Bernstein International Strategic Equities Portfolio - SCB · NASDAQ:STESX
Bernstein International Strategic Equities Portfolio - SCB — Bernstein — Investor Presentation (April 2023)
48 slides from Bernstein International Strategic Equities Portfolio - SCB's investor presentation, April 2023
Slide 1: The Long And Variable Lag Arrives
The Long And Variable Lag Arrives 1Q23 Macro and Markets Perspective This presentation is provided by Bernstein. This presentation booklet has been provided to you for use in a private and confidential meeting to discuss a potential or existing investment-advisory relationship. This presentation is
Slide 2: Our Perspective: Idiosyncratic Issues Have a Broader Economic Impact
Our Perspective: Idiosyncratic Issues Have a Broader Economic Impact The banking sector is structurally stable, but inflation, economic activity, monetary policy, and investor/consumer appetite may all slow relative to the path pre-bank crisis. Bank Stress Let’s be clear, this is not 2008 redux. But
Slide 3: The Economic and Markets Outlook
The Economic and Markets Outlook Q1 2023 Macro and Markets Perspective 3
Slide 4: What Just Happened?! Fed Often Hikes Until Something Breaks
What Just Happened?! Fed Often Hikes Until Something Breaks How Silicon Valley Bank broke, and what came next Fed’s Current Hiking Cycle vs. Prior Cycles Silicon Valley Bank (Pre/Post) Timeline Year Hiking Cycle Began 5 2022 2004 Fed hikes 4 450 b.p. (beg. Mar. 16 Mar. 2022) $30B US bank Mar. 9–12 i
Slide 5: What's Changed Post-SVB?
What’s Changed Post-SVB? 5-Year Inflation Breakeven (Percent) What’s Already Changed: 1) Inflation expectations have come down. 3.0 YE 2023 inflation may hit 3.5% 2.8 2) Policy Expectations have softened 2.6 considerably—cuts now expected in June 2.4 3) Yields are all lower, pricing in a lower 2.2 t
Slide 6: Bank Stress Created Opportunity For Those Looking To Take Advantage
Bank Stress Created Opportunity For Those Looking To Take Advantage Secondaries Opportunities Catalyzed by the Current Environment: Private Discounted Valuations Micro-Cap Corporate Attractive entry points with assets now Target Return Banks Credit trading well below their long-term Quality Growth a
Slide 7: 2023: Slowing Inflation, Slowing Growth
2023: Slowing Inflation, Slowing Growth • Global growth: Tight monetary policy and banking sector stress will combine to slow growth (ex China). AB Economic Team Forecasts • Inflation: Inflation is likely to be sticky for a few more months but should slow significantly thereafter. 2023 2024 • Moneta
Slide 8: Where are we in the Cycle? Inflation and Economy Both Slowing
Where are we in the Cycle? Inflation and Economy Both Slowing Economic Activity Trend 80 Economic Activity (Manufacturing PMI) 70 Weak Strong Jan - Jun 2021 Growth has slowed globally and is likely to slow more as the 60 cumulative effects of rate hikes and financial sector turbulence weigh on the e
Slide 9: 2023 Earnings Expectations Need to Come Down, in Our Opinion
2023 Earnings Expectations Need to Come Down, in Our Opinion S&P 500 Consensus Estimates by Calendar Year (US Dollar) 250 240 2023 230 Current 2023 Street 220 $220 Consensus Estimate $218 2022 Year-End Result 2022 210 Our Base-Case, Midpoint $206 Estimate 200 190 180 Dec 19 May 20 Oct 20 Mar 21 Aug
Slide 10: Market May Be Ahead of Itself, But Still More Likely To Be Up For Year
Market May Be Ahead of Itself, But Still More Likely To Be Up For Year Scenario Analysis: S&P 500, YE 2023 – not incl. dividends 5,000 4,750 Bull: Growth/Inflation Crater + Rate Cuts 4,500 Growth and inflation fall rapidly. Fed feels 4,450 comfortable enough with the path to begin 4,250 cutting rate
Slide 11: The Path for Rates, Plus Bond Income, Will Drive Muni Returns
The Path for Rates, Plus Bond Income, Will Drive Muni Returns Scenario Analysis: Expected 12-Month Municipal Returns 5 US Treasury Rises to 4.0% Inflation slows but only modestly, causing the Fed to remain restrictive, for longer. In 4 4.0% this case, an intermediate-duration 10-Year US Treasury Yie
Slide 12: Bank Stress—Contained or Canary?
