We strive to provide the highest level of client satisfaction, and handle each request with the utmost importance. We expect to respond to each request we receive within one business day of receipt.
Please note that trades cannot be processed via e-mail for security reasons. If your inquiry requires immediate assistance, please call us at
1-800-821-5129 (8:30 a.m.-6:00 p.m. EST, Mon-Fri).
Thank you for contacting Lord Abbett. A member of our staff will contact you between X:XXpm EST and XX:XXpm EST [today OR XX/XX/XXXX]. A confirmation has been sent to your email address.Close
Use this form to give us your feedback or report any problems you experienced finding information on our Website.
* Indicates Required Fields
Thank you for providing feedback.
Q. How would you describe Lord Abbett’s high-yield investment philosophy?
A. Lord Abbett’s high-yield philosophy is based upon the following beliefs. First, we believe that applying a disciplined, repeatable investment process, emphasizing asset-rich companies and credible management teams, generates the potential for competitive performance. Second, we believe that opportunistically positioning a portfolio across the credit spectrum results in the potential for attractive returns over a full market cycle. And finally, we believe that utilizing an equity-style approach to credit research can identify improving credits of sufficiently capitalized and well-managed companies.
Q. How does that translate into practice?
A. The investment process starts with an assessment of economic and capital market conditions to develop an outlook for the overall high-yield market and each industry within that universe. This analysis helps to shape the portfolio’s optimal credit positioning and identify favored industries for further research. We typically focus on the middle part of the yield curve, and scan for opportunities across the credit curve based on our evaluation of the current state of the economic and credit cycles. Then we apply the “ABCs” of credit investing—asset analysis, balance sheet evaluation, and cash flow coverage—to further narrow down the universe.
Q. Which metrics do you emphasize?
A. To value a candidate’s assets, we use independent appraisals and estimates of replacement costs. To assess cash flows, we evaluate EBITDA, 1 EBITDA/interest, debt/ EBITDA, and free cash flow. Key operating metrics that we consider are capitalization, margins, operating leverage, and revenue growth. Finally, we utilize scenario analyses in our valuation models to understand the risk-reward characteristics of the security.
Q. How big is a typical portfolio?
A. Our portfolios are well diversified, with 150–250 high-yield securities representing approximately 30 industries.
Q. What about sector weighting?
A. Portfolios generally adhere to a maximum sector weight of 20%, with individual industries generally representing less than 10% of the portfolio.
Q. What factors dictate the sell discipline?
A. We evaluate securities on both an absolute and a relative basis. If an issue has reached its valuation objectives, then we may elect to realize gains. We use various analytical tools, including an attribution report that identifies under-performing securities with potentially deteriorating credit profiles. If the operating environment has deteriorated, or management has failed to execute upon its previously stated plans, or the company has been unable to meet our established metrics for performance, then a security will be sold. In addition, we generally will trim positions if they reach 3% or more of the portfolio.
Q. Is there a formal policy on market capitalization?
A. We do not have an equity market capitalization range for target issuers, and thus may purchase high-yield securities across all market capitalizations. We generally purchase bonds with issue amounts greater than $150 million.
Q. Do you consider private placements?
A. We generally do not purchase many types of private placements 2 in the high-yield fixed-income portfolio. We do, however, purchase 144A securities, 3 and bank loans, some of which are not public.
Q. What about non-U.S. bonds?
A. Our non-U.S. allocations have been growing over time as companies have become more global but such bonds are principally traded on a U.S. securities market or exhange.
Q. Does that include emerging markets?
A. Any emerging market security we purchase should present an attractive spread differential compared with domestic securities, but we prefer that such issues be dollar-denominated. And we consider only issues with a minimum size of $100 million.
Q. Do you consider preferred debt and “busted” convertibles?
A. We have extensive experience investing in preferred debt [i.e., debt whose repayment takes precedence over other debt issues] and busted convertibles [i.e., convertible securities that are trading well below their conversion value]. We subject these investments to the same rigorous valuation criteria we employ in the analysis of high-yield bonds.
Q. What about bonds of strong companies whose ratings have dropped to non-investment grade?
A. Securities that have fallen out of favor can be a source of incremental return in the high-yield market. Often they are bigger, better-capitalized companies. However, the evaluation of such securities is identical in process to that used for other issues in the high-yield market. Issues must meet the same metrics of quality of management, assets, and capitalization. The main difference is that we also analyze the events that caused the downgrade, including whether the causes of the downgrade are company- or industry-specific.
Q. To what extent do you rely on outside credit ratings?
A. We view the ratings of the nationally recognized statistical rating organizations [NRSROs] as a lagging indicator of a company’s prospects. We do our own independent credit research and compare internal credit assessments with NRSROs’ assessments. While we view the NRSROs’ assessment as an element of valuation, we rely on our own credit assessment in our decision-making process.
Q. How much does credit quality vary?
A. We manage our exposures up and down the credit curve and across companies’ capital structures and actively invest in a wide breadth of credits, including everything from distressed issues to investment-grade bonds. In the context of the High Yield Fund, the Fund’s investment strategy requires the Fund to invest at least 80% of its net assets in lower-rated securities. Whereas other products may be somewhat static in having a bias toward either higher-quality or lower-quality credits, we seek what we believe are the best opportunities across the broader spectrum in an effort to achieve competitive returns while attempting to mitigate risk.
Q. Can you elaborate on risk management?
A. We invest a great deal of effort identifying and measuring risk and review our portfolios on a continuous basis in an effort to seek to maximize potential total return while attempting to reduce risk. Our quantitative team has built proprietary risk management systems that allow us to quantify relative exposure to sectors, subsectors, and issuers. The investment team, in turn, identifies any holdings that are exhibiting deteriorating credit fundamentals and subjects these issues to an intensive reevaluation process. This is a disciplined effort that seeks to identify potential problems in their early stages.
Q. What type of market is most conducive to the Lord Abbett high-yield strategy?
A. We seek to outperform on a relative basis in most market environments, especially in more challenging credit environments—when credit analysis and security selection are particularly important. We would expect to underperform on a relative basis when credit selection is less important and lower-rated securities are doing especially well. Though we do invest opportunistically in ‘CCC’ rated securities, we believe the risk/reward trade-off is not favorable through full market cycles for us to have a persistent overweight to lower-rated credits.
Q. After you have had a year or an extended period of underperformance, what do you do? How does it affect your thought process going forward?
A. Although we might increase our exposure to investment-grade bonds or higher-quality high-yield investments during periods of systematic stress, Lord Abbett has a long history of identifying undervalued opportunities, particularly when value investing is out of favor.
The opinions in the preceding commentary are as of the date of publication and subject to change based on subsequent developments and may not reflect the views of the firm as a whole. This material is not intended to be legal or tax advice and is not to be relied upon as a forecast, or research or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or depict performance of any investment. Investors should not assume that investments in the securities and/or sectors described were or will be profitable. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy or completeness of the information. Investors should consult with a financial advisor prior to making an investment decision.
Investors should carefully consider the investment objectives, risks, charges, and expenses of the Lord Abbett funds. This and other important information is contained in each fund’s summary prospectus and/or prospectus. To obtain a prospectus or summary prospectus on any Lord Abbett mutual fund, contact your investment professional or Lord Abbett Distributor LLC at 888-522-2388 or visit us at www.lordabbett.com. Read the prospectus carefully before you invest.