first quarter 2011 capital markets outlook opportunities in the ongoing recovery the information...
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First Quarter 2011
Capital Markets OutlookOpportunities in the Ongoing Recovery
The information herein reflects prevailing market conditions and our judgments as of the date of this document, which are subject to change. 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 which 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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2.4%
2.3%
4.7%
5.0%
5.7%
-6.7%
-6.2%
5.9%
-1.3%
0.5%
2.4%
6.8%
9.6%
24.2%
23.3%
26.7%
0.0%
1.0%
2.9%
7.3%
12.8%
15.1%
7.8%
15.1%
18.9%
5.9%
2010 Returns 1H:2010 Returns
Returns in USD
Japan Gov’t
Global High Yield
US Gov’t
Euro Gov’t
EM Debt
Global Corp
Past performance does not guarantee future results.Through December 31, 2010All non-USD asset class returns are shown in hedged USD terms.Individuals cannot invest directly in an index. Please see the end of the presentation for index definitions. Source: Barclays Capital, Bloomberg, MSCI, S&P and AllianceBernstein
EAFE
US
Powerful Second-Half Performance Drove Equities
EM
2H:2010 Returns
Equities
Credit
Gov’tBonds
Macro
-13.2%
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3.9% 3.9%
3.5%3.5%
3.9%
3.2%
June 2010 December2010*
December2010*
AllianceBernstein Consensus
The Global Economy Didn’t Double Dip; We May See More Growth in 2011
Global Real GDP Growth Forecasts
Historical analysis and current estimates do not guarantee future results.*As of December 31, 2010**Eastern Europe, Middle East and AfricaSource: AllianceBernstein
Real GDP Growth ForecastPercent Average Annual Rate
2011E
Our GDP Forecast Has Led Consensus
2010E
Emerging Consumer and Developed-Market Stimulus Support Our Growth Forecast
1.7
1.8
1.9
4.1
6.4%
4.1
3.8
3.5
2.7
1.1
1.5
2.0
4.0
7.4%
4.1
2.7
3.2
2.3
Asia ex Japan
Latin America
EEMEA**
United States
Global
Canada
United Kingdom
Euro Area
Japan
AB 2011*
Consensus 2011*
Macro
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Firms Likely to Increase Investment Spending
Need to InvestAverage Age of Industrial Equipment
Ability to InvestOperating Profits and Nonfinancial Cash/Assets
Willingness to Invest ISM Mfg’s Capital Spending Plans for Next 12 Months
Incentive to Invest NOWNew US Tax Package
Historical analysis does not guarantee future results.Through December 31, 2010Source: Bureau of Economic Analysis, Federal Reserve Board, Haver Analytics, Institute for Supply Management and AllianceBernstein
5
6
7
8
70 73 76 79 82 85 88 91 94 97 00 03 06 09
Yea
rs
-20-15-10
-505
1015
90 92 94 96 98 00 02 04 06 08 10
Per
cent
600
900
1,200
1,500
1,800
00 01 02 03 04 05 06 07 08 09 10
US
D B
illio
n
4
5
6
7
8
Percent
Cash
Profits (Left)
1. Business Investment Incentive: Full expensing of capital investment in ’11 and 50% in ’12
2. Tax Rates: Extend Bush-era personal tax rates for two years
3. Payroll Tax: Reduces employee tax by two points for one year
Macro
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US Consumer Trends Pointing Upward
Historical analysis does not guarantee future results.Left: through December 17, 2010. Right: through November 30, 2010.Source: Bloomberg, Business Roundtable, Haver Analytics and AllianceBernstein
New Job Creation Appears Likely
Retail Sales
Consumers Are Spending More
-15
-10
-5
0
5
10
02 04 06 08 10
CEO Outlook Plan to Increase Employment Within Next Six Months
0
10
20
30
40
50
02 03 04 05 06 07 08 09 10
Pe
rce
nt
Yo
Y P
erc
en
t C
ha
ng
e
Macro
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Global Inflation Rate**
Emerging Markets
Developed Markets
11E
Yo
Y P
erc
en
t C
ha
ng
e
Emerging Economies Going Strong, but Inflation Pressures Persist
Historical analysis and current estimates do not guarantee future results.*Through first three quarters of 2010**Actual through November 30, 2010. 2011 estimate as of December 31, 2010.Source: Haver Analytics, National Accounts, World Bank and AllianceBernstein
Total Global Investment Growth
EM Infrastructure Build-Out Driving Global Growth EM Inflation Rates Still High
Yo
Y P
erc
en
t C
ha
ng
e
Macro
-1
0
1
2
3
4
5
1980s 1990s 2000–04 2005–09 2010*
