Investment Universe, Process, Strategy and Benchmark – How does the Fund Manager invest? (ISIN: LU0095025721)Arif Husain: "We believe that inefficiencies in the global debt markets arise from investor emotion, market complexity and conflicting investment agendas, and that the resultant mispricings in securities and sectors are the biggest potential source of added value for our clients. We use quantitative and fundamental credit and economic research to identify and exploit these inefficiencies. The Portfolio seeks to achieve a high current income with the potential for capital appreciation by investing in a diversified portfolio of Euro- or European currency-denominated investment grade and non-investment grade fixed income securities. The Portfolio may invest up to 50% of its total assets in securities that are rated below investment grade. In evaluating securities, the investment manager utilizes its internal credit analysis resources as well as financial and economic information obtained from other sources.
The benchmark is the 65% Barclays Capital Euro Aggregate Bond Index/ 35% Barclays Capital Euro High Yield Index, 2% Constrained."
Fund management team:
Douglas J. Peebles: CIO & Head — Fixed Income
Arif Husain: Director — European Fixed Income
Performance Review 2005
Arif Husain: "In 2005, euro-area economic growth accelerated, central bank rates rose and credit spreads tightened as the after-effects of the US auto-sector downgrades subsided. The AllianceBernstein European Income Opportunities Portfolio achieved robust absolute returns, outperforming its peer group (as measured by the Lipper Bond Europe class of funds.)"
Performance Review 2006
Arif Husain: "Euro-area interest rates continued to rise in 2006 as economic growth remained on track. Corporate bonds outperformed other bond sectors as credit spreads continued to tighten. The fund ended the year with modest absolute returns, remaining ahead of its peer group."
Performance Review 2007
Arif Husain: "The subprime mortgage crisis started to unfold in 2007, heralding challenging times for corporate bond managers as investors began a stampede out of risk assets into safe havens such as government bonds. The portfolio ended the year modestly lower and underperformed its peer group as its credit exposure, particularly in the financial sector, detracted from performance."
Performance Review 2008
Arif Husain: "The subprime crisis escalated into a broader global credit crisis in 2008, triggering a spike in risk aversion among investors. The portfolio suffered significant mark-to-market losses, underperforming its peer group. While the fund had no direct exposure to sub-prime, collateralized debt obligations (CDOs) or other structured assets, its significant overweight in corporate credit, especially European investment grade, resulted in volatile performance."
Performance Review 2009
Arif Husain: "Coordinated monetary and fiscal stimulus measures by global economic policymakers set the stage for a sharp rebound in investor risk appetite in 2009. Following the massive credit sell off of the previous 18 months, we believed we were seeing unprecedented opportunities in corporate bonds. We took advantage of numerous opportunities, adding to the fund’s existing allocation to both investment grade credit and high yield. The subsequent rally in credit led to dramatic outperformance in 2009."
Performance Review 2010
Arif Husain: "Although the market’s secular recovery remained largely intact in 2010, supported by resilient emerging-market economies, the European sovereign debt crisis and concerns about a double-dip recession in the developed economies triggered several bouts of risk aversion among investors. The fund generated strong gains, outperforming its peer group. Our most successful strategy was avoiding exposure to highly indebted countries such as Greece, Spain and Portugal."
Performance Review 2011
Arif Husain: "In 2011 the Portfolio underperformed its blended benchmark, the 65% Barclays Capital Euro Aggregate Bond/35% Barclays Capital Euro High Yield Index 2% Capped.
Towards the end of the year security selection was hurt by our underweight to peripheral European governments, which rallied as a result of the European Central Bank’s (ECB’s) measures to support bank liquidity. This underperformance was offset by positive security selection from investment-grade corporates and high-yield corporates. Yield curve positioning also helped performance, particularly along the euro zone curve."
Performance Review 2012 - Year-to-Date
Arif Husain: "The portfolio has got off to a very strong start to 2012 both in absolute and relative terms. Increased liquidity in Europe has driven stronger returns. The Portfolio outperformed mainly as a result of our allocation to covered bonds, investment grade corporates and high yield. Security selection, particularly sub investment grade corporates and emerging-market sovereigns also helped. Our positioning in the Polish zloty helped currency selection. Country selection has detracted, especially our underweights in peripheral Europe." (end Feb 2012)