Global Capital Markets Outlook - Finding Sea Legs in the Storm - AllianceBernstein
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Global Capital
Markets Outlook
Finding Sea Legs in the
Storm
Second Quarter 2022
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.1Q 2022 Returns Recap
Returns in US Dollars
1Q:2022 One-Year 24 Mar 2020–31 Mar 2022
Returns (Percent) Returns (Percent) Returns (Percent)
World –5.2 10.1 96.4
US –4.6 15.7 109.0
Equities Europe –7.4 3.5 74.8
Japan –6.6 –6.5 48.3
Emerging-Market –7.0 –11.4 57.3
Global High-Yield –5.7 –3.8 29.3
Credit Emerging-Market Debt –10.0 –7.4 14.6
Global Corporate –6.8 –4.4 8.7
Government US –5.6 –3.7 –7.6
Bonds
Japan –7.0 –10.5 –10.6
Euro-Area –5.0 –5.6 –2.4
Alternatives Commodities 25.6 49.3 101.1
Assets Global REITs* –3.6 20.0 100.2
Long/Short Equity –2.8 4.2 42.7
Alternative Relative Value 0.5 4.3 24.7
Strategies† Event-Driven –1.2 3.3 42.6
Macro 7.7 24.3
11.4
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 Diversified. 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 Index Definitions in the Appendix).
As of 31 March 2022; Relative Value, Event-Driven, and Macro returns for the third column are from 1 April 2020 to 31 March 2022
Source: Bloomberg Barclays, Hedge Fund Research, J.P. Morgan, Morningstar, MSCI, Standard & Poor’s (S&P) Dow Jones and AB
Global Capital Markets Outlook 2A Tale of Two Halves: S&P Prices First Reflected Aggressive Central Banks
and Then Added Global Conflict
Repricing meets geopolitical conflict and the impact of accelerating sanctions
Repricing: Inflation, the Fed and Rates Russian Invasion Economic Sanctions Ramp Up
4,900
All-Time High
4,800
Dec FOMC Meeting Minutes
Istanbul Peace Talks Fail
4,700
Meta 4Q Jan CPI
Dec Earnings Report Start of Istanbul
4,600 Payrolls Peace Talks
“Imminent Russian
Dec CPI Threat” Significant Ruble
Report Jan FOMC 2/10
4,500 Depreciation
Meeting Increased Inverts
Fighting by
4,400 Separatists WTI Oil
Breaks $100/bbl Russia Says It Will
Reduce Operations
4,300 Near Kiev
First Economic Fed Raises Rates 25 b.p.
4,200 Sanctions Issued US Oil
Embargo
Russia Invades Ukraine Rumored Feb CPI Report
4,100
1/3 1/7 1/11 1/15 1/19 1/23 1/27 1/31 2/4 2/8 2/12 2/16 2/20 2/24 2/28 3/4 3/8 3/12 3/16 3/20 3/24 3/28
Historical analysis and current forecasts do not guarantee future results.
b.p.; basis points; FOMC: Federal Open Market Committee
Through 31 March 2022
Source: Bloomberg and AB
Global Capital Markets Outlook 3Inflationary Pressures Piling On
Pandemic Reopening Drivers Geopolitical Drivers
• Strong labor market boosting household income • Rising commodity prices due to the invasion of Ukraine
• Accumulated savings from past fiscal support • Potential supply shortages for commodities in Europe
• Robust demand for goods associated with lifestyle transitions • China’s zero-COVID policy and renewed lockdowns
• Supply-chain disruptions globally • Politicians facing pressure to ease the stress on households
• Transportation bottlenecks domestically
• Rising wages for service industries
Historical analysis and current forecasts do not guarantee future results.
As of 31 March 2022
Source: AB
Global Capital Markets Outlook 4Geopolitics Push Inflation Risks to the Upside…
Balance of Risks Pushing Out the Inflation Normalization Timeline
Inflation AB global inflation forecasts (percent)
5.5
The upside risk has become the base case for inflation:
persistent inflation raises elevated risks that expectations 5.0
drift, and rising commodity prices hit consumers directly 4.5
and immediately 2022
4.0
50% 50% 3.5
45%
40% 3.0
2021 2023
2.5
2.0
10% Fed’s Target Inflation Rate
5% 1.5
1.0
Downside Central Upside Apr Aug Dec Apr Aug Dec Apr
20 20 20 21 21 21 22
Mar Apr
Historical analysis and current forecasts do not guarantee future results.
As of 31 March 2022
Source: AB
Global Capital Markets Outlook 5…Driving More Aggressive Rate Expectations
Upper Bounds of Federal Funds Rate (FFR) Through Time Fed and Market Expectations (Percent)
Percent
2021 2022 2023 2024 Longer Run 7
3.75 — — ●● ●● — Expected Expected
FFR (Market) FFR (Fed)
3.50 — — ● ●● — 6
YE 22 2.5% 1.9%
3.25 — ● ●● ● — YE 23 3.2% 2.8%
YE 24 N/A 2.8%
3.00 — — ●●● ●●● ●● 5
LR N/A 2.4%
2.75 — ● ●●● ●● —
2.50 — ●●● ●●●● ●●● ●●●●●● 4
2.25 — ●● ● ●●● ●●●●●●
Market Implied FFR
2.00 — ●●●●● — — ● 3
1.75 — ●●● — — — YE YE
1.50 — ● — — — 2 23 24 LR
1.25 — — — — — YE
22
1.00 — — — — — 1
0.75 — — — — — Median Fed
Dot Plot
●●●●●●●●●●● 0
0.00 — — — —
●●●●●●● 06 08 10 12 14 16 18 20 22 24 LR
Historical analysis and current forecasts do not guarantee future results.
YE: year-end; LR: longer run
As of 11 April 2022
Source: Bloomberg, US Federal Reserve and AB
Global Capital Markets Outlook 6The Market Started “Tightening” Months Ago
Two-Year Treasury (Percent) Goldman Sachs Financial Conditions Index
2.5 102
Two-Year
Treasury Yield 101
2.0
30 Sep 2021 0.27%
31 Dec 2021 0.73% 100
1.5 28 Feb 2022 1.43%
31 Mar 2022 2.33% 99
1.0
98
0.5
97
0.0 96
Oct Dec Feb Apr Jun Aug Oct Dec Feb Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr
20 20 21 21 21 21 21 21 22 20 20 20 20 21 21 21 21 22 22
Historical analysis and current forecasts do not guarantee future results.
