first quarter 2012 capital markets outlook volatility trumps returns the information herein reflects...
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First Quarter 2012
Capital Markets OutlookVolatility Trumps Returns
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.
Investment Products Offered:
Are Not FDIC Insured May Lose Value Are Not Bank Guaranteed
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Merrill Lynch, Pierce, Fenner & Smith Incorporated is a wholly-owned subsidiary of Bank of America Corporation, and a registered broker-dealer and member of FINRA and SIPC.
Investment products provided by Merrill Lynch, Pierce, Fenner & Smith, Incorporated:
The views and opinions expressed in this presentation are not necessarily those of Bank of America Corporation; Merrill Lynch, Pierce, Fenner & Smith Incorporated; or any affiliates.
Nothing discussed or suggested in these materials should be construed as permission to supersede or circumvent any Bank of America, Merrill Lynch, Pierce, Fenner & Smith Incorporated policies, procedures, rules, and guidelines.
Merrill Lynch, Pierce, Fenner & Smith Incorporated are not tax or legal advisors. Clients should consult a personal tax or legal advisor prior to making any tax or legal related investment decisions.
Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value
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Series1 30.3%
11.2%
10.5%
2.9%
2.5%
5.4%
7.5%
10.5%
18.0%
23.8%
26.8%
16.5%
23.4%
27.3%
Series1-8.1%
13.6%
-13.4%
2.7%
2.6%
9.8%
10.7%
4.8%
5.8%
3.6%
-18.4%
-12.1%
2.1%
-4.2%Chart Title
Annualized ReturnsSince March 2009
Returns in USD
Japan Gov’t
Global High Yield
US Gov’t
Euro Gov’t
EM Debt
Global Corp
EAFE*
US Small Cap
A Turbulent Year for Risk Assets
Emerging Markets
2011 Returns
Equities
Credit
Gov’tBonds
Commodities
Alternatives
Global REITs
TIPs
Municipals
Past performance does not guarantee future results.As of December 31, 2011*EAFE = Europe, Australasia, Far EastGlobal High Yield, Global Corp, Japan Gov’t and Euro Gov’t in hedged USD terms. All other non-US returns in unhedged USD terms.Individuals cannot invest directly in an index. Please see the end of the presentation for index definitions. Source: Barclays Capital, DJ-UBS, FactSet, FTSE, MSCI, Standard & Poor’s and AllianceBernstein
US Large Cap
3
Series1 6.7%
2.7%
0.3%
-0.6%
0.7%
0.9%
2.1%
1.7%
3.9%
6.0%
4.4%
3.3%
11.8%
15.5%
4Q 2011 Returns
AllianceBernstein.com
Equities Attractive, but Volatility Overwhelms Valuations
Long-TermExpected Return (%)
Near-TermExpected Global
Equity Volatility (%)Asset Allocation
Our View of Equity AllocationLong-Term 60/40 Investors
Historical analysis and current forecasts do not guarantee future results.Data do not represent past performance and are not a promise of actual results or range of future results.Global sovereign bonds are represented by global, developed, sovereign, seven-year constant-maturity nominal bonds; global stocks by a universe similar to MSCI World. Both are reported in and hedged into US dollars. *Equity here refers to 70% US equity (MSCI USA) and 30% international equity (25% MSCI EAFE, 5% MSCI EM). **Represented by the MSCI All Country World Index.Individuals cannot invest directly in an index. Please see the end of the presentation for index definitions. Source: MSCI and AllianceBernstein
Long-term Average
4
21.7
14.6Normal
8.4
Feb 10 Jun 10 Oct 10 Feb 11 Jun 11 Oct 11
200
250
300
350
400
Equity Allocation*
Global Stock Index**
Eq
uity
Allo
catio
n (
%) G
lob
al S
tock In
de
x
60
50
40
70
AllianceBernstein.com
-2
-1
0
1
2
3
4
5
Risk Aversion Remains Highly Elevated
Historical analysis does not guarantee future results.Through January 4, 2012*Measures the degree of risk aversion by combining the implied volatility of equities, currencies, commodities and bonds with credit spreads and mutual fund flows.Source: Bloomberg, Investment Company Institute (ICI) and AllianceBernstein
Global Risk Aversion Indicator*
Risk Appetite
Risk Aversion
Russian Default and LTCM
9/11 Iraq
Financial Crisis
Today
5
