AB SUSTAINABLE INTERNATIONAL THEMATIC FUND - AllianceBernstein
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International/Global Core 1Q 3.31.22
AB SUSTAINABLE INTERNATIONAL THEMATIC FUND
Advisor Class: AWPYX
Growth stocks registered bear market declines during the first There are a number of causes for this phenomenon, many of which are
quarter of 2022 as investors grappled with the prospects of rising directly linked to the pandemic. Demand for physical goods surged
stagflationary pressures, higher interest rates and geopolitical while the pandemic forced workers to quarantine and disrupted
instability. While value stocks were the clear beneficiaries in the supply chains. The reopening of economies and subsequent
quarter, slower macro growth should present a meaningful challenge acceleration in demand further stressed already weakened supply
to cyclical and lower-quality businesses going forward. Quality growth chains.
companies linked to durable and less economically sensitive While there is some debate over how quickly prices will normalize
sustainable themes should be well positioned. once supply chains recover, most economists agree that we have
entered a new era of higher sustained prices.
Hawkish Central Bank Pivot
While many emerging-market countries had been tightening for a The impact of inflation-driven change in central bank tone was
year, most developed-market central banks maintained very sharply felt across equity markets, which declined meaningfully in
accommodative policies through 2021 to support financial markets January.
and their COVID-19-ravaged economies. Stocks are discounting mechanisms, and higher interest rates
As recently as October of 2021, for example, the consensus negatively impact the valuation of future earnings streams. This effect
expectation was for just a single US Fed rate hike in 2022. While is particularly severe for growth stocks, whose longer-duration
prices for goods were clearly rising, the Fed’s consistent narrative earnings profiles makes them especially vulnerable to rising rates.
throughout the year was that this inflation was merely “transitory” and The rotation to cheaper value stocks in January was a historic period,
bound to recede as pandemic-related changes waned. which Bernstein research ranked in the top 1% of all value moves
That narrative began to turn in 4Q:21, though, as Fed Chair Jerome since 1978. Additionally, it was a very “low-quality” rally. Stocks with
Powell became decidedly more hawkish in his November the lowest financial returns, slowest growth and worst balance
congressional testimony. Sentiment quickly shifted toward higher sheets—typically the cheapest stocks in the market—performed the
expectations for rate hikes and an accelerated tapering of bond best to start the year.
purchases. The Fed raised rates by 25 basis points in March and
Invasion
signaled the expectation for an additional six rate hikes before year-
end. Markets were further roiled in late February as Russian tanks rolled
across the Ukrainian border. In addition to the obvious human tragedy
Inflation to Rotation caused by this war, the impact on markets is also meaningful. The war
Maintaining price stability is a key function of central banks. The increases inflationary pressures, dampens economic growth and
recently surging—and evidently not transitory—global prices for heightens geopolitical uncertainty.
goods and services help explain the Fed’s tone shift along with other Energy prices have continued to spike, as have other commodities
central banks in recent months. such as wheat. Ukraine accounts for one-fourth of global grain
The US Consumer Price Index (CPI), for instance, reached 7.9% on a exports and plays an important role in the global semiconductor
year-over-year basis in February. This was the highest reading in 40 supply chain, which is already stretched thin.
years, meaning consumers are grappling with price increases for While the direct global impact of sanctions against Russia is likely
gasoline, food, used cars and housing that have not been seen in a minor given the small size of Russia’s economy, the derivative impacts
generation. Even after removing more volatile food and energy prices, could be much more severe. We perceive an escalation of
core CPI still rose 6.4%. cyberwarfare, which may be the most likely Russian countermeasure
Investors should considerthe investment objectives, risks, charges and expenses ofthe Fund/Portfolio carefully before investing. For copies of
ourprospectusorsummaryprospectus,whichcontainthisandotherinformation,visitusonlineatwww.abfunds.comorcontactyourABrepresentative.
Please read the prospectus and/or summary prospectus carefully before investing.
