AllianceBernstein Holding L.P. · NYSE:AB
AllianceBernstein Holding L.P — Q2 2023 Earnings Presentation
59 slides from AllianceBernstein Holding L.P's earnings presentation, April 2023
Slide 1: Capital Markets Outlook: Season of the Known Unknowns
Capital Markets Outlook Season of the Known Unknowns Second Quarter 2023 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 veri
Slide 2: 1Q 23: After a Roller-Coaster Quarter, Performance Was Solid Across the Board
1Q 23: After a Roller-Coaster Quarter, Performance Was Solid Across the Board 1Q:2023 One-Year Two-Year Returns (Percent) Returns (Percent) Returns (Percent) US Large-Cap 7.5 –7.7 6.7 US Small-Cap 2.7 –11.6 –16.7 Equities EAFE* 8.5 –1.4 –0.2 Emerging Markets 4.0 –10.7 –20.9 US High Yield 3.6 –3.3 –4
Slide 3: First Quarter S&P 500 Price Chart: Three Months, Three Stories
First Quarter S&P 500 Price Chart: Three Months, Three Stories January: +6.2% February: –2.6% March: +3.5% Signs of “Disinflation” Not So Fast: Strong Payrolls, CPI, PPI, PCE Banking Scare 4,250 Strong Beat in Jan Jobs Report 4,200 Jan CPI Report Jan PPI Powell 4,150 Dec PCE Report Testimony to 4Q T
Slide 4: Known Unknown: Banking Scare (Known)
Known Unknown: Banking Scare (Known) Timeline of Events: Banking Scare Idiosyncratic in Nature; Not Due to “Bad Assets” Like Previous Crises March 8 9 10 12 Silicon Valley Panic spreads SVB shares are Federal Bank (SVB) through text and halted, and regulators announces it social media as federal ann
Slide 5: Known Unknown: Banking Scare (Known)
Known Unknown: Banking Scare (Known) Fed’s Balance Sheet Expanded… …as Financials Accessed the Discount Window and Newly Created Bank Term Funding Program (BTFP) 9 180,000 Discount Window: Valued at its fair 160,000 market value and maturity is up to 90 days 8 140,000 BTFP: Valued at par and 120,000
Slide 6: Market Fears Led to Large Outflows…and Inflows
Market Fears Led to Large Outflows…and Inflows Banks Saw Massive Inflows Due to the However, Recent Outflows Have Been …with Outflows Going into Money COVID-19 Crisis Mostly Contained to Smaller Banks… Market Funds Trillions of dollars Trillions of dollars Trillions of dollars 19 11.5 5.8 5.3 $2.5 T
Slide 7: Will Regional Deposit Outflows Lead Banks to Cut Lending? (Unknown)
Will Regional Deposit Outflows Lead Banks to Cut Lending? (Unknown) Spreads Haven't Seen a Material Consequently, Traditional Indexes Senior Loan Officer Opinion Survey Widening in Response to the Banking Haven’t Captured the Likely Impact of (SLOOS) Pointing to Credit Contraction Scare Recent Event
Slide 8: Same Old Song and Dance: Rates Driving Markets
Same Old Song and Dance: Rates Driving Markets After the Dust Settled, Rate Expectations for 2023 Remained However, Looking Further Out Shows Markets Expect Largely Unchanged from the Start of the Quarter Further Cuts January: February: March: 3.0 No Change +1 Exp. Rate Hike –1 Expected Rate Hike 5.