Bank Stress— Contained or Canary? Q1 2023 Macro and Markets Perspective 12
Slide 13: Broader Market Impact Has Been Limited
Broader Market Impact Has Been Limited The impact has been highly concentrated in the banking sector. 10% 0% S&P 500, 4% -10% Financial Sector*, (10)% -20% Banking Industry**, (19)% March Return -30% KRE Index^, (28)% Regional Banks***, (35)% -40% -50% S&P 500 Exposure (Weight, Percent) 12% -60% 4%
Slide 14: Despite Pressures, Market "Plumbing" Continued to Function Normally
Despite Pressures, Market “Plumbing” Continued to Function Normally SOFR (Percent) 6.0 5.0 Sept. 2019 Cash demand/supply imbalance Corporate tax payments drained cash from system 2023 Bank Stress Treasuries settled, increasing demand for cash Normal functioning despite SVB, Signature, etc. 4.0 3.0 2
Slide 15: Could Bank Stress Sink the Economy?
Could Bank Stress Sink the Economy? US Bank Demand for New Loans and GDP Growth 75 15 How to think through the impact: 60 13 • It’s early, but it seems likely that % of Banks Reporting Stronger Demand for Loans bank stress could lead to some 45 Demand for Commercial & 11 pullback of credit extension
Slide 16: Loan Losses Likely To Increase, Yet Sufficient Capital To Absorb Them
Loan Losses Likely To Increase, Yet Sufficient Capital To Absorb Them Non-Performing Loans (% of Total Loans) Loan Loss Reserves (% of Non-Performing Loans) 7 250 6 200 5 150 4 Average 3 100 Average 2 50 1 0 0 1991 1995 1999 2003 2007 2011 2015 2019 1991 1995 1999 2003 2007 2011 2015 2019 As of Marc
Slide 17: Is Inflation Receding or Sticky? Both.
Is Inflation Receding or Sticky? Both. Q1 2023 Macro and Markets Perspective 17
Slide 18: While Inflation Seems to Be Decelerating, A Linear Decline Is Unlikely
While Inflation Seems to Be Decelerating, A Linear Decline Is Unlikely While Inflation Seems to Be Trending in the Right Direction… …Fluctuations Are Likely on a More Granular Basis US CPI, Year over Year Contribution to Inflation, Month over Month 10 0.7 9 0.6 8 0.5 7 0.4 6 0.3 5 0.2 0.1 4 0.0 3 (0
Slide 19: While the Housing Market Has Softened, We Do Not See "Cracks"
While the Housing Market Has Softened, We Do Not See “Cracks” Housing price softness will eventually translate to declines in shelter inflation Challenged Affordability Should Yet Few Homeowners Are “Under Why It Matters: Home Prices Will Continue to Put Pressure on Demand Water” or Stretched Eventu
Slide 20: So Why Is Inflation Still an Issue?
So Why Is Inflation Still an Issue? In a word, wages. The Fed Will Not Be Convinced Disinflation Is Sustainable Though We Are Beginning to See Early Signs of Softness Until Wages Significantly Decelerate… 35.2 8 34.8 7 34.4 6 34.0 Average Weekly Hours Worked Returning to Normal % Change YoY 5 33.6 1
Slide 21: Inflation's Path: Still TBD
Inflation’s Path: Still TBD Economic Landscapes: Inflation quickly and sustainably Inflation falls slowly but steadily Inflation falls for a while, then Inflation doesn’t fall meaningfully approaches target during the year gets stuck and moves sideways 8 8 8 8 6 6 6 6 % Change YoY % Change YoY % Cha
Slide 22: How Long Can the Labor Market Stay Strong?
How Long Can the Labor Market Stay Strong? Q1 2023 Macro and Markets Perspective 22
Slide 23: Our Favorite Quote of The Quarter
Our Favorite Quote of The Quarter From The CEO At a Fortune 500 Company We can't hire a truck driver to drive a trash truck for $90,000 in Houston, Texas, but I can hire an M.B.A. from a small school for $60,000, and I can get them all day long.” As of March 31, 2023. Source: Company/CEO statements
Slide 24: Fed Hiking Weakens US Labor Market, but with a Lag
Fed Hiking Weakens US Labor Market, but with a Lag US Unemployment Rate and Fed Funds Target Rate Percent 16 7 14 6 US Unemployment Rate (LHS) 12 5 10 4 8 3 6 2 4 Fed Funds Target Rate (RHS) 1 2 0 0 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 As of March 31, 2023. Historical analysis is not ne
Slide 25: Why Does the Labor Market Matter?