Through 7 April 2022
Source: Bloomberg, Goldman Sachs and AB
Global Capital Markets Outlook 7Compounded Inflationary Pressures Reduce Growth Expectations
Balance of Risks: Growth Growth Impact from Rising Rates Growth Impact from Russia
• Increased incentive to save • Higher commodity prices reduce
55%55% demand more broadly
• Higher discount rate for business
investment • Geopolitics can hurt consumer
confidence
40% 40%
• Cost of capital rising
• Friction between economies with
• Financial market stress reducing wealth different vulnerabilities
• Fears of recession can become self- • Business investment in Europe
fulfilling
• Long-term energy investment
uncertainty
5% 5%
Downside Central Upside
Mar Apr
Historical analysis and current forecasts do not guarantee future results.
As of 31 March 2022
Source: AB
Global Capital Markets Outlook 8Rising Energy Prices Disproportionately Hitting Europe
Monthly Average (1 January 2019 = 100)
700
European Natural Gas
600
500
400
300
Crude Oil
200
Retail Gasoline (US)
100
US Natural Gas
0
Jan 19 May 19 Sep 19 Jan 20 May 20 Sep 20 Jan 21 May 21 Sep 21 Jan 22
Historical analysis and current forecasts do not guarantee future results.
Through 31 March 2022
Source: Refinitiv and AB
Global Capital Markets Outlook 9Yield Curve as a Forecast: A Brief History
The Yield Curve Has Flattened Precipitously Timing Matters Too
Indexed to peak in yields
120 350
Recession US Treasury 10-
Year–Two-Year
300
100 Spread
250
80
200
Basis Points
60 150
2014–2019
40 100
1992–1998 50
20
0
0
2003–2006 –50
2021–Present
–20 –100
13
25
37
49
61
73
85
97
1
109
121
133
145
157
169
181
193
205
217
229
241
253
265
277
289
301
313
85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21
Weeks into Cycle
Historical analysis and current forecasts do not guarantee future results.
As of 31 March 2022
Source: Bloomberg and AB
Global Capital Markets Outlook 10Yield Curve as a Forecast: Here’s Three More Ways to Look at It
Near-Term Forward Spread and Real Yields (Percent) ISM Manufacturing and Recessions
Recessions (Percent)
3.0 4 70
2.5 3 65
2007
2.0 2
60
1.5 1
2019 55
1.0 0
50
0.5 –1
45
0.0 –2
40
–0.5 –3
Current
–1.0 –4 35
–1.5 –5 30
97 99 01 03 05 07 09 11 13 15 17 19 21 1 2 3 4 5 6 7 8 9 10 85 88 91 94 97 00 03 06 09 12 15 18 21
Maturity
Historical analysis and current forecasts do not guarantee future results.
As of 31 March 2022
Source: Bloomberg and AB
Global Capital Markets Outlook 11Strong Consumer Supports Economic Backdrop
Real Wages Total Liquid Assets and the Long-Term Trend (USD Trillions)
Income outpacing inflation
16 16,000
Nominal Paycheck
14
14,000
12
Actual
10
12,000
Year over Year (Percent)
8
6 10,000
4
Trend
2 8,000
0
6,000
–2
–4
Real Paycheck 4,000
–6
–8 2,000
12 13 14 15 16 17 18 19 20 21 22 99 01 03 05 07 09 11 13 15 17 19 21
Historical analysis and current forecasts do not guarantee future results.
Through 31 March 2022
Source: Bloomberg and AB
Global Capital Markets Outlook 12Macro Summary
Global growth to see meaningful slowdown in 2022
AB Global Economic Forecast: April 2022
Real Growth (Percent) Inflation (Percent) Official Rates (Percent) Long Rates (Percent)
22F 23F 22F 23F 22F 23F 22F 23F
Global 2.8 2.8 5.2 3.1 2.67 2.77 2.86 3.04
Industrial Countries 2.2 1.7 4.9 2.3 0.93 1.38 1.60 1.93
Emerging Countries 3.8 4.5 5.7 4.3 5.25 4.82 4.76 4.70
US 2.8 1.9 4.5 2.5 1.88 2.75 2.75 3.25
Euro Area 0.5 1.0 6.5 2.0 –0.50 –0.25 –0.10 0.00
UK 3.0 1.5 7.5 3.5 2.00 2.00 2.00 2.25
Japan 2.5 2.0 1.5 1.5 –0.10 0.25 0.25 0.50
China 5.3 5.4 1.9 2.3 2.00 2.00 3.00 3.10
Past performance and current analysis do not guarantee future results.
Growth and inflation forecasts are calendar-year averages. Interest rates are year-end forecasts. Real growth aggregates represent 48 country forecasts, not all of which are
shown. Long rates are 10-year yields.
As of 31 March 2022
Source: AB
Global Capital Markets Outlook 132022 Earnings Growth Expected to Moderate as Policy Supports Weaken
and Consumers Return to Pre-Pandemic Spending Habits
S&P 500’s Expected Bottom-Up Negative Guidance Rising Positive Guidance Falling
Earnings Set to Fall Before Slow
Growth
70 100 70
90
60 60
80
50 70 50
60
40 40
50
30 30
40
20 30 20
20
10 10
10
0 0 0
2Q: 3Q: 4Q: 1Q: 2Q: 3Q: 4Q: 1Q: 2Q: 3Q: 4Q: 4Q: 3Q: 1Q: 3Q: 1Q: 3Q: 1Q: 3Q: 1Q: 3Q: 1Q: 3Q: 1Q: 3Q: 1Q: 3Q: 1Q:
20 20 20 21 21 21 21 22* 22* 22* 22* 23* 18 19 19 20 20 21 21 22 18 19 19 20 20 21 21 22
Historical analysis and current forecasts do not guarantee future results.