Developed Economies
Emerging Markets
-2
0
2
4
6
8
10
12
00 02 04 06 08 10
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EM Tightening, While US Continues to Ease Aggressively
Many EM Countries Raised Policy Rates in 2010
Historical analysis does not guarantee future results.Through December 31, 2010Source: Bloomberg, Federal Reserve Board and AllianceBernstein
0.0
0.5
1.0
1.5
2.0
2.5
Aug 07 Apr 08 Dec 08 Aug 09 Apr 10 Dec 10
Securities Held Outright by the Federal Reserve
TaiwanThailand
Malaysia
Vietnam
PakistanChina
Peru
India
Hungary
ChileUruguay
SerbiaBosnia &
HerzegovinaAzerbaijan
Brazil
US Fed Expanded Balance Sheet While Keeping Policy Rates Low
US
D T
rillio
ns
Macro
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Historical analysis does not guarantee future results.Through October 31, 2010*Simple average of Spain, Greece, Portugal and Ireland **The European Financial Stability Mechanism (EFSM) is an extension of the European Union's existing balance of payments financing facility and allows the EU to raise funds on its own account to lend to countries requiring financial assistance. The EFSM has a maximum capacity of €60bn, of which €22.5bn has already been committed to Ireland.***The European Financial Stability Facility (EFSF) is a new European institution which issues bonds on its own account and lends the funds to countries requiring financial assistance. The EFSF level of €440bn reflects the officially stated maximum of the facility. However, subsequent guidance from credit ratings agencies indicates that in its present form EFSF lending to countries would have to be limited to a significantly lower amount in order to maintain a AAA-rating. Source: Bloomberg, European Commission, Haver Analytics, Markit and AllianceBernstein
Euro Area: Resiliency Despite Concerns About Periphery
Unemployment Rates
4
6
8
10
12
14
16
00 02 04 06 08 10
Pe
rce
nt
Gross Financing Requirements 2011 to 2013
Current Support Facilities Available
€409 Billion
IrelandPortugal
Spain
€750 Billion
EFSF***
EFSM**
IMF€250
€60
€440
Outside Support Appears Sufficient for Weakest EconomiesThe Haves and Have Nots
Germany
Euro Periphery*
Macro
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US Fiscal Outlook: More Policy Changes Likely
Bi-Partisan Deficit Commission* Proposals
Raise tax revenues with combination of lower rates and fewer deductions
Reduce spending by streamlining government operations, cutting food subsidies, containing health care costs and more
Increase retirement age for Social Security benefits
Historical analysis does not guarantee future results.Through December 31, 2010*National Commission on Fiscal Responsibility and ReformSource: US Office of Management and Budget, US Treasury Department and AllianceBernstein
Interest Expense and Federal Debt 2000–2010
300
320
340
360
380
400
420
440
460
00 02 04 06 08 10
Inte
rest
(U
SD
Bill
ions
)
4
6
8
10
12
14
16
Debt (U
SD
Trillions)
Interest Expense
Debt Outstanding
US Surplus/Deficit (USD Billions) 1933–2010
US Budget Deficit Mushroomed Interest Growth Lags DebtBudget Improvement Measures Taking Shape
-2000
-1600
-1200
-800
-400
0
400
33 43 53 63 73 83 93 03 10
Macro
US
D B
illio
ns
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Stock Recovery Still Has Room to Run
40
50
60
70
80
90
100
Oct 07 Jun 08 Dec 08 Jul 09 Feb 10 Sep 10
US
Do
llars
Since 3/9/09 Low: +93%
Since 10/31/07: –18%
Past performance does not guarantee future results.Through December 31, 2010This is a hypothetical example.Individuals cannot invest directly in an index. See the end of the presentation for index definitions. Daily returns data used October 31, 2007 to December 31, 2010. All returns in USD.Source: FactSet, MSCI and AllianceBernstein
MSCI World Index: Growth of USD 100
Equities
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After Risk-Averse Investors Fled Stocks, Tide May Be Turning
Historical analysis does not guarantee future results.Through December 8, 2010*Net flows include US-domiciled mutual funds and exchange-traded funds and exclude fund of funds, fund categories as defined by Lipper: Global Large Cap Core, Global Large Cap Growth, and Global Large Cap Value; figures for 2010 are through October 31, 2010Source: Simfund, Strategic Insight and AllianceBernstein