Investment Products Offered • Are Not FDIC Insured • May Lose Value • Are Not Bank GuaranteedAB SUSTAINABLE INTERNATIONAL THEMATIC FUND
Advisor Class: AWPYX 1Q 3.31.22
to elevated sanctions. The US and other Western economies are cutting and free-cash-flow generation. Also, as the coronavirus
heavily dependent on IT infrastructure and therefore vulnerable to omicron variant declined in the US early in the year, travel demand
cyberattacks. There is some precedent for this. In 2017, the sentiment began to improve, which will ultimately drive airlines to
“NotPetya” cyberattack on Ukraine, which was widely blamed on resume new plane ordering. Long term, Hexcel will benefit from
Russia, permanently encrypted data on computers and caused $10 secular growth in carbon fiber demand to lightweight planes, helping
billion of damage globally. to improve fuel efficiency and decarbonize the hard-to-abate airline
industry.
Fund Performance
Vestas Wind Systems, a wind power equipment manufacturer from
For the first quarter, the AB Sustainable International Thematic Fund our Climate theme, contributed for the quarter. The company has
declined in absolute terms and underperformed its benchmark, the raised prices over the past several quarters, including an increase of
MSCI ACWI ex US Index, which returned –5.44%. A historic rotation to 20% in the just-reported quarter, which is helping to alleviate investor
value leadership in the market proved to be a significant headwind. concerns regarding the drag on profitability from input cost inflation.
We take some comfort from the fact that we’ve been here before. Looking forward, Vestas Wind Systems should benefit from strong
There have been three major style rotations over the past six years, secular growth in annual wind power installations driven by
and yet our Portfolios have outperformed over this time period, as decarbonization of the world’s energy sources. The EU’s focus on
value rotations tend to be short-lived and the durability of our themes energy security in response to the Russia-Ukraine crisis is likely to
is rewarded consistently by investors. We also take note that accelerate the pace of renewable power investments.
valuations for quality growth stocks appear quite attractive following
the sell-off, with our own Portfolio’s forward expected rate of return Aflac, from our Empowerment theme, contributed during the quarter
toward the upper end of our targeted 12%–15% range. and continues to see strong cash-flow-led growth. EPS grew 19.6%
on the year, ahead of market expectations driven by improving
Partners Group, from our Empowerment theme, detracted during the investment returns in Japan and the US, as the balance sheet
period, as the stock reacted negatively to the threat of lower exit responds to firmer interest rates. Premium growth remains muted due
prices in private equity markets from a combination of higher inflation to pandemic-related issues; however, profitability continues to be
expectations, a more hawkish Fed and geopolitical tensions strong with the return on equity increasing from 11.5% to 12.4%.
stemming from the war in Ukraine. However, fundamentals remain
strong, and ample cash in the private equity market remains steady Outlook
and allows investment funds the opportunity to invest at lower Rather than try to predict market shifts (which, historically, is very
valuation levels. difficult to do), we think investors can benefit by focusing on
TOMRA, from our Climate theme, is a manufacturer of recycling- companies associated with long-term sustainable themes driven by
collection vending machines and automated sorting equipment for monumental global challenges. Our research into these areas suggest
solid waste recycling facilities. The stock detracted during the quarter, that through the market volatility of 2022, powerful secular transitions
showing weakness as a result of a general rerating of growth-oriented not only remain intact but, in cases such as the energy transition to
stocks in anticipation of rising interest rates as well as concerns over renewables and the shift to hybrids and electric vehicles, are actually
the impact of cost inflation on profit margins. TOMRA fundamentals accelerating due to recent events in Ukraine.
remain strong, highlighted by 16% revenue growth in 4Q:21 and solid Countries representing 90% of the world’s GDP have pledged to meet
order growth that resulted in a 25% increase in the year-end backlog. net-zero carbon goals by mid-century. Companies that provide the
The company should benefit from continuing expansion of recycling solutions that will help countries achieve their net-zero ambitions—
regulations in the EU and labor shortages in waste management. including clean energy, transportation and resource efficiency
Shares of Erste Group Bank, from our Empowerment theme, solutions—have strong multi-decade growth opportunities. Today,
detracted during the quarter, as the central and eastern European less than half of the global population is covered by essential health
bank sold off around the crisis in Ukraine. The company’s services and roughly one-quarter are food insecure and lack access to
geographical footprint shares borders with Ukraine in some safely managed drinking water. Health-related themes like
jurisdictions. However, Erste has no direct Ukrainian or Russian broadening access to healthcare, food security and clean water
exposure and does not expect any additional risk provisions. Return benefit from similarly attractive long-term demand. And as the global
on equity remains strong at 13%, and the company provided population swells by mid-century, we will be faced with massive
guidance this year for mid-single digit loan growth with a pickup in net empowerment challenges relating to housing, educating,
interest income as rates rise. Erste fundamentals remain strong with transporting, employing and building the economic resilience of
increasing revenues, net profit and strong fee growth. roughly two billion additional people.
