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Rating:Three Things to Know From AB's Q2 2013 Earnings Not Rated 5.0 Email Routing List Email & Route  Print Print
Monday, August 05, 2013

Three Things to Know From AB's Q2 2013 Earnings

News summary by MFWire's editors

AllianceBernstein [profile] reported second quarter earnings of $0.41 per share this week, in contrast to $0.24 per share in the second quarter last year. The EPS beat the analyst estimate of $0.38, according to Wall Street Cheat Sheet. The firm posted $734 million in revenue. Net revenues were $598 million, up from $546 million in the second quarter of 2012.

Reading through SeekingAlpha's transcript of the AllianceBernstein earnings call with analysts, MFWire found three things of note:

POINT 1: AllianceBernstein is expanding personnel in the alternatives space to better engage with institutional clients without taking focus away from the more traditional asset classes.

POINT 2: AllianceBernstein has seen inflows into unconstrained bond funds and the Global High Income Fund appears to be making a comeback.

POINT 3: llianceBernstein is continuing to expand its analyst team in Asia..

Here's a little more detail on each of those points:

POINT 1: AllianceBernstein is expanding personnel in the alternatives space to better engage with institutional clients without taking focus away from the more traditional asset classes.

Sandler O'Neill's asked AllianceBernstein CEO Peter Kraus about alternative investments:
Kim: Hey, guys. Good morning. First just from a strategic standpoint, you continue to build out your alternative product and sales capability as investors continue to ship bigger allocations to these types of strategies. So assuming the gains for alternatives are coming at least to some degree at the expense of more traditional equity and fixed income mandates, just wondering how your institutional business is positioned in terms of that potential trade off?

Kraus: Well, Michael I think -- I donít want to lead you to believe that we are decommissioning our institutional business in favor, our traditional institutional business in favor of alternatives. I think because if you look at the actual packs of the people on to ground and the number conversations of the progress are making, weíre making progress on both fronts.

In fact, I think the institutional numbers this quarter show some significant progress instead of the more traditional areas in the institutional space. And as investment performance improves in equities we continue to see more and more dialogue with clients in areas that they have not engaged with us on historically.

So I think itís going to be a two pronged attack. We are adding personnel in the alternative space to help us better engage with clients. And we continue to be focused on the institutional business in the U.S. around the world in the more traditional spaces that we have dealt with. Some of those more traditional spaces include newer discussions, newer services like factor models that we talked about, factor approach as we talked about, stability equity activities that we have talked to clients about and you could call those alternatives although I think they look more traditional, they are not really hedge funds.

So I think it would be wrong to say that weíre leading the field in institutions. That wouldn't be right and I donít think either strategically we are trying to do that or even tactically. So I donít know that you are going in that direction I didnít want to likely go too far.
POINT 2: AllianceBernstein has seen inflows into unconstrained bond funds and the Global High Income Fund appears to be making a comeback.

Morgan Stanley's Matthew Kelly asked Kraus about global fixed income products:
Kelly: Good morning guys. I wanted to follow up on fixed income demand. We heard from some of your peers about kind of a rotation within fixed income versus between different strategies fixed income to equity. So I guess Iíd just ask if you are seeing any increase in sort of global mandates or the unconstrained bond strategy, emerging markets that sort of thing in July after a lot of end of the second quarter movements from in?

Kraus: So Matt itís a good question. Number one is I did mentioned in response to Michael's commentary on institutions that we also have seen a consistent actually increase for us in demand for global credit in the institutional space but that has been consistently increasing demand from our institutional clients for that product and I think that does reflect a realization on the part of institutions that it really doesnít make any sense to constrain your credit exposures if you are a U.S. entity to just U.S. credit.

You know you are cutting off 40% or 50% of the world when you do that and it just canít be that all the best credit available for any risk level, all over the United States or in dollar terms. So I think that that is a trend that has continued right through July and I donít think was affected by the volatility of fixed income.

I think what we did see as a result of volatility is clearly investors selling higher yield securities. That was the issue for June. As I mentioned in my comments we saw that in the global high income fund really turnaround and go positive in July.

So it appears to us that investors are doing what they had been doing which is seeking yields at a very low interest rate environment. We did see some rotation in that investor environment to shorter duration yield funds and that continues to be an improvement for us as well in our short and intermediate duration securities, both muni and taxable bonds.

Also your comment about unconstrained bond and [AMA]. Unconstrained bond funds and [AMA] which is combination of equity and bonds does continue to see inflows. I think thatís part of the multi strategy or multi asset strategy trend as much as it is anything else and that also continues unabated.

Look I think June was a not unexpected, purely the volatility that were likely to have going forward as rates were high. We have been through a long period of rates declining which has had a tendency to damp volatility and make investors comfortable to own higher yield securities that have not only coupon returns to them but capital returns and as rates fall, as rates start to go up firstly they are not going to go up evenly every day. As markets expectations change you are going to see much more volatile moves in rates to the upside that we saw in June.

Thatís not going to be the last time we see that. And I think that investors are going to continue to make their selections based upon what the short term yields are which right now are still very low and we expect to be low for a long period of time and what their risk mentality is which I think you have heard from most of the industry, we havenít seen that great rotation yet and I donít think we will until we see an extended period of losses in bonds and clients beginning to understand that they are just not going to get the kind of return in coupons, less capital returns on bonds they have gotten used to.
POINT 3: AllianceBernstein is continuing to expand its analyst team in Asia.

An unidentified analyst filled in for Citigroup's Bill Katz:
Analyst: Okay, great. And then just one more on research services, strong growth there, particularly in Asia. Should we think that this is a standard level and for this quarter and just any color you have on kind of strengthen in Asia with the new rollouts there?

Kraus: What we have been doing in Asia again quite consistently we are little bit like the army just one step at a time. We have continued to launch new analysts. We said this quarter we launched our 11th analyst. Itís obvious that we are gaining market share in Asia. As Asia grows in trading volumes we will continue to at least have our share or get better.

We are consistently growing our share and we would expect that to continue for a while as we establish ourselves in that marketplace. We believe we have a differentiated investment product in that marketplace. So far the results seem to indicate that pretty clearly.

And we went to Asia because we believe cyclically that was greater growth in Asia end markets than there would be in the traditional developed space U.S. and in Europe. And so I think that thesis has been proved to be correct for us. And we would expect that to continue the rate at which it continues is clearly going to be driven by the rate of volume in all the markets including Asia. And that of course could decline and that of course could grow. In the last quarter it was actually pretty robust.
See the transcript of AllianceBernstein's earnings call and the earnings release for more on how AllianceBernstein is doing.  

Edited by: Casey Quinlan

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