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Uncertainties Drive Market Volatility
6
United States
Future tax policy
Deficit reduction
Health care
Brazil & Argentina
Inflation vs. growth
Arab World
Political transition
Russia
Political uncertainty
China
Growth
Housing
Credit
Thailand & Japan
Natural disaster
North Korea & Iran
Nuclear weapons
Europe
Sovereign debt
Integration/separation
Inflation/deflation
As of December 30, 2011Source: AllianceBernstein
AllianceBernstein.com
Eurozone Bond Markets Reflect a Crisis of Confidence
Past performance and historical analysis do not guarantee future results.As of November 30, 2011Source: Haver Analytics
Sovereign 10-Year Bond Yields
7
0
1
2
3
4
5
6
7
8
Jan 05 Aug 05 Mar 06 Nov 06 Jun 07 Jan 08 Sep 08 Apr 09 Dec 09 Jul 10 Feb 11 Oct 11
14
Italy
Spain
Belgium
France
Germany
Greece
Portugal
35
AllianceBernstein.com
Euro Area Sliding into Recession
As of November 30, 2011*Purchasing Managers Index (PMI): An indicator of the economic health of the manufacturing sector. It is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.**The Economic Sentiment Indicator is a composite of European Central Bank sector confidence indicators.†Standard Deviation shows how much variation or “dispersion” exists from the average.Source: Haver Analytics and Markit
Euro-Area Composite PMI* and Economic Sentiment
-4
-3
-2
-1
0
1
2
98 99 00 01 02 03 04 05 06 07 08 09 10 11
Manufacturing PMI
46
48
50
52
54
56
58
60
Jan 10 Aug 10 Mar 11 Oct 11
Sta
nd
ard
De
via
tion†
ESI**
PMIGlobal exEuro Area
Euro Area
Pe
rce
nt
8
AllianceBernstein.com
World Economic Growth Forecast
Percent Average Annual Rate
Despite Euro Area Weakness, the Global Economic Recovery Continues
Forecasts are subject to change.As of January 3, 2012*Eastern Europe, Middle East and Africa (including Hungary, Poland, Turkey, Russia and South Africa).Note: Consensus estimates are based on the latest available survey from November 2011. Source: Consensus Economics and AllianceBernstein
Asia ex Japan
US
Latin America
EEMEA*
Global
Canada
Japan
UK
Euro Area
Asia ex Japan
EEMEA*
Latin America
Global
Canada
US
Euro Area
UK
Japan
2011 2012
AllianceBernstein
Consensus
9
AllianceBernstein.com
US Economy Defies Pessimism
US Economy Surprises on the Upside Indicators Point to Growth
Historical analysis does not guarantee future results.*Weighted historical standard deviation of data surprises. Data through December 23, 2011.**Data through November 2011Source: Citigroup, The Conference Board, Haver Analytics and AllianceBernstein
Ind
ex
Ind
ex
10
-20
-15
-10
-5
0
5
10
15
20
60 77 94 11-150
-100
-50
0
50
100
Jul 11 Sep 11 Dec 11
Citigroup Economic Surprise Index* Leading Economic Indicators**
AllianceBernstein.com
US Recovery Thus Far Has Been Driven by Exports and Capex*
Historical analysis does not guarantee future results.*Capital Expenditure (Capex): Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment.**Recessions since 1960Source: Bureau of Economic Analysis and Haver Analytics
…but Consumption Is the Largest Component
71%
13%
20%
14%
-18%
100%
11
Components of 2010 Gross Domestic Product (GDP)
Exports and Investment Growth Have Led Latest Recovery…
RealGDP
Consumption& Housing
Exports& Investment
Imports &Government
4.8%
3.6%
1.8%
-0.5%
2.4%
1.5%
2.4%
-1.5%
Historical Average**Current Cycle
Sum of Real GDP
Contribution to GDP Growth (First 9 Quarters of Recovery)Consumption & Housing vs. Exports & Investment
Personal Consumption
PrivateInvestment
USGov’t
Exports Imports GDP
AllianceBernstein.com
Historical analysis does not guarantee future results.*Including Italy at 1.1%, Spain 0.8%, Ireland 0.6%, Greece 0.1% and Portugal 0.1%Source: Bureau of Economic Analysis and AllianceBernstein
US Exports Continue to Grow Despite Slowdown in Europe
Canada19.5%
Other*38.0%
Germany3.8%
UK3.8%
S. Korea3.0%
Brazil2.7%
Netherlands2.6% Japan
4.7%
China7.0%
Mexico12.7%
Singapore2.2%
US Real Exports by Quarter: Jan 2000–Sep 2011 US Exports by Destination: 2010
US Exports by Product: 2010
Capital Equipment
40.0%
Other10.0%
Auto10.0%
Consumer Goods13.0%
