 Jun 18
Italy
Spain
Germany
18|GCMO 3Q18
As of 30 June 2018
Historical analysis does not guarantee future results.
Emerging Market (EM) hard currency is represented by J.P. Morgan EMBI Global; EM corporate by J.P. Morgan CEMBI Broad Diversified; and EM local currency by J.P. Morgan
GBI–EM Global Diversified. Yields are sourced from the index’s subcomponents. 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, J.P. Morgan and AB
Some EM Opportunities Still Exist, but Selectivity Is Increasingly Important
Technicals Remain Constructive with
Much of Issuance Front-LoadedEM Net Issuance (USD Billions)
However, Near-Term EM Outlook
Warrants Caution
Given Recent Volatility, Valuations
Have Improved Somewhat
Rising rates in developed markets
Recent US-dollar strengthening
Increased idiosyncratic and political
risk in select countries
Trump’s trade war
Some Countries in Recent Headlines:
100
152
225
77
201
42
100
130
92
110
2015 2016 2017 YTD2018
2018Forecast
EM Corporate EM Sovereign
4.0
4.5
5.0
5.5
6.0
6.5
7.0
EM HardCurrency
EMCorp.
EM LocalCurrency
Yie
ld t
o W
ors
t
Jan 2016 Dec 2017 Jun 2018
Turkey
Argentina
Brazil
Mexico
China
19|GCMO 3Q18
Left and right displays as of 30 June 2018; middle display through 31 December 2017 (except for yield pickup, which is as of 30 June 2018)
Historical analysis does not guarantee future results.
Core Tier 1 ratios provided by Morgan Stanley European credit strategy research on western European banks.
*AB bear- and base-case 31 December 2018 forecasts for energy issuers’ net leverage ratios.
†Annualized hedging benefit uses one-month currency forwards.
Source: Bloomberg Barclays, Morgan Stanley and AB
Selectivity Within Corporate Credit Remains Critical
European Financials Benefit from
Improving Fundamentals Backdrop
Outlook Remains Constructive for
Higher-Beta Energy Names
AB Net Leverage Forecast for 2018*
BBBs Offer Relative Value and
Diversification vs. BBs
US Credit Bonds
2
3
4
5
6
7
8
Yie
ld t
o W
ors
t (P
erc
ent)
3.156
Issues
820
Issues
BBBBB
BBB Features:
Select yields similar
to BBs
Lower credit risk
Lower extension risk
Higher duration risk
30
32
34
36
38
40
42
0
2
4
6
8
10
12
14
16
06 07 08 09 10 11 12 13 14 15 16 17
Perc
entR
atio (
×)
Hedging EUR
bonds back to
USD results in
a ~2.7% yield
pickup†
Core Tier 1 Ratio
(Left Scale)
Risk-Weighted
Assets to
Total Assets
6.2×
3.1×
11.0×
4.9×
2.1×1.8×
3.8×
3.1×
B(Bear)
B(Base)
CCC(Bear)
CCC(Base)
2Q:2017 2Q:2018
Energy OAS: 407 b.p.
HY OAS: 363 b.p.
20|GCMO 3Q18
As of 30 June 2018. Historical analysis does not guarantee future results. *Bank loans are represented by the Credit Suisse Leveraged Loan Index. Loan 1 is represented by
Asurion and Loan 2 by American Airlines. †Change is calculated since July 2016. ‡Rising-rate periods defined as time periods when the 10-Year US Treasury rate increased by 20
b.p. or more. §CRT returns are represented by Mark Fontanilla & Co., LLC’s CRTx Index (Lower Mezzanine). ||CMBX yields are loss-adjusted. Correlation is the average
correlation for BBB-rated CMBX and US corporates and BB-rated CMBX and US corporates. BB corporates are represented by Bloomberg Barclays US Corporate High-Yield BB
and BBB Corporates by Bloomberg Barclays US Aggregate Corporate BBB.