Global Mutual Fund Flows*
-15
-10
-5
0
5
10
15
20
25
30
95 98 01 04 07 10
US
D B
illio
ns Fixed Income
Equity
-5
0
5
10
1Q 2Q 3Q 4Q
Equities
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Flight to “Safety” Still Overblown
World Dividend Yield vs. Global Treasury Yield*
0
4
8
12
16
70 75 80 85 90 95 00 05 10
Pe
rce
nt
Global Treasury Yield*
Dividend Yield*
Equity Risk Premium**
0
2
4
6
8
10
60 65 70 75 80 85 90 95 00 05 10
Pe
rce
nt
Average
6.4%
Historical analysis does not guarantee future results.Left hand chart: through November 30, 2010; right hand chart: as of December 31, 2010.*Dividend Yield of MSCI World Index. Global Treasury Yield: Prior to June 30, 1987, Ibbotson US IT Treasury Yield: from July 1, 1987, Barccap Govt 5–7 Year Yield**Long-term expected returns for the S&P 500 versus 10-year Treasury bond yieldSource: Barclays, Bloomberg, Ibbotson, MSCI, Shiller, S&P and AllianceBernstein
Equities
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Company Fundamentals Matter
Historical analysis does not guarantee future results.Through December 31, 2010*Through September 30, 2010; indexed such that 1995 level = 100; composite index weighted by 2008 nominal GDP from the following regions: US, Canada and Japan; this index also includes the European Union, Australia and the UK (including net operating surplus). The profit series for the European Union, Australia and the UK are based on the net operating surplus of corporations.**Represents the total net debt of all companies in the MSCI World Index ex Financials divided by the total equity.Source: Empirical Research Partners, Haver Analytics, MSCI, US Census Bureau and AllianceBernstein
0
50
100
150
200
250
95 98 01 04 07 10
Ind
ex*
Aggregate of Global Corporate Profits* Global Net Debt/Equity**1990–2010
Current*
All-Time High
All-Time Low
Pe
rce
nt
Strong Earnings Should Ultimately Drive Equity Values Corporate Balance Sheets Are Robust Globally
Equities
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Fear Trumps Fundamentals, Providing Opportunity for Active Managers
-4
0
4
8
95 98 01 04 07 10
Ma
na
ge
r A
lph
a*
(Pe
rce
nt)
5
10
15
20
25
30
35
40
45
Co
rrela
tion
s (Pe
rcen
t)
Manager Alpha*(Left Scale)
Global Intra-Market Correlations vs. Global Manager Alpha
Historical analysis does not guarantee future results.Through December 31, 2010*Through September 30, 2010; Alpha is a measure of risk-adjusted performance. Six-month rolling premium of median global large-cap manager versus the MSCI World.**Intra-market correlations of returns of the MSCI World over 126 days. Correlation is a statistical measure of the degree to which two or more variables show a tendency to vary together.***The difference between the 75th-percentile company and the 25th-percentile company within the AllianceBernstein global developed universe based on year-over-year trailing earnings growthSource: eVestment Alliance, FactSet, MSCI, S&P and AllianceBernstein
Correlations**
25
50
75
100
95 98 01 04 07 10
Growth More
Divergent
GrowthLess
DivergentP
erc
en
tag
e
Percentage Difference Between Highest and Lowest Company Earnings Growth***
Stocks Have Traded in Tandem… …Despite Historic Gap Between Growth Rates
LessStock-
Specific
More Stock-
Specific
Equities
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Current analysis does not guarantee future results.Top and bottom right through September 30, 2010. Bottom left through May 30, 2010.*Stock prices from one day before announcement to three months after, adjusted for dividends; stocks listed on the New York Stock Exchange and NASDAQ.**Absolute valuations chart shows 5th–95th percentile range of historical valuations over the 10 years ended September 30, 2010.Source: Bank of America Merrill Lynch, Bloomberg, Capital IQ, MSCI, Russell Investment Group, S&P, Thomson I/B/E/S and AllianceBernstein
Many Attractive Opportunities to Add Return via Active Management
Find Misvalued Growth Companies
Evaluate Globalization of SMid-Cap Sales RevenuesIdentify Long-Term Growth Catalysts
8×
13×
Price-to-Forward-Earnings
Current
10-Year Avg.