Industrial Supplies27.0%
600
700
800
900
1,000
1,100
1,200
1,300
Mar 00 Dec 01 Sep 03 Jun 05 Mar 07 Dec 08 Sep 10
US
$ B
illio
ns
12
AllianceBernstein.com
US Capex Rising, Household Balance Sheets Stronger
0
200
400
600
800
1,000
1,200
90 94 98 02 06 10
US
$ B
illio
ns
Capex
Depreciation
8080808081818181828282828383838384848484858585858686868687878787888888888989898990909090919191919292929293939393949494949595959596969696979797979898989899999999000000000101010102020202030303030404040405050505060606060707070708080808090909091010101011111115
16
17
18
19
Pe
rce
nt
US Household Financial Obligations Ratio**
Historical analysis does not guarantee future results.*Through December 31, 2010 (latest available)**US household financial obligations as a percent of household income (through 3Q 2011).Source: Bureau of Labor Statistics, Federal Reserve Board and Haver Analytics
US Capex vs. Depreciation*
13
AllianceBernstein.com
US Housing Drag Expected to End
Historical analysis does not guarantee future results.Through December 30, 2011Source: Haver Analytics, US Census Bureau and AllianceBernstein
0
1,000
2,000
3,000
4,000
59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11
Household Formation Single and Multifamily Housing Starts
Average Rate of Household Formation
1.3 million
Th
ou
san
ds
14
AllianceBernstein.com
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Jan 10 May 10 Oct 10 Mar 11 Aug 11 Dec 11
Fear Drives Higher Correlation, Creating Distorted Valuations
Historical analysis does not guarantee future results.Left Chart: Through December 31, 2011. Right Chart: Through December 31, 2011*Correlation using rolling daily returns over 30 days. Correlation is a statistical measure of how two values move in relation to each other. Individuals cannot invest directly in an index. Please see the end of the presentation for index definitions.**Global developed large-cap stocks; represents the ratio of the most expensive quintile to the least expensive quintile of stocks. To provide a clear context on current equity valuation levels, data have been truncated to exclude the peak of the Internet bubble, when valuations surged to extreme levels.Source: Center for Research in Security Prices, Credit Suisse, MSCI, Standard & Poor’s and AllianceBernstein
Intra-Market Correlations Reach New Heights* Value Distortions at Historic Levels
Ra
tio (
×)
Tech Bubble(Truncated)
GlobalFinancial
Crisis
Global Equities Q5/Q1 Price/Book Spread**
MSCIWorld
S&P 500
Ra
tio
15
4
5
6
7
8
9
Jun 65 Aug 74 Oct 83 Dec 92 Feb 02 Apr 11
AllianceBernstein.com
Small- and SMID-Cap Equities Remain Strategically Attractive
Average Annual Total Return DuringSmall-Cap Bull Markets**Index Performance*
16
36.8%
30.9%
15.2%
5.1%
Historical analysis and past performance do not guarantee future results. *Through December 31, 2011Individuals cannot invest directly in an index. Please see the end of the presentation for index definitions. **As of September 30, 2011. Source of historical returns: CRSP®, Center for Research in Security Prices. Graduate School of Business, The University of Chicago, used with permission. All rights reserved. www.crsp.uchicago.edu. The performance has been calculated by BofA Merrill Lynch Small Cap Research. All rights reserved.Source: BofA Merrill Lynch Small Cap Research, CRSP, Russell Investment Group, Standard & Poor’s and AllianceBernstein
50
100
150
200
250
00 01 02 03 04 05 06 07 08 09 10 11
Pe
rce
nt Russell
2000
Russell 2500
S&P500
AllianceBernstein.com
Equity Income: Yields Now Match Treasuries and Have Grown over Time
Current analysis and past performance do not guarantee future results.*Through December 31, 2011Source: Bloomberg, BLS, Standard & Poor’s, US Treasury and AllianceBernstein
S&P 500 Dividend Yield vs. 10-Year US Treasury Yield*
Dividend Growth Rate
Consumer Price Index
1972–2010
Annual S&P 500 Dividend Growth vs. Inflation
S&P 500 Yield Greater
US Treasury Yield Greater
17
-12
-10
-8
-6
-4
-2
0
2
64 68 73 77 82 86 91 95 00 04 09
Pe
rce
nt
AllianceBernstein.com
Why Not Simply Invest in the Highest-Yielding Stocks?