Hexcel, a manufacturer of carbon fiber and composite materials for Forecasting short-term twists and turns in the economic cycle with
lightweighting airplanes and wind turbines, from our Climate theme, any accuracy or consistency has always been challenging. It’s been
was a contributor. Despite currently subdued new plane even tougher to consistently predict how market participants will
manufacturing levels, the company executed well in the most recent react—or overreact—to changes in the economy.
quarter and delivered better-than-expected profit margins, costAB SUSTAINABLE INTERNATIONAL THEMATIC FUND Advisor Class: AWPYX 1Q 3.31.22 One advantage of sustainable investing is that we don’t have to call As always, thank you for your continued support. those short-term twists and turns correctly to create value over time. Dan Roarty Rather, we focus on the fundamental strength and long-term appeal of our sustainable themes. Sustainable themes have obvious longer- term tailwinds, many of which have only been strengthened during the COVID-19 crisis. Current forecasts and performance are no guarantee of future results. References to specific securities are presented to illustrate our investment philosophy and are not to be considered advice or recommendations. This information reflects prevailing market conditions and our judgments as of the date indicated, which are subject to change. In preparing this presentation, we have relied upon and assumed without independent verification, the accuracy and completeness of all information available from third-party sources. It should not be assumed that any investments made in the future will be profitable or will equal the performance of the selected investments referenced herein.
AB SUSTAINABLE INTERNATIONAL THEMATIC FUND
Advisor Class: AWPYX 1Q 3.31.22
PORTFOLIO INFORMATION
Class Ticker Inception Date Top Ten Holdings6
A AWPAX 6/2/94 Company Sector
C AWPCX 2/8/95 STERIS PLC Healthcare 2.82%
Advisor AWPYX 10/1/96 Vestas Wind Systems A/S Industrials 2.74
I AWPIX 3/1/05 Partners Group Holding AG Financials 2.69
Z AWPZX 7/26/21 Alcon, Inc. Healthcare 2.63
STMicroelectronics NV Information Technology 2.63
Portfolio Characteristics Portfolio Benchmark1 Erste Group Bank AG Financials 2.62
Total Number of Holdings 53 2301 HDFC Bank Ltd. Financials 2.54
P/E Ratio Nestle SA Consumer Staples 2.46
(Stock Price/Earnings; last 12 mo) 23.39x 15.07x~ Dassault Systemes SE Information Technology 2.40
Forward P/E Ratio (2022) 20.62x 13.45x SMC Corp. Industrials 2.37
ROE (Return on Equity; next 12 mo) 15.77% 13.88%
Weighted Market Cap ($ Billions) 65.0 90.4 Sector Breakdown6 Portfolio Benchmark1
EPS (Earnings per Share) Growth Rate Financials 19.38% 20.56%
(2022/2021) 14.61% 12.31% Information Technology 18.41 12.21
EPS Growth (5 yr history) 11.08% 13.21% Healthcare 17.27 9.37
Sales Growth (5 yr history) 7.52% 8.05% Industrials 14.82 12.23
Consumer Discretionary 7.62 11.07
Portfolio Statistics Materials 6.74 8.92
Beta (3 yr)2 0.93 Consumer Staples 5.56 8.43
Sharpe Ratio (3 yr)3 0.63 Utilities 1.91 3.18
Standard Deviation (3 yr)4 17.03 Energy 1.88 5.39
Alpha (3 yr)5 4.24 Communication Services 1.26 6.16
Real Estate — 2.47
Country Breakdown6 Other 5.15 –
United States 13.90%
Switzerland 10.99 Net Currency Exposure6
Netherlands 8.12 Euro 17.18%
United Kingdom 7.50 Japanese Yen 13.44
France 6.62 Pound Sterling 9.33
Germany 6.09 Canadian Dollar 8.05
Denmark 5.97 Swiss Franc 6.79
Sweden 4.62 Other 45.21
Japan 4.37
Other 31.82 Top Five Contributors7 Top Five Detractors7
London Stock Exchange Partners Group Holding
Hexcel Corp. TOMRA Systems
Vestas Wind Systems Erste Group Bank
Aflac, Inc. Shenzou Intl
ASML Holding NV Puma SE
1 MSCI AC World ex-US Index (net).
2 Beta measures a fund’s volatility relative to its benchmark.
3 Sharpe Ratio is a measure of the fund’s return relative to the investment risk it has taken. A higher Sharpe Ratio means the fund’s returns have been better given the level of risk the fund has
taken.