Absolute Valuations Emerging Markets**3.6%
2.3%
DividendIncrease
Stock Buyback
Outperformance vs. S&P 500 Three Months After Announcement of Action*
Identify Likely Cash Returns to Shareholders
Which companies will capitalize on the ways cloud computing changes our lives?
What we buy online
Where we store our music, movies and memories
How we share our medical history
How we meet people
9.115.7
19.3
11.617.3
23.1
1990 2000 2009
Russell 2000 Russell 2500
US Small and SMid-Cap Stocks: Foreign Sales as a Percentage of Total Sales
Equities
16AllianceBernstein.com
109%
84%
64%
12%
Equity Payoff Could Be Substantial
Potential Cumulative ReturnOver Next Five Years
Global Treasury yield to maturity*
Assumptions
Earnings grow 8% annually, P/E and dividend payout ratios rise toward their long-term norms***
Same as above + 3% annual active management premium†
Earnings grow 8% annually, current dividend yield persists**
Asset Class
Global Bonds
Global Equity
Global Equity
Global Equity
Current analysis does not guarantee future results.As of December 31, 2010*Assumes annualized returns of 2.21%, based on the current yield on the Barclays Capital Global 5–7 Year Treasury Index.**Assumes annualized returns of 10.36%, based on an assumed 8% earnings growth plus the current 2.36% dividend yield on the MSCI World Index.***Assumes annualized returns of 12.92%, based on the above 10.36% plus a 2.14% return from the price/earnings ratio rising from its current level of 14.4x to 16.0x (the median trailing price/earnings ratio for the MSCI World since 1970 is 17.7x); and a 0.42% return from the dividend payout ratio rising from its current 34% to 40% (the median trailing dividend payout ratio for the MSCI World since 1970 is 47%).†Assumes annualized returns of 15.92%, based on the above 12.92% plus a 3% active management premium.There is no guarantee that the assumptions will prove valid. No representation is being made that any AllianceBernstein-managed portfolio will experience returns similar to those presented above.Source: Barclays Capital, MSCI and AllianceBernstein
Equities
17AllianceBernstein.com
Today’s Equity Market Environment: The Coiled Spring
Today
An Equity Market
Rebound?