Current analysis and past performance do not guarantee future results.*January 1978–November 2011; excludes non-dividend payers; annualized 36 month performance by quintile of dividend yield relative to the average return of the largest 1,500 US stocks.Source: AllianceBernstein
1st 2nd 3rd
Highest Yield Doesn’t Necessarily Win Highest Yield Is Not Most Resilient
Highest Yield
An
nu
aliz
ed
Exc
ess
Re
turn
1st 2nd
1st 2nd
2007 2008
Ann
ualiz
ed E
xces
s R
etur
nLowest Yield
18
Long-Term Excess Return by Dividend Yield Quintiles* Down-Market Excess Return by Dividend Yield Quintiles
4th 5th
AllianceBernstein.com
Inflation Spikes Can Decimate Traditional Stock/Bond Portfolios
US Inflation and Negative 60/40 Real ReturnsRolling 10-Year Annualized
-5
0
5
10
00 10 20 30 40 50 60 70 80 90 00 10
Pe
rce
nt
Negative 10-Yr 60/40 Real Returns
WWI Spike WWII Spike 1970s Spike
Deflation
Inflation
Past performance does not guarantee future results. This is a hypothetical example and is not representative of any AllianceBernstein product. An investor cannot invest directly in an index or average and they do not include sales charges or operating expenses associated with an investment in a mutual fund, which would reduce total returns.The portfolio comprises 60% stocks and 40% bonds; stocks are represented by the S&P 500 (with a Global Financial Data extension) and bonds by 10-year Treasuries. Inflation is measured by US CPI, US City Average, all items, not seasonally adjusted, through December 2010. Source: Global Financial Data, US Bureau of Labor Statistics and AllianceBernstein
19
AllianceBernstein.com
Dynamic Management Is Critical to Navigating Inflation Cycles
Historical analysis does not guarantee future results. Individuals cannot invest directly in an index. Diversification does not eliminate the risk of loss.December 1972–June 2011Data reflect averages of rolling one-year total returns measured quarterly. High (Low) Inflation represents periods where trailing one-year inflation rate was higher (lower) than its 1972–2011 average. High (Low) Growth represents periods where real GDP growth was higher (lower) than its 1972–2011 average.Inflation is measured by US Consumer Price Index, US City Average, all items, not seasonally adjusted. Growth is represented by US Real Gross Domestic Product, seasonally adjusted. Real Estate Stocks represented by NAREIT US Equity REIT Index. Natural Resource Stocks represented by equally weighted Energy and Metals equity sector returns (rebalanced monthly) from Ken French Data Library through 1998 and by MSCI ACWI Commodity Producers Index thereafter. Commodities represented by S&P GSCI Commodity Index through 1991 and by DJ-UBS Commodity Index thereafter. Diversified Equities represented by MSCI World Index. Individuals cannot invest directly in an index. Please see the end of the presentation for index definitions.Source: Bloomberg, Dow Jones, Ken French Data Library, MSCI, NAREIT, St. Louis Federal Reserve, Standard & Poor’s and AllianceBernstein
Low Growth/Low Inflation Low Growth/High Inflation
High Growth/Low Inflation High Growth/High InflationGrowth
Inflation
Average Annual Real Returns
12.5%
8.5%
13.6%15.3%
Real EstateStocks
Commodities NaturalResourceStocks
DiversifiedEquities
9.2%
0.9%
7.4%
2.1%
Real EstateStocks
Commodities NaturalResourceStocks
DiversifiedEquities
8.3%
12.1%
7.5%
1.9%
Real EstateStocks
Commodities NaturalResourceStocks
DiversifiedEquities
-6.3%
10.1%
5.0%
-7.8%Real Estate
StocksCommodities Natural
ResourceStocks
DiversifiedEquities
20
AllianceBernstein.com
High-Yield Corporate Bonds Historically Produce Equity-like Returns
Higher Yield, Higher Return PotentialBetter Risk/Return Trade-off
10.0% 9.3%
15.5%
8.1%
-0.5%
7.1%
19.0%
14.3%
Equity*Returns
High-Yield**Returns
Equity*Volatility
High-Yield**Volatility
Jul 1983–Nov 2011 Jan 2007–Nov 2011
21
0
500
1,000
1,500
2,000
95 97 99 01 03 05 07 09 11
Bas
is P
oint
s Scenario
ExcessExpected
Return
Spreads remain unchanged7.0%
Spreads narrow 100 b.p.11.53%
Spreads narrow tolong-term average
14.33%
Spreads widenanother 100 b.p.2.47%
+1 Std.Dev.
