The Upside of Less Downside

Turning Less Into More

It’s a deeply ingrained investing maxim that risk and return go hand in hand: to get more return, you must accept more risk. So, for some investors, it may seem counterintuitive that the opposite is also true: you can take less risk and still beat the market over time. It’s a different way of defining investment success that leans on downside defenses in the pursuit of long-term goals.

Following the extended postcrisis bull runs in bonds and equities, the future returns of many traditional investing strategies are unlikely to pack the same punch. Investors are realizing that they’ll need to take more risk to meet their long-term goals, including adding equity exposure.

That’s a troubling proposition for a large and growing group of investors. Whether an individual saving for retirement, a pension plan facing funding gaps, or an insurance company dealing with stiffer capital requirements and asset/liability-matching challenges, investors are much more risk-sensitive today. They can’t tolerate wild market swings, let alone the prospect of losing money. They need their investments to go the distance.

That’s where strategies that expressly target downside-risk protection come in. These solutions get their performance power from the simple mathematics of lower risk drag and compounding. Stocks that lose less in market downturns have less ground to regain when the market recovers, so they’re better positioned to compound off those higher returns in subsequent rallies (Display).

Through June 30, 2016
Past performance does not guarantee future results. Returns shown are for illustrative purposes and not representative of any AB fund. It is not possible to invest in an index.
*Performance calculated by multiplying all positive monthly returns (0% or greater) of the MSCI World Index by 90% and all negative returns (less than 0%) by 70%; shown in logarithmic scale
†Annualized standard deviation
Source: MSCI and AB

Past performance, historical and current analyses, and expectations do not guarantee future results. There can be no assurance that any investment objectives will be achieved. 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 guarantee that any projection, forecast or opinion in this material will be realized. Past performance does not guarantee future results. The views expressed here may change at any time after the date of this publication. This document is for informational purposes only and does not constitute investment advice. AllianceBernstein L.P. does not provide tax, legal or accounting advice. It does not take an investor’s personal investment objectives or financial situation into account; investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer or solicitation for the purchase or sale of any financial instrument, product or service sponsored by AB or its affiliates.

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