Source: Bloomberg, Bloomberg Barclays, Credit Suisse, Fannie Mae, Freddie Mac, IHS Markit, Mark Fontanilla, Trepp and AB
CMBS Offer Relative Value and
Diversification Benefits||
Bank Loans Can Be Refinanced at
Lower Rates Even as LIBOR Rises*
Examples of Large Loan Issuers’ Yields
(Percent)
CRTs Beat Loans in Rising Rates‡
Returns in Rising-Rate Periods
(Percent)§
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
Jul 16 Jan 17 Jul 17 Jan 18 Jul 18
Yie
ld
Coupon
Mortgages Offer Floating Rate Exposure and Relative Value Opportunities
Loan 1
(Left Scale)
Loan 2
(Left Scale)
3-Mo.
LIBOR
4.6
1.0
7.1
5.5
2.6
–2.0
4.5
3.7
Feb 15–Jun 15
Oct 15–Dec 15
Aug 16–Jan 17
Sep 17–Apr 18
CRTs Bank Loans
Coupon/Yield
Change†:
3-Mo. LIBOR: 1.67%
Loan 1: 0.09%
Loan 2: 0.84%
0
2
4
6
8
10
12
BBB BB
Yie
lds (
Perc
ent)
US Credit CMBX
Correlation
(Between CMBX and US Credit)
0.29
21|GCMO 3Q18
As of 30 June 2018
Past performance and historical analysis do not guarantee future results.
*Based on peak-to-trough rate cycles for the corresponding periods of S&P 500. Rising-rate environments are defined as periods during which the 10-year US Treasury yield rose
by more than 70 basis points.
†Taper tantrum is from 1 May 2013, to 31 December 2013; tightening tantrum is from 5 July 2016, to 13 March 2017; tax-cut tantrum is from 7 September 2017, to 30 June 2018.
Source: Bloomberg, Bloomberg Barclays, Ned Davis Research, S&P and AB
Rising Rates Often Do Not Derail Equities, but Sectors Can Matter
Equities Have Fared Well in Rate-Hike Cycles
Change in
10-Year
Treasury
Yields (%)
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
1.6
0.7
1.4
Rising-
Rate
Cycles
Annualized S&P 500
Returns in Rising-Rate
Periods (Percent)*
2.1
8.7
11.9
2.3
15.7
8.3
1.1
12.9
21.0
32.1
23.2
10.9
25.4
34.8
25.3
2.5
16.1
Jan 71–Sep 75
Dec 76–Oct 81
Oct 82–Jun 84
Aug 86–Sep 87
Feb 88–Feb 89
Jul 89–Apr 90
Sep 93–Nov 94
Dec 95–Aug 96
Nov 96–Mar 97
Sep 98–Jan 00
Oct 01–Mar 02
Sep 02–Jun 06
Dec 08–Dec 09
Aug 10–Mar 11
Jul 12–Dec 13
Jan 15–Jun 15
Jul 16–Jun 18
Average 15%
Annualized Returns
During Rising-Rate
Periods
Sector Relative Performance During Past Three Rising-
Rate Tantrums (Percent)†
Sector
Taper
Tantrum
Tightening
Tantrum
Tax-Cut
Tantrum
Financials 6.2 23.5 –0.8
Cons. Disc. 5.5 –2.1 10.8
Technology 3.7 11.6 10.6
Industrials 9.3 2.2 –6.0
Telecom –19.7 –18.4 –11.4
Consumer Staples –10.1 –12.4 –16.4
Real Estate –24.7 –20.2 –9.3
Utilities –20.6 –15.6 –13.7
10-Year UST Note
Yield Change+138 b.p. +125 b.p. +82 b.p.