Possible Catalysts
Reduced Risk Aversion
Pickup in Job Growth
Capital Spending/Exports Pickup
Sustained Pricing Power
Stimulus
Time
Uncertain GovernmentRegulations
Uncertain GovernmentRegulations
Deferred SpendingDeferred Spending
Fearful InvestorsFearful Investors
Equities
18AllianceBernstein.com
US Yields Climbed with Economic News, with Further to Go
Short-Term Interest Rates:* US, UK, Europe and Japan Bond Returns and Interest Rate Sensitivity
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Jan Apr Jun SepDec
0
2
4
6
8
10
92 95 98 01 04 07 10
US Two-Yr. Yields
UK Two-Yr. Yields
Germany Two-Yr. Yields
Japan Two-Yr. Yields
Rat
es
Historical analysis does not guarantee future results.Through December 31, 2010*Represented by two-year US Treasury yields for each region. Germany’s yields are used as the proxy for euro yields.Source: Barclays Capital, Bloomberg, FactSet and AllianceBernstein
Return
Sensitivity of
Bond Prices to1% Rate Increase
US Treasuries
2-Year 1.14% 0.60% 2.35% –0.13% –1.99%
5-Year 2.68 2.01 7.02 –2.70 –4.81
10-Year 3.84 3.30 8.01 –5.57 –8.94
Sector
Corporates 4.73% 4.02% 9.00% –1.61% –6.53%
High Yield 9.06 7.51 15.12 3.22 –4.32
EM (USD) 6.17 5.52 12.12 –2.04 –7.01
12/31/10 2010 4Q
Yield
12/31/09
Fixed Income
19AllianceBernstein.com
Euro Area1.0
US5.9
Japan2.9
UK7.2
Australia0.3
Canada5.6
Japan1.4
UK–1.6
US–3.6
Euro Area4.1
Australia–5.9
Canada–1.9
2009
Australia1.2
Canada4.6
Euro Area1.8
Japan5.3
US3.1
UK0.9
2006 2007
UK4.7
Euro Area3.1
Australia2.0
US9.0
Japan7.8
Canada5.7
2008
UK10.4
Euro Area8.4
Australia15.1
US13.8
Japan6.7
Canada11.7
4.4 7.0 8.4 10.0
…Creating Opportunities for Active Fixed-Income Investors, Especially in Global Bonds
Country Returns Vary Significantly Across Cycles
BestPerformer
Worst Performer
Global Bond Returns (Hedged to USD)*: Percent
Gap between
bestand worst
2010
6.9
A Multi-Country Strategy May Reduce Portfolio Risk
1
2
3
4
5
94 96 98 00 02 04 06 08 10
Per
cent
Rolling Volatility**3-Years Ending December 31, 2010
US Bonds
Hedged Global Bonds
Past performance does not guarantee future results. These returns are for illustrative purposes only and do not reflect the performance of any fund. Diversification does not eliminate the risk of loss. *As of December 31, 2010, Barclays Capital Global Treasury Indices **As of December 31, 2010, Barclays Capital Global and US Aggregate 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 and AllianceBernstein
Fixed Income
20AllianceBernstein.com
Past performance does not guarantee future results.Left: through September 30, 2010. Right: through October 31, 2010.*Median is for period shown. Based on the Barclays Capital US High Yield Index 2% Issuer Constrained. The median is the middle number in a series arranged from lowest to highest, and thus separates the highest half of a series from the lowest.**Default rates are par-weighted.Source: Barclays Capital, Bond Investors Association, CSI High Yield Research, JPMorgan Chase, Moody’s Investor Service and AllianceBernstein
US High Yield Still Attractive…
0
500
1,000
1,500
2,000
94 98 02 06 10
Ba
sis
Po
ints
Median*
0
3
6
9
12
15
18
21
24
89 92 95 98 01 04 07 10P
erc
en
t
…and Defaults Have Subsided
Opportunities Remain in High Yield
US High-Yield Spreads over Treasuries* Global High-Yield Par Default Rate** Trailing 12 Months
Fixed Income
21AllianceBernstein.com
Municipal Yields Rose…but Fundamentals Are Improving
Historical analysis and current estimates do not guarantee future results.Left: through December 20, 2010. Right: through September 30, 2010.*Uses AllianceBernstein forecast for last two weeks of December.**Forecast uses consensus yearly supply forecast, adjusted for seasonality and for shift of issuance from 2011 first quarter into 2010 fourth quarter.***30-year yields as of quarter-end; 30-year Municipal Yield is represented by the 30-year maturity spot on the AAA Municipal Market Data Curve.Source: Bond Buyer, Bureau of Economic Analysis, Municipal Market Data Corp., Yield Book and AllianceBernstein
40
60
80
100
Q1:10 Q2:10 Q3:10 Q4:10E*Q1:11E**3.0
3.5
4.0
4.5
Yie
ld (%
)
Issuance and Treasury Yields Lifted Muni Yields
-10
-5
0
5
10
15
90 92 94 96 98 00 02 04 06 08 10
Tax Revenues Are Much Healthier
Muni Yield***
Bond Yields and Tax-Exempt Municipal Bond Issuance
State and Local Government Tax Collections
Treasury Yield***
Fixed Income
Y0
Y P
erc
en
t C
ha
ng
e
Issu
an
ce (
US
D B
illio
ns)
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While Crowd Worries, Active Managers See Reality Behind the Uproar