*FactSet estimate
As of 31 March 2022
Source: FactSet and AB
Global Capital Markets Outlook 14Valuations: Finding a “Fair Value” in a Tightening and More Uncertain
Market
S&P 500 Trailing and Forward P/Es
33
Time Period P/E P/FE1 P/FE2 P/FE3
31 March 2022 23.4 20.1 18.3 16.2
28
Five-Year Average 22.6 19.9 17.5 15.8
Pre-Pandemic* 21.9 19.3 17.3 15.5
23
10-Year Average 20.1 18.0 16.0 14.3
Average Since 2000 19.6 17.3 15.2 13.8
18
Pre-Pandemic Five-Year Average 19.5 17.6 15.8 14.2
Average P/E When FFR Is 0% 19.2 17.0 15.0 13.4
13
Average P/E When Rates Increasing† 19.2 17.1 15.4 14.2
January 2014–November 2016 18.5 17.0 15.3 13.6
8
10 11 12 13 14 15 16 17 18 19 20 21 22
Trailing 12 Months P/E CY 2022 P/E
CY 2023 P/E CY 2024 P/E
Historical analysis and current forecasts do not guarantee future results.
Price/earnings (P/E) is for the trailing 12 month; price/forward earnings (P/FE)1 is for the calendar year 2022; P/FE2 is for the calendar year 2023; P/FE3 is for the calendar year
2024.
*21 February 2020. †Last two Fed cycle hikes
As of 31 March 2022
Source: Bloomberg and AB
Global Capital Markets Outlook 15Scenario Chart: Choose Your Own Adventure
S&P 500 Return Scenario Chart
2022
15 16 17 18 19 20 21 22 23 S&P Price Level 2022 Price Return*
205 3,075 3,280 3,485 3,690 3,895 4,100 4,305 4,510 4,715 3,655 –19.3%
210 3,150 3,360 3,570 3,780 3,990 4,200 4,410 4,620 4,830 3,960 –12.6%
215 3,225 3,440 3,655 3,870 4,085 4,300 4,515 4,730 4,945 4,180 –7.7%
220 3,300 3,520 3,740 3,960 4,180 4,400 4,620 4,840 5,060 4,275 –5.6%
225 3,375 3,600 3,825 4,050 4,275 4,530 4,725 4,950 5,175 4,530 0.0%
230 3,450 3,680 3,910 4,140 4,370 4,600 4,830 5,060 5,290 4,620 2.0%
235 3,525 3,760 3,995 4,230 4,465 4,700 4,935 5,170 5,405 4,725 4.3%
240 3,600 3,840 4,080 4,320 4,560 4,800 5,040 5,280 5,520 4,830 6.6%
245 3,675 3,920 4,165 4,410 4,655 4,900 5,145 5,390 5,635 4,935 8.9%
2023
15 16 17 18 19 20 21 22 23 S&P Price Level 2023 Price Return†
230 3,450 3,680 3,910 4,140 4,370 4,600 4,830 5,060 5,290 3,840 –7.9%
235 3,525 3,760 3,995 4,230 4,465 4,700 4,935 5,170 5,405 4,000 –6.0%
240 3,600 3,840 4,080 4,320 4,560 4,800 5,040 5,280 5,520 4,250 –3.1%
245 3,675 3,920 4,165 4,410 4,655 4,900 5,145 5,390 5,635 4,335 –2.2%
250 3,750 4,000 4,250 4,530 4,750 5,000 5,250 5,500 5,750 4,530 0.0%
255 3,825 4,080 4,335 4,590 4,845 5,100 5,355 5,610 5,865 4,655 1.4%
260 3,900 4,160 4,420 4,680 4,940 5,200 5,460 5,720 5,980 4,845 3.4%
270 4,050 4,320 4,590 4,860 5,130 5,400 5,670 5,940 6,210 5,000 5.1%
275 4,125 4,400 4,675 4,950 5,225 5,500 5,775 6,050 6,325 5,200 7.1%
Historical analysis and current forecasts do not guarantee future results.
*Based on S&P 500’s closing price of 4,530. †Annualized return based on same closing price
As of 31 March 2022
Source: Bloomberg and AB
Global Capital Markets Outlook 16Equity
Global Capital Markets Outlook 17Systematic Repricing, but Opportunities Remain
Value and energy dominate; growth and quality underperform
1Q Returns Historical 4Q:21 1Q:22
(Percent) P/FE P/FE P/FE
Russell 1000 Value –0.7 14 17 16
S&P 500 –4.6 15 21 19
Index MSCI EAFE –5.8 13 15 14
Russell 2000 –7.5 21 25 22
Russell 1000 Growth –9.0 17 30 26
Value –1.5 13 16 15
Small Cap –5.9 20 20 18
Factor* Momentum –7.4 20 24 20
Quality –8.8 17 25 22
Growth –9.0 18 34 30
Energy 39.0 16 11 11
Utilities 4.8 15 21 21
Consumer Staples –1.0 17 22 21
Financials –1.5 13 15 14
Materials –2.4 15 17 16
Sector Industrials –2.4 15 21 20
Healthcare –2.6 15 18 17
Real Estate –6.3 39 51 45
Technology –8.4 16 28 24
Consumer Discretionary –9.0 17 30 26
Communication Services –11.9 14 20 17
Current analysis does not guarantee future results.
Historical P/FE is the average from 7 January 2005 to 21 February 2020
P/FE is the blended forward 12-months price/earnings ratio calculated by dividing the price of the security by Bloomberg Estimates (BEst) EPS
*MSCI USA Factor indices; 1Q returns are total return
As of 31 March 2022. Source: Bloomberg, FTSE Russell, MSCI and S&P
Global Capital Markets Outlook 18P/E Multiple Upside Remains Limited, and Look Beyond Mega-Caps
A case for being active
Tighter Financial Conditions Constrain P/Es Valuation Premium of 10 Largest Stocks by Market Cap
vs. Rest of S&P 500
23 95 Easing 70 80
S&P 500 P/E (Left Scale)
96
21 70
60
97
19 Premium (Right Scale)
60
98 50
P/E Ratio (×)
17
99 50
Index Level
P/E Ratio
Percent
40
15 100 10 Largest P/FE
40
101 30
13
30
102
11 Goldman Sachs 20
Financial 103 20
Conditions Index
9 10
104 10
The Rest P/FE Whole Index P/FE
7 105 Tightening
06 08 10 12 14 16 18 20 22 0 0
18 19 20 21 22
Historical analysis and current forecasts do not guarantee future results.
