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These four funds offer the flexibility to invest across diverse asset classes and the agility to make tactical moves, both to hedge unwanted risks and to potentially capitalize on opportunities. Overseeing the firm's multi-asset-class strategies is Robert I. Gerber, Lord Abbett Partner and Chief Investment Officer. In the following interview, he describes the investment approach.
Q. What are the Lord Abbett multi-asset-class strategies?
A. The Lord Abbett multi-asset-class strategies consist of four portfolios, each of which seeks the highest potential returns, given its risk profile. The four funds are: the , the , the , and the .
Q. How are the funds managed?
A. Each of these funds combines a diversified mix of asset classes, including stocks, bonds, and currencies, while seeking to achieve its performance goals. For each portfolio, we developed a strategic design, which is a starting point that combines some asset classes that have, historically, delivered attractive returns, and some others that could help to lower the overall volatility of the portfolio. From that starting point, we then engage in tactical management to adapt each portfolio to the current market situation.
Q. How does tactical management work?
A. We begin by identifying which segments within stocks, bonds, and currencies we think offer the most attractive relative value. We look to shift the portfolios away from asset classes we see as more richly priced toward those that seem to us to be undervalued. We examine historical valuation ranges and current economic conditions to help us make these decisions. Before we make any tactical changes, however, we consider what potential allocation portfolio changes could do to the portfolio's overall risk level and whether that is appropriate in the current environment. During some periods, we aim to shift risk levels to capture opportunities and during other periods to preserve capital for future returns.
Q. Can you elaborate on the long-term allocation range for each fund?
A. The portfolio parameters are as follows: the Diversified Income Strategy typically will have approximately 75–85% of its assets in fixed income; Balanced must be 40–60% equity; Growth & Income is limited to 60–80% equity; and Global Allocation can have 40–75% in equity (and at least 40% in international equity and fixed income combined).
Q. What is your current investment outlook?
A. In our view, the Federal Reserve’s recently announced prospective change in policy would reduce the amount of liquidity in financial markets and could continue the trend of rising yields. In addition, our view is that yield spreads over Treasuries in both investment-grade and high-yield securities will also widen. This trend may persist for a few years.
Though slower than in the past, the U.S. economy's current growth rate of around 2% is superior to that of most of the major developed economies. Indications are that this modest growth will continue, with the contractionary effects of tax increases and spending cuts being offset by the stimulative effects of low interest rates, a rebounding housing market, and a buoyant stock market. One important change from recent years is that the U.S. dollar seems likely to strengthen versus the currencies of most developed and emerging economies.
Given this environment, U.S. equities appear to be among the most attractive risk-oriented assets. Not only do fundamentals remain solid but valuations also continue to be reasonable, even with the market's strong performance this year. In fixed income, we have reduced credit-risk exposure by swapping high-yield investments into investment-grade bonds in most portfolios.
Each asset allocation fund invests in underlying funds that may engage in a variety of investment strategies involving certain risks; each fund of funds may be subject to the particular risks of the underlying funds in the proportion to which each fund invests in them.
Risks to Consider: The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy. The value of an investment in fixed-income securities will change as interest rates fluctuate and in response to market movements. As interest rates fall, the prices of debt securities tend to rise. As rates rise, prices tend to fall. High-yield securities, sometimes called junk bonds, carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal. Investing in international securities generally poses greater risk than investing in domestic securities, including greater price fluctuations and higher transaction costs. Special risks are inherent to international investing, including those related to currency fluctuations and foreign, political, and economic events. These risks may be greater in the case of emerging country securities.
Treasuries are debt securities issued by the U.S. government and secured by its full faith and credit. Income from Treasury securities is exempt from state and local taxes.
Neither diversification nor asset allocation can guarantee a profit or protect against loss in declining markets. The process of rebalancing may carry tax consequences.
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.