Slide 9: Duration at Terminal Rate, Not the Terminal Rate Itself, Is the More Important Variable
Duration at Terminal Rate, Not the Terminal Rate Itself, Is the More Important Variable The Fed Also Expects Further Cuts… …but Markets Expect Them Sooner Than Later Percent Percent 2023 2024 2025 Longer Run 6.00 ● — — — 7 5.75 ●●● ● ● — Fed Expected FFR Market Expected FFR 5.50 ●●● ● — — 5.25 ●●●●●
Slide 10: Good News: Inflation Measures Are Painting a Rosier Picture…
Good News: Inflation Measures Are Painting a Rosier Picture… Headline CPI Headline PCE Headline PPI Percent Percent Percent 10 12 8 10 14 16 9 9 7 12 14 10 8 8 6 10 12 7 7 8 5 8 10 6 6 5 6 4 5 6 8 4 4 3 4 6 4 3 3 2 2 4 2 2 2 1 0 2 1 1 0 0 0 0 –2 0 Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Jul Oct
Slide 11: …However, We Are Not Out of the Woods Yet
…However, We Are Not Out of the Woods Yet: Most Services Ex-Shelter Categories Remain Elevated Transportation Services Recreation Services Food Away from Home Medical Care Services Annualized rolling three-month Annualized rolling three-month Annualized rolling three-month Annualized rolling three-m
Slide 12: Bringing a More Natural Balance to the Labor Market Remains the Fed's Top Priority
Bringing a More “Natural” Balance to the Labor Market Remains the Fed’s Top Priority We Continue to Add Jobs at As Workers Return to the However, We Are Seeing Leading to a Deceleration in an Above-Average Pace Labor Force (Percent) Signs of Softening Wage Growth (Percent) 63.5 2.3 28 9 Mar 23 Feb 2
Slide 13: In Order to Soften the Labor Market, the Fed Must Weaken Demand
In Order to Soften the Labor Market, the Fed Must Weaken Demand, but Has It Done Enough? ISM Services ISM Manufacturing 90 100 80 90 80 70 70 60 60 50 50 40 40 30 30 20 20 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan 19 19 19 20 20 20 21 21
Slide 14: Macro Summary
Macro Summary Global growth to remain challenged throughout 2023 AB Global Economic Forecast: April 2023 Real Growth (Percent) Inflation (Percent) Official Rates (Percent) Long Rates (Percent) 23F 24F 23F 24F 23F 24F 23F 24F Global ex. Russia 2.0 2.5 5.1 3.2 4.74 3.46 3.67 3.11 Industrial Countries
Slide 15: Earnings Preview
Earnings Preview Bottom-Up Earnings Expectations Are Expected to Bottom …as Available Guidance Remains Mostly Negative Out this Quarter… 30 58.44 57.55 25 56.64 56.86 20 55.33 55.59 15 54.39 53.82 54.03 53.42 10 52.73 5 50.75 0 Consumer Staples Energy Materials Utilities Financials Real Estate Techn
Slide 16: Valuations: As Earnings Growth Stalls, Valuations Hover Near a Ceiling
Valuations: As Earnings Growth Stalls, Valuations Hover Near a Ceiling Only Breached During the Dot-Com Bubble and Post COVID-19 Period S&P 500 Multiples 27 Time Period P/E P/BFE P/FE1 P/FE2 P/FE3 25 March 31, 2023 19.7 18.3 18.8 17.0 15.6 23 December 31, 2022 18.6 16.7 17.5 16.4 15.0 21 FFR at Dece
Slide 17: Scenario Chart: Choose Your Own Adventure
Scenario Chart: Choose Your Own Adventure S&P 500 Return Scenario Chart 2023 13 14 15 16 17 18 19 20 21 S&P Price Level 2023 Price Return* 200 2,600 2,800 3,000 3,200 3,400 3,600 3,800 4,000 4,200 3,360 –18.23% 205 2,665 2,870 3,075 3,280 3,485 3,690 3,895 4,100 4,305 3,520 –14.33% 210 2,730 2,940 3
Slide 18: Narrow Leadership Is a Reversal from Last Year's Broadening Market