All data are for S&P 500
Left display through 31 March 2022; right display through 1 March 2022
Source: Bloomberg, Goldman Sachs, S&P and AB
Global Capital Markets Outlook 19Anatomy of an Inflation vs. an Economic Growth Scare
Radically different factor performance over distinct sell-offs
Lower Quality and Value Higher Quality and Growth
20
High–Low Quintile Performance
15
10
5
(Percent)
0
–5
–10
–15
–20
Low Price to Low P/E High Div High FCF High ROA High ROE Stable Sales Stable
Book Yield Yield Growth Earnings
Growth
Feb/Mar 2020 1Q 2022
Past performance does not guarantee future results.
Factor performance difference between highest ranked and lowest ranked quintiles. Low Price to Book Value, Low Price to Earnings, High Dividend Yield, High Free-Cash-Flow
Yield, High Return on Assets, High Return on Equity, Stable Sales Growth and Stable Earnings Growth
As of 31 March 2022
Source: AB
Global Capital Markets Outlook 20Slower Economic and Earnings Growth Calls for a Quality Bias
Declines in New Orders Tend to Dampen Positive Earnings A Quality Checklist for the Current Environment
Revisions: This Has Been Taking Hold
90 75 Attributes Quality Value Profitable Growth
S&P 500 Company Positive
80 EPS Revisions—Up/Total, High/Stable Profits
70
IBES (Left Scale)
Strong Free Cash Flow
70
65
Positive Earnings Revisions
60
60
Percent
Pricing Power
50
55 Profitable Reinvestment
40
Innovation/Unique
50
30 Sustainable Themes
45
20 High-Valuation Growth
ISM New Orders
Mfg. Index 40 Higher-Cost Operators
10
High Levels of Debt
0 35
00 02 04 06 08 10 12 14 16 18 20 22
Historical analysis and current forecasts do not guarantee future results.
As of 31 March 2022
Source: Bloomberg, Institutional Brokers’ Estimate System (IBES), Institute for Supply Management (ISM), Piper Sandler and AB
Global Capital Markets Outlook 21An Improved Entry Point for Growth Stocks
Focus on profitability and positive earnings revisions
Growth’s COVID-19 P/E Premium vs. Value Meaningfully High Return on Assets Stocks Are More Attractively Priced
Lower, and May Rise Further from Recent Lows and Those Having Positive EPS Revisions Remain Cheap
13
S&P 500 Growth Index P/E – S&P Expensive 80
500 Value Index P/E
12
11
10
Long-Term
Average = 8.6x
9 40
8
7 Growth Valuations Relative to
Value Reached 2019 Levels
6
5 0 1
Cheap
Sep 19
Sep 20
Sep 21
Jan 19
May 19
Jan 20
May 20
Jan 21
May 21
Jan 22
High ROA Positive EPS Revisons
4Q:21 1Q:22
Historical analysis and current forecasts do not guarantee future results.
As of 31 March 2022
Source: Bloomberg, Piper Sandler and AB
Global Capital Markets Outlook 22Opportunities Emerge in Quality Growth
Identifying disconnects between price and fundamentals
Healthcare Sector: Wide Industry …Select Industries Now Offer Attractive Global Robotic Surgical Procedures
Return Dispersion, but… Risk/Reward Are Growing
25 1,600
16.7
20 1,400
15 8.8
7.7
1,200
10
YTD Total Return
1,000
Thousands
05
00 800
–05 –6.0 600
–10 Healthcare
Sector Index –13.1 400
–15
200
–20
–21.8
–25 Healthcare Life Sciences Healthcare 0
–25 –05 15 Equipment Tools and Supplies 14 15 16 17 18 19 20 21
Services
2014–2021 Procedure Growth: 16%
EPS Growth YTD Total Return 2023 Earnings Growth
Past performance does not guarantee future results.
Based on consensus estimates.
Left and middle displays as of 31 March 2022; right display through 31 December 2021
Source: Bloomberg, S&P, Strategas Research Partners, company reports and AB
Global Capital Markets Outlook 23Continue to Emphasize Enduring Themes: A Focus on Electric Vehicles
Seek companies that provide the enabling technology or service (e.g., semiconductors)
Robust Production Rates for Electric Announced Battery-Electric Vehicles Semiconductor Content Increases ~2x
Vehicles (EV) (BEV) Sales Mix by Brand with a Full EV versus an ICE Vehicle
36 Manufacturer Target Date BEV Target
PHEV and EV Audi 2040 90%
Production 30
Expected to BMW 2030 50%
Grow at a 25%
Ford Europe 2030 100%
CAGR 22
General Motors 2035 100%
15 Hyundai Motor 2040 78%
Mercedes-Benz 2039 100%
9
Porsche 2030 80%
4
Volvo 2030 100%
VW Group
2030 50%
2020 2022E 2024E 2026E 2028E 2030E Worldwide
Historical analysis and current forecasts do not guarantee future results.
CAGR: compound annual growth rate; PHEV: plug-in hybrid vehicle; ICE: internal combustion engine
Left display as of 31 August 2021; middle display as of 22 April 2021; right display as of 31 December 2021
Source: IHS Markit, Infineon Technologies, TE Connectivity and AB
Global Capital Markets Outlook 24Value Stocks Can Continue to Advance, but Be Selective
High free-cash-flow stocks lagged; however, they remain inexpensive
Higher Yields: A Tailwind for Lower- High Free-Cash-Flow Yield Stocks Lost Deep Value Does Not Always Equal
Duration Value Stocks Ground to Lower-Quality Counterparts Good Value; Favor High Free Cash
Flow
6 1.0
16.0% Expensive
S&P 500 Pure Value/
S&P 500 Pure Growth
5 0.9
0.8
4
0.7
8.4%
Ratio
Yield
3
0.6
2 5.1%
0.5
16 14
1 10-Year Treasury 0.4 1.3% 8
(Left Scale) 5
0 0.3 Cheap
02 05 08 11 14 17 20 4Q:21 1Q:22 High Free- High Book
Cash-Flow Yield Value/Price
High FCF Yield High BV/Price 4Q:21 1Q:22
Past performance and historical analysis do not guarantee future results.
