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U.S. equity markets advanced during the third quarter of 2013 amid indications of continued economic expansion. The market saw some choppiness during the quarter as investors anticipated that the U.S. Federal Reserve (the "Fed") would begin to withdraw monetary accommodation via reduced bond purchases, though the Fed held off on such a move at its policy meeting on September 18. The U.S. gains came against a generally positive global backdrop: the eurozone economy moved out of recession; Japan's stimulus program spurred renewed optimism that the country will see stronger growth; and China's economy recovered from a June 2013 credit squeeze.
The S&P 500® Index1 rose 5.2% during the quarter, reaching an all-time closing high on September 18. Gains occurred in all of the 10 major sectors. The materials, industrial, consumer discretionary, health care, and information technology sectors outperformed the broader market. Growth stocks (as represented by the Russell 3000® Growth Index2) outperformed value stocks (as represented by the Russell 3000® Value Index3). Small cap stocks (as represented by the Russell 2000® Index4) outperformed large caps (as represented by the Russell 1000® Index5).
The Lord Abbett Alpha Strategy Fund returned 11.23%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested, for the three-month period ended September 30, 2013, compared to the benchmark, the 85% Russell 2000® Index4/15% S&P Developed Ex-U.S. Small Cap Index,6 which returned 10.86%. The Fund's average annual total returns, which reflect performance at the maximum 5.75% sales charge applicable for Class A share investments and include the reinvestment of all distributions, as of September 30, 2013, are: one year: 24.97%; five years: 11.57%; and 10 years: 11.43%. Expense ratio, gross: 1.71%, and net: 1.39%.
Performance data quoted represent past performance, which does not guarantee future results. Current performance may be higher or lower than the performance data quoted. The investment return and principal value of an investment in the fund will fluctuate so that shares, on any given day or when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end, call Lord Abbett at 1-888-522-2388 or visit us at www.lordabbett.com.
The Fund's weighting in domestic small and micro-cap growth equities contributed to relative performance, as growth stocks outperformed within the domestic small cap segment of the market. The Fund's weighting in domestic smid cap value equities detracted from relative performance, as smid cap value stocks underperformed.
The most significant contributor to relative performance was the Fund's exposure to small cap growth equities, as this investment strategy outperformed its benchmark during the period. The most significant detractor from relative performance was the Fund's exposure to international small cap equities, as this investment strategy underperformed its benchmark for the period.
Contributing to relative performance within domestic small cap growth equities was stock selection within the health care and information technology sectors. Within the health care sector, Celldex Therapeutics, Inc., which develops precision therapies to treat cancer and other difficult-to-treat diseases, saw its shares more than double during the quarter, as the company filed a patent for a promising new drug designed to treat an ultra-rare progressive kidney disease. Within the information technology sector, Yelp, Inc., a provider of a website and mobile applications that connect people with local businesses, was among the top contributors within the sector. Shares rose more than 90% during the period, fueled by a strong second quarter earnings report that cited improved profitability and considerable growth in unique visitors.
Within international small cap equities, stock selection in the financials sector detracted from performance relative to the international small cap strategy's benchmark. A notable detractor for the period was Rizal Commercial Banking Corp, a Philippines-based bank. Moody's announced a downgrade of Rizal's subordinated debt rating, based on the notion that the Philippine government may no longer be as willing to supply support to those banks involved in this class of debt. Though this downgrade is not a reflection of Rizal's otherwise strong operations, according to Moody's, it would appear the shares of the bank are being pulled down due to an overall negative market sentiment toward the Philippine banking industry. A noteworthy detractor from the energy sector was Electromagnetic Geo Services, a Norway-based electromagnetic technology company that performs research for oil and gas companies, whose shares have remained depressed recently as oil-drilling firms have unexpectedly begun reining in spending due to unpredicted rises in costs.
Please refer to www.lordabbett.com under the "Portfolio" tab for a complete list of holdings of the Fund, including the securities discussed above.
The Fund invests all of its net assets directly in the underlying funds. The percentages shown are based on individual securities owned in one or more of the underlying funds. The Fund's portfolio is actively managed and therefore, its percentage allocations may change from time to time. Holdings are for informational purposes only and are not a recommendation to buy, sell, or hold any security.
Performance data quoted is historical. Past performance is not indicative of future results. Current performance may be higher or lower than the performance quoted. The investment return and principal value of an investment in the Fund will fluctuate so that shares, on any given day or when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent quarter-end, go to quarter ending performance on our Website or call Lord Abbett at (888) 522-2388.
1 The Fund’s dividend yield is shown without sales charges (at NAV) and with maximum sales charges (at MOP). The Fund’s dividend yield takes into account any fee waiver or expense limitation arrangements, if any. Without such fee waivers or expense limitation arrangements, the Fund’s dividend yield would have been lower. Information regarding any fee waivers or expense limitation arrangements applicable to the Fund is provided with the Fund’s expense ratio information.
2 The Fund’s unsubsidized dividend yield is shown without sales charges (at NAV) and with maximum sales charges (at MOP). The Fund’s unsubsidized dividend yield reflects what the yield would have been without the effect of fee waivers or expense limitation arrangements.