Narrow Leadership Is a Reversal from Last Year’s Broadening Market S&P 500’s first-quarter returns driven by only three sectors outperforming the index Outperformers: Driven in Part by the In the Quarter, 90% of the S&P 500’s What and How Much You Own in These Prospects of an Easing Fed and Lower Re
Slide 19: Taking Another Step Below the Surface
Taking Another Step Below the Surface Speculative stocks: the new comeback kids? More Suspect Groups of Stocks Did Not Exhibit Grace Under Higher-Beta Stocks Have Jumped, Even as Economic Growth Pressure as Economic Growth Fears Emerged (Percent) Has Slowed; Expect This to Revert Back to Prior Trend
Slide 20: Earnings Surprises and Growth Are Likely to Remain Subdued
Earnings Surprises and Growth Are Likely to Remain Subdued Tighter financial conditions and slower economic growth have their consequences Upside Surprises Running Well Below the Recent Average Changes in Earnings and PMIs Are Highly Correlated S&P 500 earnings surprise (percent) US Manufacturing PM
Slide 21: What You Own Matters, Especially When Earnings Are Slowing
What You Own Matters, Especially When Earnings Are Slowing Best-Performing Factors When Worst-Performing Factors When EPS Estimates Fall EPS Estimates Fall Peak in Trough in Net Income FCF to EV Debt to MV Negative ROA (Percent) Beta (Percent) NTM EPS NTM EPS Margin (Percent) (Percent) (Percent) Ear
Slide 22: Opportunities in Quality Growth: Selective Healthcare and Technology
Opportunities in Quality Growth: Selective Healthcare and Technology A balance of lower-cyclical healthcare and in areas of technology where further recovery is expected Drilling Deeper: Discovering Attractive Risk/Reward Rapid Adoption of Artificial Intelligence (AI) Has Growth Potential at the Ind
Slide 23: A Diverse Set of Opportunities in Value Equities Having Earnings Visibility
A Diverse Set of Opportunities in Value Equities Having Earnings Visibility Attractive valuations and lingering inflation support maintaining balance by style Favored Industries Among Value (Percent) 90 Years of Inflation and Value: Is Inflation All That Was Missing? US consumer price inflation and
Slide 24: Low Volatility: Versatile Equity Exposure Trading at a Discount
Low Volatility: Versatile Equity Exposure Trading at a Discount Low-Volatility Performance in Different Market-Return Low-Beta Valuation Percentile Rank Is Compelling* Regimes (Percent) 21.8 Low Beta 18.0 Cheap 0 9.3 7.3 7.9 25 18 2.7 50 –5.7 75 –12.9 <0 0–5 5–10 >10 Expensive 100 US Market US Minim
Slide 25: Remain Invested and Focus on Risk Mitigation
Remain Invested and Focus on Risk Mitigation Consider your alternatives…defensive equity exposures can take on different textures In It to Win It: A Proof Statement… …but Beware of Drawdowns S&P 500: hypothetical growth of US$10,000 Underwater drawdown (percent) 1,200,000 0 1,000,000 –10 800,000 –20
Slide 26: International Equities: Unique Alpha Opportunities with an Improved Setup
International Equities: Unique Alpha Opportunities with an Improved Setup US investors: a further weakening US dollar could be a key tailwind for international stocks The Start of a New Phase? Weaker Dollar Boosts International Equity Returns (Percent) Monthly trade-weighted dollar index (2006=100)
Slide 27: Bonds Rallied as Rate Expectations Dropped Dramatically on the Back of Bank Runs
Bonds Rallied as Rate Expectations Dropped Dramatically on the Back of Bank Runs Bond Returns (Percent) Largest One-Day Drop in Bond Yields Since the Volker Era Two-Year Dropped Over 100 b.p. in Just a Few Days Yield Yield 5.5 US Treasuries 2023 Return (Mar 31, 2023) (Dec 31, 2022) Peak Rates During
