AB European Income Portfolio – October Talking Points
AllianceBernstein: Economic outlook remains challenging Our base case is still meaningful growth slowdown across the major economies, and recent data—in the eurozone in particular—are consistent with that expectation. While it’s clear that inflation is decelerating, it’s still uncertain whether it will fall all the way back to central banks’ policy targets.
In October, the Portfolio delivered positive absolute returns but underperformed its benchmark. Sector and security selection were the largest detractor from returns, primarily by our off-benchmark exposures to high-yield in the euro zone and UK.
Within security selection, our choices in consumer cyclicals, capital goods, and communications detracted from returns. Our yield curve positioning was a relative contributor, and the portfolio’s slight duration underweight was a marginal detractor.
The Portfolio’s risk is somewhat lower than its historical average. While looking for new opportunities, we prefer to focus on BBBs and BBs vs. lower rated issuers and have a preference for bonds in more defensive sectors.
Due to our belief that markets are underpricing the potential (and/or magnitude) of future cuts, we reduced exposure to longer German Bunds, and moved the proceeds to the 5-year part of the curve which is more likely to benefit from this mispricing. We also added to our Italian exposure on the back of positive developments regarding its credit rating.
Our HY corporate allocation is 40.0% Given tighter spreads, the potential for volatility and the challenging macro backdrop, we have reduced our high yield exposure throughout 2023. Corporate fundamentals are backwards looking, and the latest reported results are starting to show some signs of deterioration, but overall balance sheets remain very strong.
Outside of financials, our largest industry weights are in consumer cyclicals (12.6%) and communications (8.4%). We focus on companies with improved balance sheets and liquidity profiles. Within consumer cyclicals, we focus on higher quality bonds. We prefer businesses which should be more resilient during the current environment (like autos or local leisure issuers that can benefit from increased local vs. international travel as growth slows).
aviso legal 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. Investment in the Fund entails certain risks. Investment returns and principal value of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The Fund is meant as a vehicle for diversification and does not represent a complete investment program. Risks are described in the Fund’s prospectus. Prospective investors should read the prospectus carefully and discuss risk and the fund’s fees and charges with their financial adviser to determine if the investment is appropriate for them. References to specific securities are presented to illustrate the application of our investment philosophy only and are not to be considered recommendations by AB. The specific securities identified and described in this presentation do not represent all of the securities purchased, sold or recommended for the portfolio, and it should not be assumed that investments in the securities identified were or will be profitable. The value of an investment can go up or down and past performance is neither indicative of, nor a guarantee of, future results. The sale of AB funds may be restricted or subject to adverse tax consequences in certain jurisdictions. This information is directed solely at persons in jurisdictions where the funds and relevant share class are registered or who may otherwise lawfully receive it. Before investing in AB funds, investors should review the fund's full prospectus, together with the fund’s Key Investor Information Document and the most recent financial statements. Copies of these documents, including the latest annual report and, if issued thereafter, the latest semi-annual report, may be obtained free of charge from AllianceBernstein (Luxembourg) S.à r.l., by visiting www.alliancebernstein.com or by contacting the local distributor in the jurisdictions in which the funds are authorised for distribution. Note to European Readers: The Key Investor Information Document is available in the local language of each country in which the Fund is registered. The Fund’s Prospectus is available in English, French and German. This information is issued by AllianceBernstein Limited, 50 Berkeley Street, London W1J 8HA. Registered in England, No. 2551144. AllianceBernstein Limited is authorised and regulated in the UK by the Financial Conduct Authority (FCA). Note to Austrian and German Readers: Local paying and information agents: Austria—UniCredit Bank Austria AG, Schottengasse 6-8, 1010 Vienna; Germany—BHF-Bank Aktiengesellschaft, Bockenheimer Landstraße 10, 60323 Frankfurt am Main. Note to Liechtenstein Readers: The Fund is not registered for public distribution in Liechtenstein and, accordingly, shares may only be offered to a limited group of Professional Investors, in all cases and under all circumstances designed to preclude a public solicitation in Liechtenstein. This fact sheet may not be reproduced or used for any other purpose, nor be furnished to any person other than those to whom copies have personally been sent by AB. Neither the Fund nor