–1 Std.Dev.
Avg.
WorldCom/Enron
Historical analysis and current estimates do not guarantee future results.*Represented by the S&P 500**Represented by the Barclays Capital US Corp. High Yield IndexRight chart: Spreads are option adjusted. Average and standard deviation are for January 1995 through September 30, 2011.Expected return calculations are highly simplified and for illustrative purposes only. Assumptions: 12-month horizon; 4.53-year duration; change in spread (if any) occurs on last day of period.Source: Barclays Capital, Standard & Poor’s and AllianceBernstein
AllianceBernstein.com 22
High-Yield Municipals Remain Inexpensive
Past performance and historical analysis do not guarantee future results.Average and standard-deviation range are from 1995 through December 30, 2011. Spreads are to 10-yr AAA municipals.Expected return calculations are highly simplified and for illustrative purposes only. Assumptions: 12-month horizon; 8.5-year duration; change in spread (if any) occurs on last day of period.Source: Barclays Capital, Municipal Market Data Corp. and AllianceBernstein
Yield Advantage of Municipal High-Yield DebtRelative to AAA Municipals (Basis Points)
Scenario
Spreads widen 100 b.p.
Spreads narrow to long-term average
WorldCom/TMT Crisis
Spreads remain unchanged
-3.5%
5.0%
21.4%
Underperformanceof Real Estate
Bonds
1-YearExcessReturn
vs. AAA
+1 Std. Dev.
–1 Std. Dev.
Average
Post-9/11 Declinein Airline Bonds
Global Financial Crisis
Spreads narrow 100 b.p.13.5%
AllianceBernstein.com 23
“Roll” from AAA Municipals
Municipals: Roll* Even More Valuable When Yield Curve Is Steep
Past performance and current analysis do not guarantee future results.As of December 30, 2011 *Roll, or “rolling down the yield curve” refers to the expected price change of a bond as it ages; i.e. as its maturity shortens, its yield to maturity must fall/rise (and the bond’s price change accordingly) to reflect the respective shorter maturity’s yield.Source: Municipal Market Data Corp. and AllianceBernstein estimates for AAA-rated, callable municipal bonds
AAA Municipal Yields
Differential Between One-Year and 20-Year Bonds
Average
0.0
1.0
2.0
3.0
4.0
5.0
73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11
Per
cent
AAA Municipal vs. Treasury Yield Curve
0
1
2
3
4
1 2 3 4 5 6 7 10 15 20 25 30
Years to Maturity
Yie
ld
Treasury
AAA Municipals
0.0
0.5
1.0
1.5
2.0
2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Years to Maturity
Per
cent
AllianceBernstein.com 2424
States Can Pay Their Debts
24
Strategies Used by States to Reduce Budget Gaps Fiscal 2011
*Includes user fees, higher education-related fees, court-related fees, transportation/motor vehicle-related fees and business-related fees. **Gross State Product is represented by personal income.***Greece data for 2010 from CIA World Fact Book. State data from Moody’s as of May 2011.Source: Bureau of Economic Analysis, Eurostat, The Fiscal Survey of States, Fall 2010 and Spring 2011, state financial reports; Hellenic Republic Ministry of Economy and Finance, National Association of State Budget Officers, National Governors Association and AllianceBernstein
Number of States
States Are Not Drowning in Debt Like Greece
Government Debt Outstandingas a Percent of GDP or GSP**
19
19
17
20
19
38
20
16
3
4
Raise Taxes
Increase Fees*
Cut Employee Salary/Benefits
Layoffs
Furloughs
Targeted Budget Cuts
Across-the-Board Budget Cuts
Reduce Local Aid
Rainy Day Funds
Deficit Financing
143.0%
1.6%6.0% 6.8%
Greece*** Texas California New York
AllianceBernstein.com 25
High-Grade Bond Strategies: Exploit Roll and Global Opportunities
Past performance and current analysis do not guarantee future results.As of December 28, 2011*These returns are for illustrative purposes only and do not reflect the performance of any fund. Diversification does not eliminate the risk of loss. Returns represented by respective Barclays Capital country bond indices. An investor cannot invest directly in an index or average and they do not include sales charges or operating expenses associated with an investment in a mutual fund, which would reduce total returns.Source: Barclays Capital, Bloomberg, Haver Analytics, National Accounts, US Department of the Treasury and AllianceBernstein