Slide 28: US Corporate Credit Yields Turned Lower
US Corporate Credit Yields Turned Lower Investment-Grade YTW Fell for a …While High-Yield YTW Experienced a There Is Still a Fear for Further Second Consecutive Quarter… Similar Compression as Both the Widening: US High-Yield Spreads Spread and Rate Continued Lower Remain Relatively Narrow 1,200 1,2
Slide 29: US High-Yield Fundamentals: Strong Starting Point
US High-Yield Fundamentals: Strong Starting Point Net Leverage (Debt/EBITDA) Default Rates (Percent) 5.3 12 4.8 9 4.3 6 3.8 3.3 3 2.8 0 1Q:08 2Q:15 3Q:22 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 EBITDA Margin (Percent) Interest Coverage (EBITDA/Interest) 20 6.0 19 5.5 18 5.0 17 4.5 16 4
Slide 30: Why Starting Point Matters—Interest Coverage Provides Cushion
Why Starting Point Matters—Interest Coverage Provides Cushion If EBITDA declines 20% (similar to GFC), interest coverage remains at over 3.0× Interest Coverage (EBITDA/Interest) 6.0 5.5 5.0 5.9× Current Coverage 4.5 4.0 Reset Debt 3.9× Costs Higher* 3.5 Mild Recession 3.5× EBITDA –10% 3.0 Deep Reces
Slide 31: Today, the High-Yield Market Is Higher Quality, with Manageable Maturities
Today, the High-Yield Market Is Higher Quality, with Manageable Maturities The US High Yield Index Is Much Higher Quality Today Over the Next Two Years, Only 5% of the Market Matures; Less Than 1% Is in CCCs 20 100 14 13 12 12 11 11 11 16 18 16 16 14 Cumulative 18 90 Percent 16 of Market 80 (Right S
Slide 32: Attractive Entry Point and Getting Paid for Higher Defaults
Attractive Entry Point and Getting Paid for Higher Defaults Historically, YTW has been a good predictor for returns over the next five years Starting YTW vs. Five-Year Forward Annualized Returns At Current Spread Levels, Break-Even Defaults Almost 6.0% Percent per Year, for the Next Four Years 25 14
Slide 33: High Yield Could Have Solid to Strong Returns Under Different Economic Scenarios
High Yield Could Have Solid to Strong Returns Under Different Economic Scenarios Sample 12-month forward returns Deeper Recession Mild Recession Medium Growth, Low Inflation Stagflation Spreads widen 200 b.p. Spreads widen 50 b.p. Spreads tighten 50 b.p. Spreads widen 150 b.p. Treasury yields declin
Slide 34: But Investors Trying to Time the Best Entry Point Could Miss Out
But Investors Trying to Time the Best Entry Point Could Miss Out on Most of the Returns Annualized Total Returns Since Inception High Yield Recovers Quickly with Strong Returns After a Drawdown When Drawdowns Were… Percent of Return Missed If Not Fully Invested –5% or more (13 Instances) Average rec
Slide 35: Yields Remain near 10-Year Highs for Much of the Bond Market…but for How Long?
Yields Remain near 10-Year Highs for Much of the Bond Market…but for How Long? Ten-Year Yield-to-Worst Range April 2013–March 2023 13.89 12.44 11.86 11.50 11.18 11.43 11.46 10.52 10.85 9.71 9.42 11.08 11.23 8.96 9.19 9.14 9.18 8.10 7.13 8.51 9.03 6.10 5.78 7.93 6.86 5.42 5.37 5.18 5.59 5.12 4.96 4.1
Slide 36: Volatility Was Heightened During 1Q
Volatility Was Heightened During 1Q Municipal market was supported by better technicals Rolling Five-Day Municipal Flows US Treasury and AAA Municipal Yields Bloomberg Municipal Index Return USD billions Percent Percent 4 4.5 2.87 2.78 3 2.22 4.0 2 US Treasury 1 3.5 0 3.0 –1 Municipals –2 2.5 –3 –2.