22|GCMO 3Q18
Left display as of 31 December 2017; middle display as of 30 June 2018; right display as of 31 December 2017. Average monthly returns of the net debt to equity factor (low
leverage to high leverage) index between 1990 and 2017 when bond yields fall or rise by greater than 10 basis points or are unchanged. The US GDP cycle is based on that
defined by the National Bureau of Economic Research. The table shows average quarterly returns of the low leverage to high leverage index in five cycles (early, mid, late
expansion and early, late recession). The GDP cycle back test is carried out between 1990 and 2012.
Historical analysis does not guarantee future results.
Source: Bernstein Research, FactSet, MSCI, National Bureau of Economic Research, Thomson Reuters I/B/E/S, Thomson Reuters DataStream and AB
Financial Strength: Vital, Attractively Valued and Resilient as Rates Rise
Performance of Low-Leverage to
High-Leverage Companies
10-Year Bond Movements: 1990–2017
Average Fall
Un-
changed Rise
Global 0.25 –0.09 0.08 0.88
Europe 0.13 0.08 0.03 0.29
US 0.16 –0.43 –0.10 1.19
Relative P/B of Low- vs. High-
Levered Stocks: Financial Strength
on Sale
Median Debt/Equity Has Climbed
S&P 500 Companies
40
45
50
55
60
65
70
75
80
85
90
02 04 06 08 10 12 14 16
Perc
ent
0
1
2
3
4
5
6
90 93 96 99 02 05 08 11 14 17
Ratio (
×)
Valuation Discounts
Global: 42%
US: 64%
US
Global
23|GCMO 3Q18
When PMIs Peak, the Stability of Growth Becomes More
Important
30
35
40
45
50
55
60
65
70
75
–50
–40
–30
–20
–10
0
10
20
30
40
85 89 93 97 01 05 09 13 17
Ind
ex L
eve
l
Growth Style Remains Relevant, and Not as Risky as You Might Think
Left display through 30 June 2018; right display as of 5 June 2018
Historical analysis does not guarantee future results.
Source: Cornerstone Macro and AB
Tech
Bubble
ISM
Manufacturing
Index
Role Reversal: Betas Then and Now
1.20
0.980.96
1.23
Highest P/E Stocks Lowest P/E Stocks
2000 2018
Ye
ar-
ove
r-Y
ea
r P
erc
en
t
S&P 500 Pure Value
vs. Pure Growth
(Left Scale)
24|GCMO 3Q18
Left display as of 30 June 2018; right display through 31 December 2017
Past 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.
*Three-month trailing average historical monthly return dispersion; S&P 500 Stock Universe (1990–2017)
Source: Bernstein Research, S&P and AB
That Could Support Active Management Outperformance
Percent of Active US Large-Cap Funds Outperforming
Benchmarks vs. US Market Dispersion (1990–2017)
0
10
20
30
40
50
60
70
80
90
0
2
4
6
8
10
12
14
16
90 92 94 96 98 00 02 04 06 08 10 12 14 16
Return Dispersion (Left Scale)
Share of US Active Funds Outperforming
Dispersions Are Rising, Especially Above Post-2010 Average
US Market Return Dispersion (Percent)*
0
2
4
6
8
10
12
14
16
18
20
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Dispersions Are Rising, Which Bodes Well for Active Managers
Average Since 1990
Average Since 2010
Correlation: 0.49
25|GCMO 3Q18
As of 30 June 2018
Historical analysis does not guarantee future results.
*Valuation composite is one-third price/forward earnings, one-third price/book and one-third price/sales.
†Real estate sector adjusted for mortgage REITs post–GICS sector reconstitution to make it comparable with historical data.