High free-cash-flow (FCF) yield: last 12 months cash flow from operations less than three-year average CAPEX to market cap; high book value/price: stockholder's equity minus
preferred stock divided by market cap
Left display through 31 March 2022; middle display as of 31 March 2022; right display as of 1 March 2022
Source: Bloomberg, FactSet, FTSE Russell, MSCI, S&P and AB
Global Capital Markets Outlook 25Areas of Focus for Value Equities
Consumer Discretionary Stocks Were The Breadth of the Sector Allows for Total Liquid Assets vs. Trend: A
Out of Favor Vast Stock Selection Opportunities Favorable Backdrop for Consumers
16
50 35.9
40
14
30 Actual
Consumer
12
YTD Total Return
20 Discretionary 12.1
10.4
Sector Index
10
10
Thousands
0
8
–10
–7.8
–20
6
–17.3
–30
–24.7 4
–40
Automotive Apparel, Auto Parts &
Retail Accessories & Equipment Trend
–50
Luxury Goods 2
–50 –25 0 25 50
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
EPS Growth YTD Total Return 2023 EPS Growth
Based on consensus estimates. Left display not shown are casinos and gaming, and hotels, resorts and cruise lines.
As of 31 March 2022
Source: Bloomberg, Refinitiv, S&P, Strategas Research Partners and AB
Global Capital Markets Outlook 26Timing the Market Means Getting Out and Getting Back In
Timing the market vs. time in the market
S&P 500 Rolling Three-Year Returns The Cost of Missing Out
Annualized (1988–2021) S&P 500 return in 2022 (percent)
11.0% 7.0
–4.6
4.0% 4.1%
–15.0
Average Miss Best Bonds* Jan–Mar 2022 Miss Best Miss Worst
Three-Year Return Five Days Return Five Days Five Days
Past performance is not necessarily indicative of future results. There is no guarantee that any estimates or forecasts will be realized.
*Bonds represented by annualized return of the Lipper Short/Intermediate Municipal Bond Fund Average from January 1988 through December 2021
Left display as of 31 December 2021; right display as of 31 March 2022
Source: Bloomberg, Lipper, S&P and AB
Global Capital Markets Outlook 27Fixed Income
Global Capital Markets Outlook 28Pace of Rising Yields Accelerated in March as Geopolitical Concerns Grew
Belly of the Curve Saw the Greatest Rise High-Yield YTW Surges on Back of Rising Rates and
Widening Spreads
3.5 700
Market Implied 2023 FFR
3.0 Fed and AB 2023 FFR Est. 600
31 Mar 2022
2.5 Market Implied 2022 FFR 500
325
Fed and AB
2.0 28 Feb 2022 400
Percent
2022 FFR Est.
1.5 300
283
31 Dec 289
2021
1.0 200
30 Sep 2021 276
0.5 100
115 138
0.0 0
1 2 3 6 1 2 3 5 7 10 20 30 30 Sep 2021 31 Dec 2021 31 Mar 2022
Mo. Mo. Mo. Mo. Yr. Yr. Yr. Yr. Yr. Yr. Yr. Yr.
Treasury Yield OAS
Historical analysis does not guarantee future results.
YTW: yield to worst
As of 31 March 2022
Source: Bloomberg and AB
Global Capital Markets Outlook 29Elevated Yields Suggest Attractive Forward Five-Year Returns…
Starting YTW vs. Forward Five-Year If You Invested During the…
Annualized Returns (Percent)
All-Time
0.25
YTW Wides
for HY
Spreads
0.20
22.0
21.2
Telecom
0.15 Bubble
Missed the
14.3 All-Time Post-GFC
Before
13.2 Tights for Rally
2008 Before the
HY
0.10 Sell-Off Taper
Spreads
9.3 9.3 Tantrum
6.7 6.8 7.3 7.7
6.1 6.1 6.5
0.05
Five-Year Forward Returns
0.00
06 08 10 12 14 16 18 20 22 Oct 02 Dec 04 May 07 Nov 08 Dec 09 Dec 12 Mar 22
YTW Five-Year Forward Returns
Past performance and historical analysis do not guarantee future results.
HY: high-yield; GFC: global financial crisis
Left display YTW and returns represent Bloomberg US Corporate High Yield; right display YTW and returns represent Bloomberg Global Corporate High Yield (USD Hedged).
As of 31 March 2022
Source: Bloomberg and AB
Global Capital Markets Outlook 30…and Offer an Opportunity to De-Risk Equities
Over time, high-yield bonds could generate equity-like returns with half the risk
Historical Returns and Volatility When HY Draws Down ~5%, Equities Draw Down More
July 1983–March 2022 (percent) Calendar year max. drawdown (percent)
0
14.9
–10
11.6
8.5 –20
8.3
–30
–40
–50
Annualized Return Annualized Volatility 1998 2000 2001 2002 2008 2011 2015 2018 2020 2022
US High Yield S&P 500 US High Yield S&P 500
Past performance and historical analysis do not guarantee future results. Individuals cannot invest directly in an index.
US high yield is represented by Bloomberg US Corporate High Yield.
As of 31 March 2022
Source: Bloomberg, S&P and AB
Global Capital Markets Outlook 31US High Yield Fundamentals Are Expected to Remain Robust
Net Leverage (Debt/EBITDA) Interest Coverage (EBITDA/Interest)
5.2 6.0
5.5
4.7 5.0
4.5
4.2
4.0
3.7 3.5
3.0
3.2 2.5
1Q:06 1Q:11 1Q:16 1Q:21 1Q:06 1Q:11 1Q:16 1Q:21
Net Income Margin (Percent) Default Rates (Percent)
8 12
6 9
4
6
2
0 3
–2 0
1Q:06 1Q:11 1Q:16 1Q:21 06 08 10 12 14 16 18 20 22
Historical and current analyses do not guarantee future results.