Yield Curves Are Extremely Steep
0
1
2
3
4
3 Mo. 6 Mo. 2 Yr. 5 Yr. 10 Yr. 30 Yr.
US UK
Germany Canada
Developed-Market Yields Percent
4.4 7.0 8.4 10.0
2010
US Treasuries
5.9
Canada5.6
Euro Area1.0
UK7.2
Australia0.3
Japan2.9
Japan7.8
2008
Euro Area8.4
Canada 11.7
US Treasuries
13.7
Japan6.7
UK10.4
Australia15.1
2006
Canada4.6
Japan5.3
Euro Area1.8
UK0.9
Australia1.2
US Treasuries
3.1
Canada5.7
Euro Area3.1
UK4.7
US Treasuries
9.0
Australia2.0
2007 2009
Euro Area4.1
Canada –1.9
US Treasuries
–3.6
Japan1.4
UK–1.6
Australia–5.9
2009
6.9
Best
Worst
Gap betweenbest and worst
2011
US Treasuries
9.6
Canada8.2
Euro Area2.6
UK15.8
Australia8.4
Japan2.5
13.3
Country Returns Vary Significantly Across Cycles
Fixed-Income Country Returns Percent (USD Hedged*)
AllianceBernstein.com
Currency Remains Volatile
US Dollar Has Weakened over the Past Decade
Historical analysis does not guarantee future results. *Purchasing Power Parity–weighted returns**Historic volatility of developed currencies and historic volatility of the Barclays Capital Global Aggregate hedged to US dollarsThrough November 30, 2011Source: Barclays Capital, JPMorgan and AllianceBernstein
Currency Volatility Overwhelms Bond Volatility
Ind
ex
Pe
rce
nt
26
US Dollar vs. Basket of Developed Currencies* Historic Volatility**
40
60
80
100
120
140
160
180
200
80 83 86 89 92 95 98 01 04 07 100
2
4
6
8
10
12
01 02 03 04 05 06 07 08 09 10
Currency
Currency-Hedged Global Bonds
AllianceBernstein.com
The Big Picture
Stocks attractive based on long-term valuations, but volatility detracts in near term
We expect the global economic recovery to continue despite near-term risks, including potential policy errors and recent recession in Europe
Today’s markets present attractive investment opportunities:
While our view is that equities should be underweight strategic targets, equity income and small/SMID cap strategies are promising
Real-asset and high-yield strategies today offer equity-like return potential with low correlation
Municipals are attractive relative to taxable bonds
High-grade bonds should be managed globally and to exploit roll
Diversification does not eliminate the risk of loss.As of December 29, 2011
27
AllianceBernstein.com 28
Index Descriptions
Standard & Poor’s Index (S&P 500) Widely regarded as the best single gauge of the US equities market, this world-renowned index includes a representative sample of 500 leading companies in leading industries of the US economy. Although the S&P 500 focuses on the large-cap segment of the market, with more than 80% coverage of US equities, it is also an ideal proxy for the total market. The S&P 500 is part of a series of US indices that can be used as building blocks for portfolio construction. With close to $1 trillion in indexed assets, the S&P US indices have earned a reputation of being not only leading market indicators, but also investable portfolios designed for cost-efficient replication or the creation of index-linked products. (represents US Large Cap on slide 1)
The S&P GSCI (formerly the Goldman Sachs Commodity Index) serves as a benchmark for investment in the commodity markets and as a measure of commodity performance over time.
Morgan Stanley Capital International (MSCI) World Index is a market capitalization–weighted index that measures the performance of stock markets in 24 countries.
MSCI ACWI Index is a free float–adjusted market capitalization–weighted index designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI consists of 45 country indices comprising 24 developed and 21 emerging market country indices.
