Are You Being “Paid to Wait”? Why Sitting in Cash Could Be Risky

But what happens if and when the Fed reverses course and cuts rates? Historically, investors in money markets who’ve continued to reinvest as rates decline have seen their money-market yields fall. The last time the Fed cut rates was in 2007, and yields plummeted from 3.9% to 1.1%.

Where to Turn? Consider Adding Duration

If sitting in cash isn’t a good idea when the Fed is cutting rates, where else can investors turn? One solution is to consider extending the duration—or interest-rate sensitivity—of bond portfolios. For every 1% decline in interest rates, a bond's price should rise by about 1% for every year of duration (and vice versa).

By adding duration when rates fall, bond investors can help maintain or even add to returns. Even adding a little duration in a falling-rate environment with ultra-short bond funds (which typically maintain a duration of less than a year) could help investors experience capital appreciation. Of course, fixed-income solutions offer wide-ranging duration profiles to suit investors’ needs and risk preferences. The more duration in an investor’s bond portfolio, the more Fed rate cuts may help bolster potential returns. 

Takeaway

Many forecasters project that the Fed may be at or near the end of its interest-rate hikes. If the Fed starts to cut, adding duration to bond portfolios can help investors maintain or even enhance returns.

Featured AB Investment Strategies

AB Ultra Short ETF (YEAR)
An actively managed ultra-short-duration ETF that looks to deliver higher levels of yield relative to cash or cash-like investments, while aiming for capital preservation and liquidity in all market cycles

AB Tax-Aware Short Duration Municipal ETF (TAFI)
A short-duration, actively managed municipal bond ETF that possesses enhanced flexibility to seek asset stability with attractive after-tax returns

AB Short Duration Income Portfolio (ALHYX)
Risk-weighted, short-duration, multisector income strategy that actively manages interest-rate and credit risk

AB Short Duration High Yield Portfolio (SHUYX)
Global multi-sector core credit strategy that seeks to provide attractive returns with less volatility than traditional high-yield approaches

AB Municipal Income Portfolio (SMA)
An active core municipal strategy that primarily invests in investment-grade bonds, and seeks to bolster tax-exempt income with selective investments in high yield

AB Municipal High Quality Portfolio (SMA)
Conservative, high-quality, actively-managed municipal bond portfolio that seeks the highest available level of current income exempt from federal taxes while maintaining overall portfolio risk

AB Income Fund (ACGYX)
Global multi-sector core-plus bond strategy that actively balances interest-rate and credit risk

AB Tax Aware Fixed Income Portfolio (SMA)
An active core municipal bond strategy that combines flexibility and innovation to increase after-tax returns and reduce volatility

AB Tax-Aware Fixed Income Opportunities Portfolio (ATTYX)
An active core municipal bond strategy that combines flexibility and innovation to increase after-tax returns and reduce volatility

AB High Income Municipal Portfolio (ABTYX)
A high-income fund that seeks to maximize risk-adjusted after-tax returns with the “smart” part of the credit curve by focusing on more-liquid midgrade munis to provide greater flexibility to maneuver during unpredictable markets

Important Information
Investing in securities involves risk and there is no guarantee of principal.

Investors should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. For copies of a Fund’s prospectus or summary prospectus, which contain this and other information, visit us online at www.alliancebernstein.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.

Shares of the ETF may be bought or sold throughout the day at their market price on the exchange on which they are listed. The market price of an ETF's shares may be at, above or below the ETF’s net asset value ("NAV") and will fluctuate with changes in the NAV as well as supply and demand in the market for the shares. Shares of the ETF may only be redeemed directly with the ETF at NAV by Authorized Participants, in very large creation units. There can be no guarantee that an active trading market for the Fund’s shares will develop or be maintained, or that their listing will continue or remain unchanged. Buying or selling the Fund’s shares on an exchange may require the payment of brokerage commissions and frequent trading may incur brokerage costs that detract significantly from investment returns.

Active Trading Risk: The Fund expects to engage in active and frequent trading, which will increase the portfolio turnover rate. A higher portfolio turnover increases transaction costs and may negatively affect the Fund’s return. Below-Investment-Grade Securities Risk: Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. Bond Risk: The Fund is subject to the same risks as the underlying bonds in the portfolio such as credit, prepayment, call and interest rate risk. As interest rates rise the value of bond prices will decline. Credit Risk: A bond’s credit rating reflects the issuer’s ability to make timely payments of interest or principal—the lower the rating, the higher the risk of default. If the issuer’s financial strength deteriorates, the issuer’s rating may be lowered, and the bond’s value may decline. Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Fund’s investments or reduce its returns. Depositary Receipts Risk: Investing in depositary receipts involves risks that are similar to the risks of direct investments in foreign securities. Derivatives Risk: Derivatives may be more sensitive to changes in market conditions and may amplify risks. Emerging Market Risk: Investments in emerging market countries may have more risk because the markets are less developed and less liquid as well as being subject to increased economic, political, regulatory, or other uncertainties. Foreign (Non-U.S.) Investment Risk: Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be more difficult to trade than domestic securities due to adverse market, economic, political, regulatory, or other factors. Global Risk: The Fund invests in companies in multiple countries. These companies may experience differing outcomes with respect to safety and security, economic uncertainties, natural and environmental conditions, health conditions, and/or systemic market dislocations. The global interconnectivity of industries and companies, especially with respect to goods, can be negatively impacted by events occurring beyond a company’s principal geographic location, which can contribute to volatility, valuation, and liquidity issues. Inflation Risk: Prices for goods and services tend to rise over time, which may erode the purchasing power of investments. Interest Rate Risk: As interest rates rise, bond prices fall and vice versa; long-term securities tend to rise and fall more than short-term securities. Investment Securities Risk: To the extent the Fund invests in other funds, shareholders will bear to layers of asset-based expenses, which could reduce returns. Leverage Risk: Trying to enhance investment returns by borrowing money or using other leverage transactions such as reverser purchase agreements—magnifies both gains and losses, resulting in greater volatility. Market Risk: The market values of the portfolio’s holdings rise and fall from day to day, so investments may lose value. Municipal Market Risk: Economic conditions, political or legislative changes, public health crises, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities may negatively impact the yield or value of a municipal security. New Fund Risk: The Fund is a recently organized, giving prospective investors a limited track record on which to base their investment decision. Non-Diversification Risk: The Fund may have more risk because it is “non-diversified”, meaning that it can invest more of its assets in a smaller number of issuers. Accordingly, changes in the value of a single security may have a more significant effect, either negative or positive, on the Fund’s net asset value. Tax Risk: The U.S. Government and the U.S. Congress may periodically consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income, which would in effect reduce the income received by shareholders from the Fund by increasing taxes on that income.

There is no assurance that a separately managed account will achieve its investment objective. Separately managed accounts are subject to market risk; the market values of securities owned will fluctuate so that your investment, when redeemed, may be worth more or less than its original cost.

AllianceBernstein L.P. (AB) is the investment advisor for the Fund. 

AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the manager of the funds.

The AB ETFs are distributed by Foreside Fund Services, LLC. Foreside is not related to AB.