Ex financials. Data represent ~70% of ex financials US High Yield in market value. Metrics data are calculated using median.
As of 31 March 2022
Source: Morgan Stanley, S&P Compustat and AB
Global Capital Markets Outlook 32Taxable Overview: Relative Opportunities Exist
High Yield Investment Grade Securitized
Overview Overview CRTs (Credit Risk–Transfer Securities)
• High Yield can serve as a surrogate to • Uncertain macro backdrop gives cause for • Floating-rate securities should benefit from
equities concern, though strong corporate higher coupons as the Fed hikes
• Current yields are largely compensating fundamentals should assuage worries • Exposure to the strong housing market,
you for volatility rather than default risk. • Balanced technical backdrop and which benefits from strong technicals and
When volatility declines, the market will valuations limit spread compression fundamentals
rally • Recent macro volatility may impact
• HY does well in general when rates move corporate funding ambitions and reinforce Commercial Mortgage-Backed
higher, but there are often pockets of the balance sheet policy discipline, providing a Securities (CMBX.6)
market that perform very poorly in this near-term tailwind • Loss-adjusted yields point to expected
environment returns in mid-single digits to mid-teens
Positioning • CMBX.6 has been benefiting from the
• reopening of the US economy, which is
Positioning Favor the belly of the curve in the US
supportive of sectors like retail and lodging.
• Reducing more cyclical credits and adding positioning for carry-over compression; flat
Strong recent performance
more defensive credits credit curves in Europe warrant short
• Adding BBs in the new issue market, exposure
Collateralized Loan Obligations (CLOs)
reducing CCC exposure • Maintain risk in lower-quality credit;
• Having reduced energy exposure as • Very attractive spread pick up over similarly
selectivity is key amid expected dispersion
valuations are less compelling rated corporates
in outcomes • Strong fundamentals of the underlying
• BBB spreads offer further room for loans and strong structure
compression
Current analysis does not guarantee future results.
As of 31 March 2022
Source: AB
Global Capital Markets Outlook 33Yields Globally Have Risen Off Lows as Volatility Has Increased
10-Year Yield-to-Worst Range
October 2011–March 2022
13.89
11.86
11.50 11.36 11.46
9.72 10.21 10.98
9.44 9.13
8.73
6.81 7.24 6.90 6.68
6.01 6.28
5.37 5.78
5.59 5.29
4.04 4.21 4.51 4.45 4.11
3.88 3.68
3.75 2.70 3.07 2.66 2.35
2.19 2.44
US High Yield Pan-Euro Pan European EM USD EM LC EM USD Corp. + BBB IG
High Yield EMG HY High Yield Gov't HY Quasi-Sov CMBS
Max Min 30 September 2021 31 December 2021 31 March 2022
Past performance does not guarantee future results.
EMG: emerging; EM: emerging markets; USD: US dollar; LC: local currency; IG: investment-grade; CMBS: commercial mortgage-backed securities
Historical information provided for illustrative purposes only. US High Yield is represented by Bloomberg US High Yield Corporate Index; Pan-Euro High Yield by Bloomberg Pan-
European High Yield; Pan-European EMG HY by Bloomberg Pan European EMG High Yield; EM LC Gov’t HY by Bloomberg EM Local Currency Government High Yield; EM USD
Corp + Quasi-Sov by Bloomberg EM USD Corp + Quasi Sovereign High Yield; EM USD High Yield by Bloomberg EM USD Sovereign High Yield; BBB IG CMBS by Bloomberg
CMBS IG BBB Index.
As of 31 March 2022
Source: Bloomberg, Morningstar and AB
Global Capital Markets Outlook 34By the Numbers
A blended credit portfolio offers a better income-to-risk profile today
Hypothetical Portfolio Characteristics
Starting 1-Year 5-Year
Corporate Emerging Securitized Hypothetical US High YTW Forward Forward
Credit Markets Credit Portfolio Yield Index Date US HY Returns Returns
Global IG EM EM EM IG
31 Mar 30 Sep 31 Mar 30 Sep 31/5/06 8.3% 13.2% 10.4%
High BBB HC HC LC CRTs BBB
2022 2021 2022 2021
Yield Corp Sov Corp Gov’t CMBS
31/7/07 9.1% 0.0% 11.7%
Percent
Market 50.0% 5.0% 15.0% 10.0% 7.5% 5.0% 7.5% 100% 100% 100% 100% 29/1/10 9.0% 16.1% 8.4%
Weight
30/6/11 7.3% 7.3% 8.2%
YTW
6.5 3.9 8.7 8.3 11.4 6.3 5.8 7.2 5.5 6.0 4.0
(Percent) 31/5/12 7.9% 14.4% 7.7%
OAS (b.p.) 428 142 632 586 121 606 329 439 402 325 289 30/11/15 8.0% 12.1% 9.0%
Credit 31/10/18 6.9% 8.5% —
B+ BBB B BB/B B B- BBB Ba/B Ba/B Ba/B Ba/B
Quality
31/3/20 9.4% 23.9% —
Duration
4.3 8.6 5.6 4.6 4.3 0.2 4.5 4.6 4.6 3.9 4.0
(Years) 31/3/22 6.0% — —
Past performance does not guarantee future results.
EM: emerging markets; HC: hard currency; LC: local currency; CRTs: credit-risk transfers; CMBS: commercial mortgage-backed loans. Simulated or hypothetical performance
results have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Results include estimates of trading
costs and market impact; however, because these trades have not actually been executed, results may have under- or overcompensated for these costs. Simulated or hypothetical
trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to
achieve returns or a volatility profile similar to those being shown. IG BBB Corp: Bloomberg BBB Investment-Grade Corporates; EM HC Sov: EM USD Aggregate (rated high yield);
EM HC Corp: EM USD Corp + Quasi-Sov (rated high yield); EM LC Gov’t: EM Local Currency Government (rated high yield). Securitized includes Agency CRTs; IG BBB CMBS:
CMBS IG BBB Index. Bloomberg indices were used for the hypothetical portfolio characteristics.