Source: Bloomberg, FactSet, Russell Investments and AB
Small-Caps: Opportunities Remain and Be Active
Historical Percentiles
P/FE Multiple Relative to Russell 2000
13
27
54
42
7679
Industrials
Consumer Discretionary
Technology
Utilities
Healthcare
Real Estate†
Smaller-Cap Stocks Are Less Expensive than Larger Caps
Relative Valuations (Russell 2000 vs. Russell 1000)*
0.88
0.93
0.98
1.03
1.08
1.13
08 09 10 11 12 13 14 15 16 17 18
Ratio (
×)
Large-Caps
Are Cheap
Small-Caps
Are Cheap
Average
26|GCMO 3Q18
…yet the Returns of Highly Profitable US Stocks Have
Lagged Earnings
Earnings per Share (EPS) Growth and Total Return Differential
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
11 12 13 14 15 16 17
Pe
rce
nt
High-Profitability Companies—EPS Growth
S&P 500—EPS Growth
High-Profitability Companies—Return
S&P 500—Return
As of 31 December 2017
Historical analysis does not guarantee future results. Numbers may not sum due to rounding. US GDP estimate from AB economists. Organic food estimate from AB analysts,
through 2023. Automotive active safety revenues estimate from Roland Berger, through 2025. Health savings account AUM from Devenir and AB, through 2022. Private pension
AUM estimate from Citigroup, OECD and AB, through 2025. Mobile data traffic estimates from Cisco Systems, through 2021.
Calendar-year-end earnings per share growth and calendar-year total return indexed to 1.
Source: Cisco Systems, Citigroup, Devenir, OECD, Roland Berger, S&P and AB
Key Opportunities for Growth: Secular Themes and High Profitability
Growth Isn’t Always About the Economy...
Growth Rates (Percent)
High-Profitability
Companies: stock
returns have
lagged earnings
S&P 500:
stock returns
have outpaced
earnings2.3
8.0
16.0 17.0
29.0
46.0
US GDP(2018E)
OrganicFood
AutomotiveActiveSafety
Revenues
HealthSavingsAccount
AUM
PrivatePension
AUM
GlobalMobileData
Traffic
Compound Annual Growth Estimates
27|GCMO 3Q18
Left display as of 31 March 2018; right display as of 31 December 2017. Past performance and historical analysis do not guarantee future results. Historical data for
information only. Earnings yield calculated using reciprocal of P/FE (2018). US represented by S&P 500, non-US developed by MSCI EAFE and EM by MSCI Emerging Markets.
Individual stocks for which price/forward earnings (2018E) data were not available are excluded from these figures. *Universe consists of the top 1000 companies by market cap
each year through 2016 with annual rebalancing. Source: Center for Research in Security Prices, FactSet, MSCI, S&P Compustat and AB
Key to Successful Growth Investing: Beating the Fade
Companies Persisting with ≥10% Year-over-Year Earnings
Growth Rates: Top 1,000 Global Companies (1979–2017)*
Global Equities: A Broader Opportunity Set; Sustained Earnings Key
Number of Stocks with Earnings Yield Higher than 7%,
and Percentage of Index
376
64
14
1.2
2.4
2.8
0
100
200
300
400
0.0
0.5
1.0
1.5
2.0
2.5
3.0
OneYear
ThreeYears
FiveYears
Num
be
r of C
om
pa
nie
s
Exce
ss R
etu
rn (
Pe
rcen
t)
Annualized
Excess Returns
vs. MSCI World
US
156
(32%)
Non-US
Developed
371
(50%)
EM
424
(50%)
28|GCMO 3Q18
A Word About Risk
Note to All Readers: 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 AB or its affiliates. Note to Canadian Readers: This
publication has been provided by AB Canada, Inc. or Sanford C. Bernstein & Co., LLC and is for general information purposes only. It should not be construed as
advice as to the investing in or the buying or selling of securities, or as an activity in furtherance of a trade in securities. Neither AB Institutional Investments nor AB
L.P. provides investment advice or deals in securities in Canada. Note to European Readers: This information is issued by AllianceBernstein Limited, a company
registered in England under company number 2551144. AllianceBernstein Limited is authorised and regulated in the UK by the Financial Conduct Authority (FCA -
Reference Number 147956). Note to Readers in Japan: This document has been provided by AllianceBernstein Japan Ltd. AllianceBernstein Japan Ltd. is a
registered investment-management company (registration number: Kanto Local Financial Bureau no. 303). It is also a member of the Japan Investment Advisers
Association; the Investment Trusts Association, Japan; the Japan Securities Dealers Association; and the Type II Financial Instruments Firms Association. The
product/service may not be offered or sold in Japan; this document is not made to solicit investment. Note to Australian Readers: This document has been
issued by AllianceBernstein Australia Limited (ABN 53 095 022 718 and AFSL 230698). Information in this document is intended only for persons who qualify as
"wholesale clients," as defined in the Corporations Act 2001 (Cth of Australia), and should not be construed as advice. Note to Singapore Readers: This
document has been issued by AllianceBernstein (Singapore) Ltd. ("ABSL", Company Registration No. 199703364C). ABSL is a holder of a Capital Markets
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(Luxembourg) S.à r.l. is the management company of the portfolio and has appointed ABSL as its agent for service of process and as its Singapore representative.