Slide 37: Midgrade and High Yield Outperformed High Grade
Midgrade and High Yield Outperformed High Grade Municipal credit fundamentals are historically strong Year-to-Date Returns by Credit Quality State Rainy Day Fund Balances Are at Upgrades Have Outpaced Downgrades Percent All-Time Highs for Seven Consecutive Quarters USD billions Percent 140 100 AAA 2
Slide 38: Cross-Market Trades Have Benefits
Cross-Market Trades Have Benefits Munis went from expensive to cheap then back to expensive at the end of the quarter AAA Muni vs. UST After-Tax Spreads Two-Year AAA Muni/UST After-Tax Spread Basis points Basis points 40 Dec 31, Feb 6, Mar 20, Mar 31, Five-Yr. Maturity 2022 2023 2023 2023 Average 30
Slide 39: Investor Entry Point Is Attractive Today
Investor Entry Point Is Attractive Today Higher yields, wide credit spreads and supportive Fed Bloomberg Municipal Index Yield to BBB Municipal Credit Spreads Market-Implied Fed Funds Rate Worst (Percent) Basis points Percent 6 140 5 130 5 120 4 4 110 3 100 3 90 2 2 80 70 1 1 60 0 50 0 00 02 04 06 0
Slide 40: Technical Environment Provides Support
Technical Environment Provides Support Low supply and increased demand as we move into summer months Tax-Exempt New Issue Supply Has Been Low Summer Reinvestment Capital Is Supportive Billions Percent 50 82 72 40 63 30 20 10 0 2022 2023 Five-Year Average Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov D
Slide 41: Portfolio Construction for Today's Environment
Portfolio Construction for Today’s Environment Overweight municipal credit, duration neutral and barbell maturity structure AB Municipal Credit Blend Active Better Positioned than Passive 4.5 AB Muni Credit Blend 4.0 Overweight Credit, High Emphasis on A/BBB Yield Yield to Worst (Percent) 15% High G
Slide 42: The Path to Even for Investors Is Well on Its Way
The Path to Even for Investors Is Well on Its Way The Path Back to Even for Investors 14.99 7.89 3.25 2.10 1.75 –12.86 Max Drawdown Through Recovery Through Yield to Worst as of Additional Performance Additional Performance if Potential 17-Month 10/31/2022 3/31/2023 3/31/2023 if Yields Fall 50 b.p.
Slide 43: Appendix
Appendix Capital Markets Outlook 2Q23 43
Slide 44: Choose Your Own Adventure: Inflation Edition
Choose Your Own Adventure: Inflation Edition June 2023 Likely to See Headline CPI Low for the Year But the Final Path Remains Uncertain and the Second Half Headline CPI (percent) of 2023 Likely Includes an Inflation Bounce (Percent) YoY CPI: YoY CPI: YoY CPI: YoY CPI: YoY CPI: YoY CPI: YoY CPI: 10 +
Slide 45: Debt Ceiling
Debt Ceiling 101 What Is the Debt Ceiling? 35,000 Prior to 1917, US government borrowing was approved on a use-specific basis. In 1917, borrowing was changed to approval at an aggregate 30,000 level more similar to today. Between World War I and World War II, the form of statutory restrictions on fe
Slide 46: From Here to There? Possible Steps in Gaming the Precipice
From Here to There? Possible Steps in Gaming the Precipice First, Extraordinary Measures… …Then, Prioritizing Payments?? When Is a Default Not a Default? Kicking the can day by day What are extraordinary measures? “House Republicans Want Government Credit to Take If Treasury does miss a payment, is
Slide 47: Contextualizing US Debt Levels: Debt Relative to Output
Contextualizing US Debt Levels: Debt Relative to Output Debt to GDP (Percent) Who Owns the Debt? (Trillions) Public Debt to GDP (Percent) 140 35 110 100 30 120 90 25 100 80 20 70 24.58 80 15 60 60 50 10 11.56 40 40 5 6.87 30 4.87 20 0 20 70 74 78 82 86 90 94 98 02 06 10 14 18 22 2013 2023 70 74 78 8
Slide 48: Low Rates Have Allowed for Low Debt Service Costs