As of 31 March 2022. Source: Bloomberg and AB
Global Capital Markets Outlook 35Appendix
Global Capital Markets Outlook 36Global Forecast Overview
Key Assumptions Central Narrative Key Risks
• Geopolitical: The war in Ukraine is • Global growth: Challenged consumers Key Upside Risks
likely to keep commodity prices will have to allocate more money to
• A timely resolution to the Ukraine war
elevated for some time to come commodity-based essential goods and
could provide relief through lower
reduce discretionary spending
• COVID-19: Caseloads may wax and commodity prices
wane, but we do not expect widespread • Inflation: Rising commodity prices will
• Fiscal authorities could provide
economic disruption push inflation higher and keep it there
significant relief to consumers struggling
for longer
• Fiscal policy: European fiscal policy with higher energy prices
may mitigate some downside risk from • Yields: Tighter monetary policy will
Key Downside Risks
the war push yields up and flatten yield curves
• A protracted military conflict could
• Monetary policy: Rates will move • USD: Stronger for now, as the Fed pulls dampen sentiment throughout Europe
higher and faster than previously ahead of other central banks in policy and beyond
anticipated tightening
• Inflation expectations could de-anchor,
forcing very aggressive monetary-policy
tightening
Past performance and current analysis do not guarantee future results.
As of 31 March 2022
Source: AB
Global Capital Markets Outlook 37Growth Stocks Experienced Extreme and Unusual Underperformance
December 2021–February 2022 was the worst three-month period of growth underperformance in more than 30
years: –14.3%
EAFE Growth vs. Value Indices: Three-Month Rolling Companies Persisting with ≥ 10% YoY Earnings Growth
Performance Differential (Since 1990) Top 1,000 global companies (1989–2021)
131 4.0 378 400
128
3.5%
3.5 350
3.0 300
Number of Companies
Excess (Percent)
2.5 250
2.3%
Annualized Excess
2.0 Returns vs. MSCI World 200
Jan–Mar 22: –12.3%
(Left Scale)
Dec 21–Feb 22: –14.3% 48
Mar–May 00: –14.0% 43 1.5 150
Feb–Apr 99: –13.7%
1.0 100
62 Number of
14 Companies
0.5 0.8% 50
8
4 4 3 4 12
0.0 0Further Small-Cap Upside Expected, but Be Discerningly Active
Currently favoring more economically sensitive versus defensive sectors
Historically, Small-Caps Have …and Remain Attractive Relative to Maintain an Even Measure Between
Generated Positive Returns in Rising Large-Cap Stocks Small/SMID Value and Growth Styles
Rate Environments… Russell 2000 vs. Russell 1000
Change in
1.50
US Treasury Yields Russell 2000 Return
(Percentage Points)* Large-
Caps Favored Value Sectors: Favored Growth Sectors:
Oct 82–Jun 84 3.1
Are Cheap Consumer Discretionary, Financials, Technology,
Aug 86–Sep 87 2.7 Industrials, Technology Industrials
Feb 88–Feb 89 1.1
1.25
Jul 89–Apr 90 1.2
Sep 93–Nov 94 2.5
Dec 95–Aug 96 1.4 Average
Ratio (×)
4Q
Nov 96–Mar 97 0.9 2021
Sep 98–Jan 00 2.2 1.00
Oct 01–Mar 02 1.2
Sep 02–Jun 06 1.5
Dec 08–Dec 09 1.6
Aug 10–Mar 11 1.0
Jul 12–Dec 13 1.6 0.75 Focus on:
Feb 15–Jun 15 0.9 Small- Value with a Catalyst (V)
Jul 16–Mar 17 1.0 Caps Strong Free Cash Flow (V)
Are Cheap
Sep 17–Feb 18 0.9
Unrecognized Growth Potential (G)
Mar 20–Mar 21 1.2 Positive Earnings Revisions (G)
Aug 21–? 1.1 0.50
79 84 89 94 99 04 09 14 19
–10 0 10 20 30 40 50
Historical analysis and current forecasts do not guarantee future results.
*Total percentage-point change in nominal 10-year US Treasury bond yield
Left and right displays as of 31 March 2022; middle display through 28 February 2022
Source: FactSet, FTSE Russell and AB
Global Capital Markets Outlook 39Geopolitical Events Only Rarely Have a Lasting Market Impact
Select geopolitical events since 1970 and S&P 500 returns (percent)
First First
Event Trading Day 1 Week 1 Month 1 Quarter 1 Year Event Trading Day 1 Week 1 Month 1 Quarter 1 Year
Watergate 19/6/1972 –0.1 –1.4 0.4 –3.0 Madrid Train Bombings 11/3/2004 0.0 1.5 1.5 9.5
Yom Kippur War* 8/10/1973 1.4 –3.9 –10.0 –43.2 Orange Revolution–Ukraine 22/11/2004 1.1 2.2 3.1 8.6
Three Mile Island Accident 28/3/1979 –0.1 –0.7 –0.2 –4.2 Asian Tsunami 27/12/2004 0.3 –3.4 –2.7 6.8
Iran Hostage Crisis* 5/11/1979 –1.0 3.6 12.3 24.3 London Bombings 7/7/2005 2.4 2.7 0.2 8.6
Reagan Assassination Attempt* 30/3/1981 0.6 0.6 –1.6 –16.9 Hurricane Katrina 29/8/2005 1.1 1.0 5.7 9.5
Challenger Space Shuttle 28/1/1986 3.2 9.3 16.8 32.0 Arab Spring 17/12/2010 1.2 4.2 1.6 0.2
Iran-Contra Affair 3/11/1986 0.7 2.1 12.3 3.2 Hurricane Sandy 29/10/2012 1.1 –0.0 7.0 27.3
Iraq Invades Kuwait* 2/8/1990 –4.7 –8.9 –12.8 12.8 Boston Marathon Bombing 15/4/2013 –2.1 3.0 6.3 16.7
Desert Storm/First Gulf War* 17/1/1991 4.5 17.2 23.6 36.6 Russia/Ukraine/Crimea 27/2/2014 1.6 0.5 3.5 16.8
LA Riots 29/4/1992 2.0 2.3 2.8 10.2 Greek Referendum 5/11/2015 –1.2 –0.3 –8.4 1.4
WTC Bombing (1993) 26/2/1993 1.2 2.1 2.2 8.3 Brexit 24/6/2016 –0.7 3.1 3.0 17.8
Oklahoma City Bombing 19/4/1995 1.4 3.1 11.3 30.5 Trump Surprise Election Win 8/11/2016 1.6 5.4 8.1 24.0
Centennial Olympic Park Bombing 29/7/1996 4.3 4.6 10.8 50.6 Hurricane Harvey/Irma/Maria 25/8/2017 1.4 2.8 7.2 20.2
Kenya/Tanzania Embassy Bombings 7/8/1998 –1.3 –0.5 5.1 21.0 US-China Trade War‡ 22/1/2018 2.2 –2.6 –3.7 –3.1
