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AB American Income BT AUD H Inc

Analyst Report
Morningstar's Take

by Alfonzo Bruno, CFA
*  This rating and report were issued for a different share class of this fund. The performance and fee structure of this class may vary from that referenced.
On Nov. 26, 2018, AB announced that long-tenured contributor Paul DeNoon is set to retire from the firm at the end of 2019. This does not change our outlook for funds on which he is named a manager.

Over his roughly 25-year career with AB's fixed-income cohort, DeNoon was instrumental in developing the firm's emerging-markets debt and global high-yield efforts, while simultaneously serving as a consistent presence for this fixed-income team through various iterations of the firm. In anticipation of this change, two individuals with a history of working closely with DeNoon will be formally appointed to the portfolio management rosters on which he is named beginning Dec. 31, 2018.

Scott DiMaggio, who also serves as co-head of fixed-income for the firm, will join AB American Income. Shamaila Khan, who has worked closely with DeNoon as an emerging-markets corporate debt specialist, will join AB Global High Yield. Both are experienced contributors to their relevant strategies. Given the team-based management approach to AB's fixed-income offerings, coupled with ample time for a thoughtful transition of responsibilities, these adjustments result in no immediate change to the Morningstar Analyst Ratings of these funds.

AB American Income’s experienced and deep team has put the fund’s broad flexibility to good use without taking excessive risk. It earns a Morningstar Analyst Rating of Bronze. This fund benefits from a deep pool of resources. AB veteran Paul DeNoon has led the fund since its 1993 launch and was joined by comanagers Doug Peebles and Gershon Distenfeld in 1998. Matthew Sheridan, a two-decade AB veteran, was named as a portfolio manager in 2017. The managers draw on the firm’s broad resources, which are spread across fundamental, quantitative, and risk teams. Overall, 40 research analysts are divvied up by sector while nine economists and a cohort of quant analysts drive top-down research. The fund’s investment menu is wide, spanning across high-yield and investment-grade corporate issuers, securitized assets, and dollar-denominated emerging-markets bonds. The team balances its credit risk with a ballast of U.S. Treasury exposure, citing the negative correlation between high-yield and U.S. government debt that has persisted for much of the past two decades. That said, the fund’s makeup has evolved over varying market cycles and environments, and the team has shown sensitivity to market valuations in adjusting allocations. For example, the team found value in high-yield corporate issuers following their underperformance during the financial crisis, building the portfolio’s allocation from 15% in 2008 to 40% in 2013. More recently, citing rich valuations in the sector, the team reduced high-yield exposure to 12% as of September 2018 and rotated into securitized assets, which included a sizable stake in credit risk transfer securities (15%).Since DeNoon, Peebles, and Distenfeld came together in 1998 through October 2018, the fund has produced best-quartile total returns relative to the USD flexible-bond Morningstar Category. The fund has also held up better than peers during periods of credit market stress, supporting best-decile risk-adjusted returns, as measured by its Sharpe ratio, over that same stretch. The fund represents a solid choice for investors.

Morningstar Analyst Rating™
To find out how Morningstar rates a fund click here.
Portfolio RoleThis fund is a supporting player.
Morningstar Pillars
Depth and experience.
This firm continues to face challenges.
Balancing act.
A compelling long-term record.
Below average.
Morningstar Analyst RatingMorningstar evaluates funds based on five key pillars, which it's analysts believe lead to funds that are most likely to outperform over the long term on a risk-adjusted basis.
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