MSCI EAFE Index (Europe, Australasia, Far East) is a free float–adjusted market capitalization index that is designed to measure developed market equity performance, excluding the US and Canada. As of April 2002, the MSCI EAFE Index consisted of the following 22 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.
MSCI Emerging Market Index is a free float–adjusted market capitalization index designed to measure equity market performance in the global emerging markets. It consists of 21 emerging market country indices. (represents EM on slide 1)
MSCI USA Index is a free float–adjusted market capitalization index designed to measure large- and mid-cap US equity market performance. The MSCI USA Index is member of the MSCI Global Equity Indices and represents the US equity portion of the global benchmark MSCI ACWI Index.
MSCI Commodity Producers Index is free float–adjusted market capitalization–weighted index comprised of commodity producer companies based on the Global Industry Classification Standard (GICS®).
Barclays Capital Global Emerging Markets Index represents the union of the USD-denominated U.S. Emerging Markets Index and the predominately EUR-denominated Pan Euro Emerging Markets Index, covering emerging markets in the following regions: Americas, Europe, Middle East, Africa, and Asia. As with other fixed income benchmarks provided by Barclays Capital, the index is rules-based, which allows for an unbiased view of the marketplace and easy replicability. (represents EM Debt on slide 1)
Following are descriptions of the indices referred to in this presentation. It is important to recognize that all indices are unmanaged and do not reflect fees and expenses associated with the active management of a mutual fund portfolio. Investors cannot invest directly in an index, and its performance does not reflect the performance of any AllianceBernstein mutual fund.
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Index Descriptions (continued)
Barclays Capital 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 Corp on slide 1)
Barclays Capital Global High-Yield Index provides a broad-based measure of the global high-yield fixed-income markets. The Global High-Yield Index represents the union of the US High-Yield, Pan-European High-Yield, US Emerging Markets High-Yield, CMBS High-Yield and Pan-European Emerging Markets High-Yield Indices. (represents Global High Yield on slide 1)
Barclays Capital Municipal Bond Index is a rules-based, market-value-weighted index engineered for the long-term tax-exempt bond market. (represents Municipals on slide 1)
Barclays Capital US Corporate High Yield Index–2% Issuer Capped Bond Index covers the USD-denominated, non-investment-grade, fixed-rate taxable corporate bonds that are classified as high yield in the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. Excludes Emerging Markets. Caps issuers at 2%.
Barclays Capital US Treasury–US TIPs Index consists of Inflation-Protection securities issued by the US Treasury. (represents TIPS on slide 1)
Barclays Capital US Treasury Index includes fixed-rate, local currency sovereign debt that make up the US Treasury sector of the Global Aggregate Index. (represents US Gov’t on slide 1)
Barclays Capital Japan Treasury Index includes fixed-rate, local currency sovereign debt that make up the Japanese Treasury sector of the Global Aggregate Index. (represents Japan Gov’t on slide 1)
Barclays Capital Euro Treasury Index includes fixed-rate, local currency sovereign debt that make up the Euro Treasury sector of the Global Aggregate Index. (represents Euro Gov’t on slide 1)
Barclays Capital Canada Treasury Index includes fixed-rate, local currency sovereign debt that make up the Canadian Treasury sector of the Global Aggregate Index.
Barclays Capital Euro Area Treasury Index includes fixed-rate, local currency sovereign debt that make up the Euro Area Treasury sector of the Global Aggregate Index.
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Index Descriptions (continued)
Barclays Capital United Kingdom Treasury Index includes fixed-rate, local currency sovereign debt that make up the United Kingdom Treasury sector of the Global Aggregate Index.
Barclays Capital Australia Treasury Index includes fixed-rate, local currency sovereign debt that make up the Australian Treasury sector of the Global Aggregate Index.
DJ-UBS Total Return Commodity Index is an index consisting of exchange-traded futures on 19 physical commodities that are weighted to account for economic significance and market liquidity. (represents Commodities on slide 1)
FTSE EPRA/NAREIT Global Real Estate Index is designed to represent general trends in eligible real estate equities worldwide. (represents Global REITS on slide 1)
FTSE NAREIT US Equity Reit Index is designed to represent general trends in eligible real estate equities in the US.
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)
Russell 2500 Index measures the performance of the small- to mid-cap segment of the U.S. equity universe, commonly referred to as "smid" cap. The Russell 2500 is a subset of the Russell 3000® Index. It includes approximately 2,500 of the smallest securities based on a combination of their market cap and current index membership.
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