the shares described therein have been subject to the review and supervision of the Liechtenstein Financial Market Authority. Note to Swiss Readers: This document is issued by AllianceBernstein Schweiz AG, Zurich, a company registered in Switzerland under company number CHE306.220.501. AllianceBernstein Schweiz AG is authorised and regulated in Switzerland by the Swiss Financial Market Supervisory Authority (FINMA) as a distributor of collective investment schemes. Swiss Representative & Swiss Paying Agent: BNP Paribas Securities Services, Paris, Succursale de Zürich. Registered office: Selnaustrasse 16, 8002 Zürich, Switzerland, which is also the place of performance and the place of jurisdiction for any litigation in relation to the distribution of shares in Switzerland. The Prospectus, the key investor information documents, the Articles or management regulations, and the annual and semiannual reports of the concerned fund may be requested without cost at the offices of the Swiss representative. Note to UK Readers: For Investment Professional use only. Not for distribution to individual investors. The Portfolio is a portfolio of AB FCP I, a mutual investment fund (fonds commun de placement) organized under the laws of Luxembourg. To SG readers: For financial representative use only. Not for inspection by, distribution or quotation to, the general public. To HK readers: For financial representative use only. Not for inspection by, distribution or quotation to, the general public. Source: AllianceBernstein (“AB”) Past performance is no guarantee of future results. There is no guarantee that any forecasts or opinions in these materials will be realized. This information should not be construed as an offer to sell, or solicitation of an offer to buy, or a recommendation for the securities for the Portfolio. The performance discussed in this commentary is net of fees and expenses, but does not account for the potential sales charges that may apply to certain share classes of the Portfolio. Investment in the Fund entails certain risks. Investment returns and principal value of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The Portfolio is meant as a vehicle for diversification and does not represent a complete investment program. Returns denominated in a currency other than the base currency of the portfolio may increase or decrease as a result of foreign exchange currency fluctuations. The portfolio is entitled to use derivative instruments for hedging and/or EPM purposes which may involve additional risks different from, and, in certain cases, greater than, the risks presented by more traditional investments. These and other risks are described in the Portfolio’s prospectus. Prospective investors should read the prospectus and Product Highlight Sheets/ Product Key Facts including risk factors carefully and discuss risk and the portfolio’s fees and charges with their financial adviser to determine if the investment is appropriate for them. This information is directed solely at persons in jurisdictions where the portfolio and relevant share class are registered or who may otherwise lawfully receive it. Before investing, investors should review the portfolio’s full prospectus, together with the portfolio’s Product Highlight Sheets/ Product Key Facts and the most recent financial statements. Copies of these documents, including the latest annual report and, if issued thereafter, the latest semi-annual report, maybe obtained free of charge from www.alliancebernstein.com / www.abfunds.com or by contacting the local distributor in the jurisdictions in which the portfolios are authorized for distribution. References to specific securities are presented to illustrate the application of our investment philosophy only and are not to be considered recommendations by AllianceBernstein. The specific securities identified and described in this presentation do not represent all of the securities purchased, sold or recommended for the portfolio, and it should not be assumed that investments in the securities identified were or will be profitable. AB portfolios are parts of AB FCP I or SICAV I (referred to as “AB”). AB FCP I, a mutual investment fund (fonds commun de placement) organized under the laws of the Grand Duchy of Luxembourg and AB SICAV I is an open-ended investment company with variable capital (société d'investissement à capital variable) under the laws of the Grand Duchy of Luxembourg. Prior to 5 February 2016, AB’s legal name was ACMBernstein and ACMBernstein SICAV, its trading name was AllianceBernstein. AllianceBernstein (Luxembourg) S.à r.l. is the management company of the Portfolio and has appointed AllianceBernstein (Singapore) Ltd. (Company Registration No. 199703364C) as its agent for service of process and as its Singapore representative. AllianceBernstein (Singapore) Ltd. is regulated by the Monetary Authority of Singapore. This advertisement has not been reviewed by the Monetary Authority of Singapore. The issuer of this document is AllianceBernstein Hong Kong Limited. This document has not been reviewed by the Securities and Futures Commission in Hong Kong. The [A/B] logo is a service mark of AllianceBernstein and AllianceBernstein® is a registered trademark used by permission of the owner, AllianceBernstein L.P. © 2019 AllianceBernstein L.P.