Historical analysis does not guarantee future results.Left: through November 30, 2010. Right: through December 31, 2010.*Illinois made its pension contribution but issued bonds to pay for it.**Credit spreads shown are for 10-year municipal securities.***Estimates are produced by Municipal Market Data Corp.†Market represented by Barclays Capital Municipal IndexSource: Barclays Capital Municipal Market Data Corp., Center on Budget and Policy Priorities’ July 15, 2010, report, The Fiscal Survey of States, June 2010, National Governors Association and National Association of State Budget Officers, Pension plan comprehensive annual financial reports, state comprehensive annual financial reports, state offering statements and AllianceBernstein
Municipal Market Sector Distribution†
Budget Situations Vary Widely Across States
Thousands of Issuers in Fragmented Muni Market
Muni Credit Spreads Offer Opportunity**
0
4
8
12
16
20
IL* CT FL NJ MD CA NY VA TX
Actual Contribution
Debt Service
Unfunded Part of Required Contribution
2009 Debt Service and Annual Required Pension Contribution Percent of Operating Expenditures
Yield Advantage of BBB-Rated Debtover AAA-Rated Debt***
0
1
2
3
4
83 85 87 89 91 93 95 97 99 01 03 05 07 09
Per
cent
1.86%Dec 31, 2010
Apr 1, 2009 3.54%
0.35% Jun 30, 2007
Average
Fixed Income
Special Tax10%
9% GO27%
Education6%
Other6%
8%
Lease5%
Health Care8%
Electric6%
Transportation15%
Water & Sewer
Pre-Refunded
23AllianceBernstein.com
0%
2%
4%
6%
8%
05 06 07 08 09 10
YO
Y C
PI
Rising Global Inflation Supportive of Real Assets
1.8%
3.8%
11.8%
Global CPI MSCI ACWI Real Assets
Accelerations
Historical analysis does not guarantee future results.Through November 30, 2010CPI = Consumer Price Index—An inflationary indicator that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food and transportation.Global CPI is represented by IMF Global Inflation Index, Real Assets are represented by equally weighted index of MSCI Commodity Producers Equity Index, FTSE EPRA/NAREIT Global Developed Market Total Return Index, DJ-UBS Total Return Commodity Index. Individuals cannot invest directly in an index. Please see the end of the presentation for index definitions. Source: Bloomberg, IMF and Factset
Recent Accelerations in Global InflationAverage Change During Last Three Inflation Accelerations
Fixed Income
24AllianceBernstein.com
Heightened Volatility Tests Investors’ Resolve
Returns Have Been Volatile…
Past performance does not guarantee future results.Through December 31, 2010*The Index is represented by a 60% allocation to the MSCI World Index and 40% allocation to the Lipper Short/Intermediate Blended Municipal Fund Average. Performance is calculated monthly using a weighted sum of each component’s return. Individuals cannot invest directly in an index. Please see the end of the presentation for index definitions. **Stocks represented by MSCI World. Bonds represented by Barclays Capital Global Aggregate.This is a hypothetical example.Source: Barclays Capital, Lipper, MSCI and AllianceBernstein
Average
…But a Consistent Portfolio Has Largely Recovered from the Worst Market in 70 years
-40
-20
0
20
40
83 86 89 92 95 98 01 04 07 10
Pe
rce
nt
6
7
8
9
10
Oct 07 Apr 08 Oct 08 Apr 09 Oct 09 Apr 10 Oct 10U
S D
olla
r (0
00
)
3% Lower than Initial Investment
52% Increasefrom Trough
Rolling 12-Month Returns 60% Stocks/40% Bonds Index*
Growth of USD 10,00060% Stocks/40% Bonds**
Asset Allocation
25AllianceBernstein.com
Historical and Implied Equity Volatility*
20 21
29
26
21%
29%
S&P 500 MSCI EAFE FTSE 100
Actual over Past Decade Implied for Next Decade
Historical analysis and current forecasts do not guarantee future results.Through December 17, 2010*Implied volatility on long-dated index optionsIndividuals cannot invest directly in an index. Please see the end of the presentation for index definitions.Source: FTSE, JP Morgan, MSCI, Option Metrics, S&P, and AllianceBernstein
Investors Are Pricing In Persistent Long-Term Turmoil
Asset Allocation
26AllianceBernstein.com
Asset Allocation Tools: A Systematic Process for Weighing Risk and Return
Key Factors in Weighing Expected Risk and Return
SpreadsSentimentValuations
Interest RatesExpected Risk Expected Return
VolatilityCorrelations
Historical analysis and current forecasts do not guarantee future results.As of December 31, 2010Source: AllianceBernstein
Asset Allocation
Asset ClassExpected Volatility
Expected Return
Stocks Above Average Above Average
Bonds Below Average Below Average
Real Assets Above Average Above Average
27AllianceBernstein.com
Past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate as the prices of the individual securities in which they invest fluctuate, so that shares, when redeemed, may be worth more or less than their original cost.