4 Standard Deviation is a measure of the dispersion of a portfolio’s return from its mean.
5 Alpha is the risk-adjusted measurement of ‘excess return’ over the benchmark.
6 Holdings are expressed as a percentage of total investments and may vary over time. They are provided for informational purposes only and should not be deemed as a recommendation to
buy or sell the securities mentioned.
7 Contribution based on absolute returns as of quarter end.AB SUSTAINABLE INTERNATIONAL THEMATIC FUND
Advisor Class: AWPYX 1Q 3.31.22
QUARTERLY AVERAGE ANNUAL TOTAL RETURNS AS OF 03/31/22: ADVISOR CLASS PERFORMANCE
Since Expense Ratios
QTD YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Inception as of 10/29/21
Sustainable International Thematic† -14.21% -14.21% -5.96% 11.44% 8.81% 6.13% 6.71% Gross 0.86%
Net‡ —
MSCI AC World ex-US Index (net) -5.44 -5.44 -1.48 7.51 6.76 5.55 5.36
MSCI AC World ex-US Index (gross) -5.33 -5.33 -1.04 8.01 7.26 6.04 5.74
MSCI World ex-US Index (net) -4.81 -4.81 3.04 8.55 7.14 6.25 5.20
Morningstar Foreign Large Growth Category -13.43 -13.43 -6.83 9.62 8.92 7.29 5.36
The performance shown above represents past performance and does not guarantee future results. Current performance may be lower or higher than the
performance information shown. You may obtain performance information current to the most recent month-end by visiting www.abfunds.com. The
investment return and principal value of an investment in the Portfolio will fluctuate, so that your shares, when redeemed, may be worth more or less than
their original cost. Advisor Class shares have no front-end or contingent deferred sales charges, however when purchased through a financial advisor
additional fees may apply. Returns for other share classes will vary due to different charges and expenses. Performance assumes reinvestment of
distributions and does not account for taxes. If applicable, high double-digit returns are highly unusual and cannot be sustained; such returns are primarily
achieved during favorable market conditions.
† The Fund’s Advisor Class share inception date is 10/1/96 and is the date used to calculate since inception annualized performance.
‡ If applicable, this reflects the Adviser’s contractual waiver of a portion of its advisory fee and/or reimbursement of a portion of the Fund’s operating
expenses. Absent reimbursements or waivers, performance would have been lower.
MSCI AC (All Country) World ex-US Index (free float-adjusted market capitalization weighted) represents the equity market performance of developed and emerging markets, excluding the United
States. MSCI World ex-US Index (free float-adjusted market capitalization weighted) represents the equity market performance of developed markets, excluding the United States. Net index
reflects the reinvestment of dividends. 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. Investors
cannot invest directly in indices or averages, and their performance does not reflect fees and expenses or represent the performance of any AB fund.
Sources: FactSet, Morningstar Inc. and AB.
A WORD ABOUT RISK
Market Risk: The market values of the portfolio’s holdings rise and fall from day to day, so investments may lose value. Foreign (Non-US) Risk: Non-US securities
may be more volatile because of political, regulatory, market and economic uncertainties associated with such securities. Fluctuations in currency exchange rates may
negatively affect the value of the investment or reduce returns. These risks are magnified in emerging or developing markets. Capitalization Size Risk (Small/Mid):
Small- and mid-cap stocks are often more volatile than large-cap stocks—smaller companies generally face higher risks due to their limited product lines, markets
and financial resources. Derivatives Risk: Investing in derivative instruments such as options, futures, forwards or swaps can be riskier than traditional investments,
and may be more volatile, especially in a down market. ESG Risk: Applying ESG and sustainability criteria to the investment process may exclude securities of certain
issuers for nonfinancial reasons and, therefore, the Fund may forgo some market opportunities available to funds that do not use ESG or sustainability criteria.
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of
AllianceBernstein L.P., the Adviser of the funds. The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein is a UMF-262575-2022-04-13
registered service mark used by permission of the owner, AllianceBernstein L.P. © 2022 AllianceBernstein L.P. www.abfunds.com IG-EC11-0322You can also read
