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
Historical analysis does not guarantee future results.
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
Historical analysis does not guarantee future results.
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
Historical analysis does not guarantee future results.
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
Historical analysis does not guarantee future results.
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
Historical analysis does not guarantee future results.
As of 31 December 2015
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
15 | GCMO 2Q 2016
Past performance and current forecasts do not guarantee future results.
As of 31 December 2015
*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
Historical analysis does not guarantee future results.
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
Historical analysis does not guarantee future results.
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
Historical analysis does not guarantee future results.
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
Historical analysis does not guarantee future results.
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
Past performance does not guarantee future results.
As of 31 December 2015
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
Past performance does not guarantee future results.
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.
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: 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
Past performance does not guarantee future results.
Left display shows 2015 annual total returns; right display as of 31 March 2016
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: 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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