Low Rates Have Allowed for Low Debt Service Costs US Yearly Interest as a Percent of GDP Despite Recent Rise, the Average Interest Rate on US Treasury Securities Remains Low 3.50 7 3.00 6 2.50 5 2.00 4 1.50 3 1.00 2 0.50 1 0.00 0 40 49 58 67 76 85 94 03 12 21 00 01 03 04 05 07 08 10 11 12 14 15 17 1
Slide 49: Commercial Mortgage Market Is Challenged; Picking Your Spots Is Critical
Commercial Mortgage Market Is Challenged; Picking Your Spots Is Critical Fundamentals Vary by Property Types Older Vintages Have Lower Exposure to Offices Conduit office exposure by vintage (percent) • Office space is highest concern due to much lower demand 100 • More recent vintages have higher ex
Slide 50: A Strategic Case for Small-Cap Stocks
A Strategic Case for Small-Cap Stocks Small-Caps Are Still at 4.3% of the Small-Cap Performance Typically Maintain an Even Measure Between Equity Market and Present a Rebounds After a Negative Year Small/SMID Value and Growth Styles Rebalancing Opportunity 18 Performance Following Negative Year Favo
Slide 51: Dollar-Cost Averaging During Uncertainty Is Often Better than Waiting
Dollar-Cost Averaging During Uncertainty Is Often Better than Waiting for the All-Clear Signal Peak Trough 12-Month Return 12-Month Return Following 12-Month Return Following Month Month Following Trough Trough: Excluding Best Five Days Trough: Three-Month DCA Strategy 5/29/1946 5/19/1947 26% 6% 16%
Slide 52: Timing the Market Means Getting Out and Getting Back In
Timing the Market Means Getting Out and Getting Back In S&P 500 Rolling Three-Year Returns, Annualized, 1988–2022 The Cost of Missing Out • Getting out in advance of a major sell- 11.1% off is difficult to time. Getting back in is equally difficult • Further, the after-tax impact makes the hurdle fo
Slide 53: Cross-Market Trades Have Benefits
Cross-Market Trades Have Benefits Munis went from expensive to cheap then back to expensive at the end of the quarter AAA Muni vs. UST After-Tax Spreads Two-Year AAA Muni/UST After-Tax Spread Basis points Basis points 40 Dec 31, Feb 6, Mar 20, Mar 31, Five-Yr. AB Exits UST Trade Maturity 2022 2023 2
Slide 54: Disclosures and Important Information
Disclosures and Important Information Hypothetical, back-tested or simulated performance has many inherent limitations only some of which are described herein. The hypothetical performance shown herein has been constructed with the benefit of hindsight and does not reflect the impact that certain ec
Slide 55: A Word About Risk
A Word About Risk The information contained here reflects the views of AllianceBernstein L.P. or its affiliates and sources it believes are reliable as of the date of this publication. AllianceBernstein L.P. makes no representations or warranties concerning the accuracy of any data. There is no guar
Slide 56: Index Definitions
Index Definitions Following are definitions of the indices referred to in this presentation. It is important to recognize that all indices are unmanaged and do not reflect fees and expenses associated with the active management of a mutual fund portfolio. Investors cannot invest directly in an index
Slide 57: Index Definitions (cont.)
Index Definitions (cont.) • Bloomberg US Corporate High-Yield Bond Index: Represents the corporate component of the Bloomberg Barclays US High-Yield Index. (Represents US high yield on slide 2) • Bloomberg U.S. High Yield Index: Covers the universe of fixed rate, non-investment grade debt. Eurobonds
Slide 58: Index Definitions (cont.)
Index Definitions (cont.) • MSCI Japan Index: Designed to measure the performance of the large- and mid-cap segments of the Japanese market. With 321 constituents, the index covers approximately 85% of the free float–adjusted market capitalization in Japan • MSCI United Kingdom Index: Designed to me
Slide 59: The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P. © 2023 AllianceBernstein L.P. www.AllianceBernstein.com IMA-370334-2023-04-12