Value investing does not guarantee a profit or eliminate risk. Not all companies whose stocks are considered to be “value” stocks are able to turn their business around or successfully employ corrective strategies that would result in stock prices that rise as initially expected.
Investments in foreign securities may magnify fluctuations due to changes in foreign exchange rates and the possibility of substantial volatility due to political and economic uncertainties in foreign countries. Investing in emerging markets and in developing countries also has the risk that market changes or other factors affecting emerging markets and developing countries, including political instability and unpredictable economic conditions, may have a significant effect on an investment’s performance.
Investing in non-US securities may be more volatile because of political, regulatory, market and economic uncertainties associated with such securities. These risks are magnified in securities of emerging or developing markets.
As interest rates rise, bond prices fall and vice versa—long-term securities tend to rise and fall more than short-term securities.
A Word About Risk
28AllianceBernstein.com
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 on slide 1)
Morgan Stanley Capital International (MSCI) World Index is a market capitalization–weighted index that measures the performance of stock markets in 23 countries.
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 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. (represents EAFE on slide 1)
MSCI Emerging Market Index is a free float–adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. It consists of 26 emerging market country indices. (represents EM on slide 1)
TOPIX Index measures stock prices on the Tokyo Stock Exchange (TSE).
Barclays Capital US Dollar Emerging Market Index includes USD-denominated debt from 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)
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 that 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)
Following is a description 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 US Corporate High Yield Index–2% Issuer Constrained 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 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.
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 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.
Barclays Capital US Aggregate represents securities that are SEC-registered, taxable and dollar denominated. The index covers the US investment-grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities.
Barclays Capital Euro Aggregate consists of bonds issued in the euro or the legacy currencies of the 16 sovereign countries participating in the European Monetary Union (EMU).
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Index Descriptions (continued)
Barclays Capital Global Aggregate Index provides a broad-based measure of the global investment-grade fixed-income markets. The three major components of this index are the US Aggregate, the Pan-European Aggregate and the Asian-Pacific Aggregate indices.
Barclays Capital Global 5–7 Year Treasury Index tracks fixed-rate local currency sovereign debt of investment-grade countries in the 5–7 year maturity range.
Barclays Capital Municipal Bond Index is a rules-based, market-value-weighted index engineered for the long-term tax-exempt bond market.
MSCI World Commodity Producers Index is a free float–adjusted market-capitalization index designed to track the performance of global listed commodity producers.
FTSE EPRA/NAREIT Developed Index is a free float–adjusted, liquidity, size and revenue screened index designed to track the performance of listed real estate companies and REITS worldwide.
DJ-UBS Total Return Commodity Index is an index made up of exchange-traded futures on 19 physical commodities, that are weighted to account for economic significance and market liquidity.
IMF Global Inflation Index is provided in the IMF’s monthly World Economic Outlook outlining their views on global inflation growth.
The Global Purchasing Managers’ Index is 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.
Russell 2500 Index measures the performance of the small to mid-cap segment of the US equity universe, commonly referred to as “smid” cap. The Russell 2500 Index 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.
Russell 2000 Index measures the performance of the small-cap segment of the US equity universe. The Russell 2000 Index 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.
FTSE 100 Index comprises the 100 most highly capitalized blue chip companies, representing approximately 81% of the UK market.
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