Q&A series: Chasing stability in a volatile world through AB’s low volatility strategy

Markets in 2026 have been anything but calm. From geopolitical tensions in the Middle East to lingering inflation pressures and the disruptive march of generative AI, investors are navigating a landscape where traditional assumptions about risk and return are being tested. In such an environment, the case for low volatility equity strategies has rarely been more compelling.

Yet "low volatility" is often misunderstood. Many investors equate it with simply hiding in a defensive crouch, which can sacrifice upside potential and leave portfolios underexposed to the very forces reshaping the global economy. A more nuanced approach, one that combines fundamental research with a broader definition of stability, can offer something more durable.

In this Q&A, we speak with the team at AllianceBernstein (AB) to discuss how the AB SICAV I Low Volatility Equity Portfolio uncovers hidden pockets of stability across global markets and structures a resilient portfolio designed to confidently weather today’s unpredictable macroeconomic climate.

1) Can you explain what fundamentally defines a “low-volatility” strategy?

Low-volatility strategies can come in different forms. AB believes an effective defensive strategy should be grounded in company fundamentals and focus on firms that exhibit characteristics of Quality (consistent cash flows and measures of profitability like return on invested capital), Stability (low volatility of returns relative to the market) and attractive Price that make them less susceptible to wide market swings.

While companies in traditionally defensive sectors like consumer staples and utilities are good examples, AB’s “QSP” universe includes firms with standout business models in every sector of the economy, which can be uncovered through fundamental research and thoughtful stock selection.

Essentially, AB believes investors should broaden their sources of volatility mitigation.

The companies that the fund manager calls quality compounders have successful business models and sustainable earnings and are backed by good capital stewardship. Intangible assets such as brands, culture, research and development, and patents are also valuable features, particularly in times of stress. These attributes support compounding earnings gains through market cycles.

AB notes that a valuable lesson was learned during past market cycles: simply beating a benchmark is not enough. The pattern of returns is just as crucial for clients’ long-term investment success. With this in mind, the firm sets out to help clients stay invested through changing market and macro conditions, by focusing on the importance of the pattern of returns when evaluating investment success.

2) AB’s investment approach combines fundamental research with proprietary quantitative risk/return models. Could you elaborate on how the qualitative and quantitative components interact throughout the stock selection and portfolio construction process?

AB’s equity teams believe that by using in-house research to generate differentiated insights, it can build and maintain high conviction positions in companies offering attractive returns. Combining these positions through a disciplined investment process ultimately produce better outcomes for our clients.

The team leverages a long and successful history of integrating quantitative tools with deep fundamental research.  Quantitative tools allow the team to examine a broad universe of investments with a desirable balance of characteristics that drive the consistent alpha pattern.  Meanwhile, fundamental and hands-on research generates distinctive insights by going deep into company fundamentals.  The two approaches are complementary and the intersection results in a more robust portfolio.

The investment approach emphasises global risk-return trade-offs through detailed stock research. Portfolio managers collaborate with both fundamental and quantitative analysts to continually evaluate changes in company fundamentals and stock prices, and adjust positions accordingly. The goal is to construct a portfolio of companies expected to generate alpha while minimising unintended risks across various factors.

Quantitative analysis is used throughout the investment process, not just as a screening mechanism. The team utilises proprietary risk models, quantitative techniques, and cluster analysis to uncover hidden risks. Finally, an optimiser helps manage overall portfolio risk and guides sizing decisions, though the ultimate portfolio weights are determined by the portfolio managers.

3) A typical low-volatility strategy tends to be concentrated in traditional defensives, yet this fund’s top holdings include growth-orientated mega-cap technology companies such as Microsoft, Alphabet, and Apple. How do you justify their inclusion within a strict low-volatility mandate?

The fund manager casts a wider net for durable resilient business models. Preconceived notions of how to source stability can be restrictive. Companies such as utilities, consumer staples and healthcare have typically provided stability in volatile markets. And it’s true that these sectors have performed relatively well so far in this year’s market downturn and should form part of any defensive portfolio.

But broadening the sources of stability can help diversify risk and return potential. Technology enablers are a good example. These are the utilities of the technology world because they help ensure that global networking infrastructure and business processes run smoothly. Like traditional power and water utilities, they’ve become essential components of a functioning economy, so their products and services are likely to remain in demand even in a tougher economy. Resilient business features like these often translate into share prices that can withstand market stress.

Overall and in the current environment, when devising a defensive strategy, the investment team considers current market behaviors, sensitivities and new forces of change that could redefine the essence of safety.

4) With bond yields shifting higher, short-dated government bonds are offering increasingly competitive risk-free returns. In this environment, why should investors still consider allocating capital to a low-volatility equity framework?

The Low Volatility Equity platform is of paramount importance to AB’s business and its client base. Within equities, it is used primarily as an equity diversifier as it complements other equity strategies, for example quality, growth or passive. In doing so, and based on AB’s philosophy and approach, it reduces aggregate risk of the equity bucket and improves Sharpe ratio.

In the current environment, equity markets have come under pressure amid growing concerns about the conflict in Iran and its effects on energy prices and inflation. For investors seeking refuge from volatility and rising prices, a defensive posture may provide some relief. In fact, AB’s research suggests that defensive stocks have outpaced the broader market during every major energy shock since 1973.  

In the fund manager’s view, one of the most effective approaches to weathering inflation is to identify stocks with solid defensive characteristics, attractive upside potential and a history of beating back the corrosive effects of inflation. These hallmarks can all be found in the shares of quality companies with low beta (less correlation to the market) and attractive valuations. As mentioned above, AB calls this set of features “QSP” for its combination of quality, stability and price. Examples include banks, grocery chains, defense contractors and pharmaceutical companies.