Why Does the Labor Market Matter? While We Are Seeing Initial Signs of The Household Paycheck Is Still Keeping Consumer Spending High Labor-Market Softness Robust (and inflation with it) 15% 35.2 20.0 34.8 15.0 10% 34.4 Personal Consumption Expenditures, YoY 34.0 10.0 Average Weekly Hours Worked Ret
Slide 26: Appendix
Appendix Q1 2023 Macro and Markets Perspective 26
Slide 27: Markets Turned Hostile After Three Solid Years
Markets Turned Hostile After Three Solid Years Returns in US dollars 2019–2021 Cumulative Return 2022 Q1 2023 Global 74% (18)% 7% Developed World 80% (18)% 8% US 100% (18)% 7% Developed Int 48% (14)% Equities 8% EM 39% (20)% 4% US Growth 141% (29)% 14% US Value 63% (8)% 1% Global Agg 11% (16)% 3% Cr
Slide 28: Despite 2022, Many Investors Remain on Plan Due to Strong 2019–2021
Despite 2022, Many Investors Remain on Plan Due to Strong 2019–2021 Projected* and Actual Returns** (Annualized) Expected Returns by Asset Class (10-Year Annualized Growth Rates, %) 3 Years into Plan: 10-yr forecasted return as of Dec ‘19 8.8% 7.8 4.8% 7.4 7.1 7.2 1.1% 2019 2020 2021 2022 2023 2024
Slide 29: Our Priorities for Clients for the Year
Our Priorities for Clients for the Year Financial planning in a window of Right-sizing your cash allocation Revisiting your alternatives exposure opportunity We can explore a range of ideas, based on your Alternatives are a critical piece of a Today’s environment is an optimal environment for return
Slide 30: Bonds: A Story of Two Periods
Bonds: A Story of Two Periods 10-Yr US Treasury Yield October 24, 2022 4% 3% 2% 1% Jan 22 Feb 22 Mar 22 Apr 22 May 22 Jun 22 Jul 22 Aug 22 Sep 22 Oct 22 Nov 22 Dec 22 Jan 23 Feb 23 Mar 23 9% 2022 Bond Total Returns 7% Returns: 1/3/22–10/24/22 Municipals (12.7)% 5% Taxable Bonds (16.8)% 3% 0% 1% (5)%
Slide 31: Assuming Inflation Trend Continues, Fed Likely Done
Assuming Inflation Trend Continues, Fed Likely Done Change in Fed Funds Rates During Previous Hiking Cycles Year Hiking Expected for 2023 Cycle Began 5 3/31/2023: 475 b.p. of tightening in 12 mos. 2022 2004 This cycle has seen the 4 most rapid increase in rates Change in Fed Funds Rate* at the large
Slide 32: Forecast Ranges Are Wide, Underscoring Uncertainty
Forecast Ranges Are Wide, Underscoring Uncertainty Inflation (Core PCE, YoY % Change) US Unemployment Rate (%) Fed Funds Target Rate (%, Upper Bound) 7 6 6 High: 5.6 High: High: 6 5.5 6 5 5.5 5.25 4.3 5 4 5 4 3.5 3 Low: 3.5 4.5 3 2 4 2 Low: 2.2 1 1 3.5 Low: 3.5 0 0 3 Median 2023 Range in 2023 Median
Slide 33: Relative US Valuations Expensive vs. History
Relative US Valuations Expensive vs. History Spread Between US and International Multiples 10x 8x S&P 500—MSCI ACWI ex USA PE 6x US—International PE Spread 4x 2x Average 0x (2)x (4)x (6)x (8)x 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 As of March 31, 2023. Past performanc
Slide 34: International Leadership Is Episodic; You Want to Be There When It Turns
International Leadership Is Episodic; You Want to Be There When It Turns Growth of a Dollar Dev Int: Emerging US: Emerging Markets: US: Apr 1984– Markets: Dec 1994–Mar Apr 2000–Dec 2007 Jan 2008–Mar 2023 Dec 1987 Jan 1988–Nov 1994 2000 3.5 6.5 3.5 3.5 4.5 3.5 2.5 4.5 2.5 2.5 2.5 1.5 2.5 1.5 1.5 1.5
Slide 35: Stocks Have Mostly Risen Despite Intra-Year Corrections
Stocks Have Mostly Risen Despite Intra-Year Corrections S&P 500 (%) by Calendar Year 40 Year’s Total Return 30 20 10 0 (10) (20) (30) (40) Intra-Year Peak-to-Trough Decline (50) 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 As of March
Slide 36: ~25% of Any Recovery Occurs in Month One, ~40% by Month Three
~25% of Any Recovery Occurs in Month One, ~40% by Month Three % of % of Weeks Recovery in Recovery in After a Bear Market Troughs Peak-to- Peak-to- from Start 1st Month 1st 3 Months % Recovery Occurring in… Peak Trough Peak-to- Recovery to Down Following Following Month Months Trough Fall Months 20%