This document has not been reviewed by the MAS. Note to Hong Kong Readers: This document is issued in Hong Kong by AllianceBernstein Hong Kong
Limited (聯博香港有限公司), a licensed entity regulated by the Hong Kong Securities and Futures Commission. This document has not been reviewed by the Hong
Kong Securities and Futures Commission. Note to Readers in Vietnam, the Philippines, Brunei, Thailand, Indonesia, China, Taiwan and India: This
document is provided solely for the informational purposes of institutional investors and is not investment advice, nor is it intended to be an offer or solicitation, and
does not pertain to the specific investment objectives, financial situation or particular needs of any person to whom it is sent. This document is not an
advertisement and is not intended for public use or additional distribution. AB is not licensed to, and does not purport to, conduct any business or offer any
services in any of the above countries. Note to Readers in Malaysia: Nothing in this document should be construed as an invitation or offer to subscribe to or
purchase any securities, nor is it an offering of fund-management services, advice, analysis or a report concerning securities. AB is not licensed to, and does not
purport to, conduct any business or offer any services in Malaysia. Without prejudice to the generality of the foregoing, AB does not hold a capital-markets services
license under the Capital Markets & Services Act 2007 of Malaysia, and does not, nor does it purport to, deal in securities, trade in futures contracts, manage
funds, offer corporate finance or investment advice, or provide financial-planning services in Malaysia. Important Note For UK and EU Readers: For Professional
Client or Investment Professional use only. Not for inspection by distribution or quotation to, the general public.
29|GCMO 3Q18
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 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.
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.)
30|GCMO 3Q18
Index Definitions (continued)
Bloomberg Barclays US Treasury Inflation-Linked Bond Index: Measures the performance of the US Treasury Inflation-Protected Securities market.
HFRI Event Driven 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.
HFRI Equity Hedge 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. Equity Hedge managers would typically maintain at least 50% exposure to, and may in some cases be entirely invested in, equities, both
long and short.
HFRI Fund Weighted Composite Index: A global, equal-weighted index of more than 2,000 single-manager funds that report to HFR Database. Constituent funds report
monthly performance net of all fees in US dollars and have a minimum of $50 million under management or 12-month track record of active performance.
HFRI Macro: 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.
HFRI Relative Value: 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.
J.P. Morgan Corporate Emerging Markets Bond Index: A global, corporate emerging-market benchmark that tracks USD-denominated corporate bonds issued by emerging-
market entities.
31|GCMO 3Q18
Index Definitions (continued)
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 capita 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 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.
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. (Represents World on slide 1.)
Russell 1000 Index: A stock market index that represents the highest-ranking 1,000 stocks in the Russell 3000 Index, representing 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.
(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 on slide 1.)
TOPIX Index: Measures stock prices at the Tokyo Stock Exchange (TSE). (Represents Japan on slide 1.)
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.
© 2018 AllianceBernstein L.P. www.AllianceBernstein.com
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