Stocks with “QSP” characteristics have a particularly strong track record during inflationary periods. Across four separate oil shocks, defensive stocks (those with “QSP” characteristics) outperformed the broader market by an average of 9.5%. What’s more, the level of outperformance was closely correlated to inflation. The greater the degree of inflation, as measured by the Consumer Price Index (CPI), the more defensive stocks outpaced S&P 500 (Figure1).

While the trajectory and duration of a potential inflation spike remain to be seen, the oil shock is going to be felt by consumers and businesses alike, and it appears inflation is not going away anytime soon. But a defensive portfolio that offers resilience to volatility and inflation could help investors navigate future price increases with confidence. 

Figure 1: Defensive Stocks (those with “QSP” characteristics) Outperformed Across Four Different Energy Shocks

5) How has the fund performed since inception, particularly during periods of heightened market volatility or major drawdowns such as the COVID-19 selloff, inflation-driven rate shocks, or recent geopolitical tensions?

AB’s approach aims to generate alpha while controlling portfolio risk and providing an uncorrelated source of returns to long only relative return equity strategies. It also aims to deliver superior risk-adjusted returns over the broad global equity market.

As of end-May 2026, Class A shares of the AB Low Volatility Equity Portfolio returned an annualised 9.8% in US dollar terms, or 9.5% with charges applied, since its inception (Table 1). Within Morningstar’s global large-cap blend universe of 5351 funds, the Portfolio holds an overall 3-star rating based on risk-adjusted returns (Figure 2).

Table 1:  Portfolio Performance (as of 31/5/2026)

	Year-to-date	1 Year (Annualised)	3 Years (Annualised)	Since Inception 11/12/2012 (Annualised)
Class A USD (NAV)	2.15%	8.74%	13.96%	9.85%
Charges Applied (4%)	-1.94%	4.38%	12.41%	9.51%

Past performance does not guarantee future results. Numbers may not sum due to rounding. Performance calculations are based on a single pricing basis, include the change in Net Asset Value and reinvestment of any distributions paid on Portfolio shares for the period shown, Net of assumed front-end load (FEL) for Class A and its corresponding share classes 4%. For Class A and its corresponding share classes, maximum front-end load (FEL): Up to 5%. Accordingly, these figures do not represent actual returns to an investor.
*Inception date: AB Low Volatility Equity Portfolio Class A shares—11 December 2012

As of May 31, 2026. Source: AB

Figure 2: The Portfolio’s rating based on risk-adjusted returns

Source: Morningstar. Overall Morningstar Rating is a copyright of Morningstar, Inc., 2025. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
Morningstar rates funds from one star to five stars based on how well the funds have performed (after adjusting for risk) in comparison to similar funds. Within each Morningstar Category, the top 10% of funds receive five stars, the next 22.5% four stars, the middle 35% three stars, the next 22.5% two stars, and the bottom 10% receive one star. Funds are rated for up to three time periods, in three years, five years, and ten years, and these ratings are combined to produce an overall rating. Funds with less than three years of history are not rated. Ratings are objective, based entirely on a mathematical evaluation of past performance. They are a useful tool for identifying funds worthy of further research, but should not be considered buy or sell recommendations.

AB expects the investment process to be sustainable and successful at achieving the portfolio’s objective during both up and down markets.  The strategy is designed to provide exposure to the equity market while limiting volatility, emphasising risk mitigation, and keeping pace in rising markets in an effort to deliver long-term outperformance.

In general, the portfolio will lag in up markets and provide greater preservation of capital in down markets. The portfolio is most vulnerable in an environment with a sharp rally of highly cyclical and low-quality stocks.  

In today’s environment and over the second half of 2025, the strategy experienced the underperformance of quality and outperformance of speculative growth. Fears of AI disruption in software and information services companies drove steep declines in many of our stocks.  At the same time, the strategy lagged because speculative generative AI infrastructure beneficiaries, like memory, rallied. The fund manager believes that companies with proprietary data, embedded in enterprise workflows, which are monetising AI were oversold.  

The fund manager prioritises quality infrastructure AI companies with diversified business models rather than speculative growth names. Having navigated multiple technological disruptions in the past, the fund manager possesses the deep institutional experience required to identify firms that remain resilient in the face of macro and technological shifts.

Figure 3: Quality vs speculative growth performance

Outlook

The fund manager maintains strong conviction that quality stable companies at attractive prices will mitigate risk and outperform in the face of these generative AI and Iran conflict risks in 2026. While quality companies have lagged speculative companies over the past year, quality outperforms over time. The team believes that companies, with proprietary data, embedded in enterprise workflows, which are monetising AI have been oversold.  

The Iran conflict risks increasing inflation and slowing growth. The fund manager believes maintaining a balanced exposure in the face of these inflation and growth risks is key to mitigating risk in today’s uncertain environment. The portfolio is invested in companies with pricing power and are resilient to higher inflation. Concurrently, the manager remains focused on companies resilient to weakening growth such as pharmaceuticals and defense.  

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

Declaration from AB:

Investment involves risk. Past performance is no guarantee of future results. 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 of solicitation for the purchase or sale of, any financial instrument, product or service sponsored by AllianceBernstein or its affiliates.

The Portfolio is part of AB SICAV I (referred to as “AB”). AB is an open-ended investment company with variable capital (société d’investissement à capital variable) under the laws of the Grand Duchy of Luxembourg. The Portfolio may invest in financial derivative instruments for investment purposes in addition to hedging and/or efficient portfolio management purposes and hence this may lead to a higher volatility to the net asset value of the Portfolio.

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