USS Cole Bombing* 12/10/2000 –1.6 0.2 –2.5 –18.5 Coronavirus Outbreak 19/2/2020 –7.1 –28.7 –13.3 15.9
Bush-Gore Hanging Chad* 7/11/2000 –5.6 –5.5 –5.3 –20.9
9/11* 17/9/2001 –4.9 –0.9 4.7 –15.5 Summary 1 Week 1 Month 1 Quarter 1 Year
War in Afghanistan* 8/10/2001 1.9 3.0 9.8 –24.2 Average 0.1 0.2 4.1 9.3
SARS† 11/2/2003 –0.1 –3.2 12.2 39.5 % of Events Negative 40 37 29 29
Second Gulf War 20/3/2003 –0.5 2.4 14.3 29.2 Conflict/War Avg. 0.7 1.7 4.7 4.7
Terrorism Avg. –0.1 0.7 4.4 12.4
Political Avg. –0.2 1.1 2.4 5.3
Key Takeaway: Stocks have generally shrugged off geopolitical events,
Environmental Avg. 0.8 –0.1 3.4 11.9
as they rarely have a lasting impact on the business cycle.
Social Avg. –0.5 –3.9 7.6 16.2
Historical analysis does not guarantee future results. There is no guarantee that any estimates or forecasts will be realized.
*Denotes the geopolitical event occurred during a recession or six months prior to the start of a recession. †Date that China officially notified the WHO of the outbreak. ‡Tariffs on
imports of solar panels and washing machines imposed
As of 30 September 2021. Source: FactSet, National Bureau of Economic Research, S&P, World Heath Organization and AB
Global Capital Markets Outlook 40As Expansion Leads to Moderation, Seek Profitable Growth and Quality
Recovery Expansion Moderation Contraction
Cyclical Value Growth Growth Low Volatility
Positive
Small-Cap Quality Dividend Yield
Dividend Yield
Quality Small-Cap Cyclical Value Small-Cap
Neutral
Quality Low Volatility Quality
Dividend Yield
Low Volatility Cyclical Value Small-Cap Cyclical Value
Negative
Growth Low Volatility Growth
Dividend Yield
For illustrative purposes only. Past performance does not guarantee future results.
Small-cap: market capitalization; cyclical value: book to price, forward earnings to price; quality: return on equity; growth/momentum: 12-month price momentum, year-over-year
earnings growth; low volatility: low historical beta; defensive value: earnings to price, dividend yield. Cycles based on PMI. From 1 January 1991 through 31 May 2021
As of 31 December 2021
Source: Bloomberg, Center for Research in Security Prices (CRSP), Cornerstone Data, IHS Markit, Morningstar, MSCI, S&P Compustat, Thomson Reuters I/B/E/S and AB
Global Capital Markets Outlook 41A 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
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Global Capital Markets Outlook 42A 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.
Global Capital Markets Outlook 43Index 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 Emerging Markets Hard Currency (USD) Aggregate Index: A hard currency emerging markets debt benchmark that includes USD-denominated debt from
sovereign, quasi-sovereign, and corporate EM issuers.
• Bloomberg Emerging Markets Local Currency Government Index: Tracks the fixed-rate local currency sovereign debt of emerging market countries.
• Bloomberg 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 2.)
• Bloomberg 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. (Represents high yield on slide 2.)
• Bloomberg Global Treasury Index: Tracks fixed-rate local currency government debt of investment-grade countries. The index represents the Treasury sector of the Global
Aggregate Bond Index.
• Bloomberg Global Treasury: Euro Bond Index: Includes fixed-rate, local-currency sovereign debt that makes up the Euro Area Treasury sector of the Global Aggregate Bond
Index. (Represents euro-area government bonds on slide 2.)
• Bloomberg Global Treasury: Japan Bond Index: Includes fixed-rate, local-currency sovereign debt that makes up the Japanese Treasury sector of the Global Aggregate Bond
Index. (Represents Japan government bonds on slide 2.)
• Bloomberg Pan-European High Yield Index: Measures the market of non-investment grade, fixed-rate corporate bonds denominated in the following currencies: euro, pounds
sterling, Danish krone, Norwegian krone, Swedish krona, and Swiss franc.
• Bloomberg 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 US Corporate High-Yield Bond Index: Represents the corporate component of the Bloomberg US High-Yield Index.
• Bloomberg 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.)
Global Capital Markets Outlook 44Index Definitions (cont.)
• Goldman Sachs Financial Conditions Index: The index is defined as a weighted average of riskless interest rates, the exchange rate, equity valuations, and credit spreads,
with weights that correspond to the direct impact of each variable on GDP.
• Goldman Sachs Non-Profitable Technology Index: The index consists of non-profitable US listed companies in innovative industries. Tech is defined quite broadly to
include new economy companies across GICS industry groupings. The basket is optimized for liquidity with no name initially weighted greater than 4.65%.
• 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. EH managers would typically maintain at least 50% exposure to, and may in some cases be entirely invested in, equities, both long and short.
• 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 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.
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