Slide 37: Market Sell-Offs: Last 60 Years
Market Sell-Offs: Last 60 Years Cumulative Returns Peak-to- 12-Month Return 3-Year Return 5-Year Return 10-Year Return Peak Trough Peak-to- Trough Following Following Following Following Month Month Trough Fall Trough Trough** Trough** Trough** Months 12/12/1961 6/26/1962 6 (27)% 37% 75% 106% 186% 2
Slide 38: Earnings and Unemployment Levels Around Market Troughs
Earnings and Unemployment Levels Around Market Troughs 40% 30% 10% 10% 50% 30% 6% 25% 0% 9% 30% 20% 20% (10)% 5% 8% 10% 10% 15% (20)% (10)% 7% 0% 4% (10)% 10% (30)% (30)% 6% (20)% 5% (40)% 3% (50)% 5% Apr 59 Jan 60 Oct 60 Jul 61 Dec 68 Sep 69 Jun 70 Mar 71 Mar 73 Dec 73 Sep 74 Jun 75 45% 8% 30% 12%
Slide 39: Ten-Year Capital Markets Projections: Asset Classes
Ten-Year Capital Markets Projections: Asset Classes Median 10-Year Mean Annual Mean Annual One-Year 10-Year Annual Growth Rate Return Income Volatility Equivalent Volatility Cash Equivalents 3.5% 3.6% 3.6% 0.5% 4.9% Short-Term Treasuries 4.2% 4.3% 4.0% 1.2% 4.1% Short-Term Taxables 4.5% 4.6% 4.5% 1.
Slide 40: Notes on Wealth Forecasting System
Notes on Wealth Forecasting System 1. Purpose and Description of Wealth Forecasting Analysis Bernstein’s Wealth Forecasting Analysis is designed to assist investors in making their long-term investment decisions as to their allocation of investments among categories of financial assets. Our planning
Slide 41: Notes on Wealth Forecasting System
Notes on Wealth Forecasting System 2. Modeled Asset Classes The following assets or indexes were used in this analysis to represent the various model classes: Asset Class Modeled As Annual Turnover Cash Equivalents 3-month US Treasury bills 100% Short-Term Treasuries US Treasuries of 2-year maturity
Slide 42: Notes on Wealth Forecasting System
Notes on Wealth Forecasting System 3. Volatility Volatility is a measure of dispersion of expected returns around the average. The greater the volatility, the more likely it is that returns in any one period will be substantially above or below the expected result. The volatility for each asset clas
Slide 43: Notes on Wealth Forecasting System
Notes on Wealth Forecasting System 7. Tax Rates Bernstein’s Wealth Forecasting Analysis has used the following tax rates for this analysis: Federal Income Federal Capital State Income State Capital Tax Method Taxpayer Scenario Start Year End Year Tax Rate Gains Tax Rate Tax Rate Gains Tax Rate Type
Slide 44: Index Descriptions
Index Descriptions The Bloomberg Global High Yield Index represents noninvestment-grade fixed-income securities of companies in the US, developed and emerging markets. The Bloomberg US Treasury Index represents the performance of US Treasuries within the US government fixed-income market. The Bloomb
Slide 45: Glossary
Glossary Active Management: Managing a portfolio through security selection designed to outperform the portfolio’s benchmark. Active Share: The degree of difference between a portfolio and its benchmark index, calculated using the weight of individual securities in the portfolio relative to the benc
Slide 46: Glossary (cont.)
Glossary (cont.) Inflation-Protected Bonds: Bonds whose values are indexed to inflation, normally adjusted on a semiannual basis. The most well known are Treasury Inflation- Protected Securities, or TIPS. Inflation-protected bonds are designed to shield investors from the negative impact of inflatio
Slide 47: 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
Slide 48: The [A/B] logo is a registered service mark of AllianceBernstein, and AllianceBernstein ® is
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. BPWM-367097-2023-04-04