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U.S. Equity markets climbed during the first quarter of 2013, as investors focused on solid growth in corporate earnings and continued monetary accommodation from the Federal Reserve. The gains came against a backdrop of continued uncertainty regarding the European sovereign debt crisis, and signs of improved economic growth in China and other key emerging markets.
The Fed noted that the U.S. economy "generally expanded at a modest to moderate pace" in January and early February, based on reports from the 12 Fed districts. The Fed said most districts reported expansion in consumer spending, although retail sales slowed in several districts. The manufacturing and service sectors showed improvement.1 The third estimate for the fourth quarter of 2012 showed that the economy grew by an annualized rate of 0.4%, versus the previous estimate of an increase of 0.1%. Third-quarter 2012 growth was 3.1%.2
The S&P 500® Index3 rose 10.6% during the quarter, reaching an all-time closing high on March 28. Gains occurred in all of the 10 major sectors. The consumer discretionary, consumer staples, financials, health care, industrials, and utilities sectors outperformed the broader market. Value stocks (as represented by the Russell 3000® Value Index4) outperformed growth stocks (as measured by the Russell 3000® Growth Index5). Small cap stocks (as represented by the Russell 2000® Index6) outperformed large caps (as represented by the Russell 1000® Index7).
The Fund returned 15.10%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the period ended March 31, 2013, compared to the Russell Midcap® Value Index8 which returned 14.21% for the same period. Average total returns, which reflect performance at the maximum 5.75% sales charge applicable to Class A share investments and include the reinvestment of all distributions, as of March 31, 2013, are: one year: 12.87% since inception (December 29, 2011): 21.17%. Expense ratio: 1.63%, gross; 0.85%, net.
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.
Consistent with the strategy's design and sector neutral positioning, stock selection (1.14%) was the primary driver of the performance variance relative to the index during the quarter. Stock selection was positive for the three month period and the Fund outperformed its index by 0.89%. The Fund also outperformed when compared to the Lipper Mid Cap Value category peer group, ranking Class A shares in the twentieth percentile (42/213) for the first quarter 2013. The Fund's one year Lipper Mid Cap Value category peer group ranking was in the thirtieth percentile (61/203) and since inception was in the twentieth percentile (40/201) as of March 31, 2013. Rankings are based on total return and do not reflect sales charges.*
Stock selection within the energy and consumer discretionary sectors contributed to relative performance. Within the energy sector, shares of Valero Energy Corp., the largest refiner in North America, appreciated after reporting solid Gulf Coast refining margins. Shares also benefited from the company's plan to spin off its rebranded retail operations in the second quarter. Shares of Tesoro Petroleum Corp., an independent petroleum refiner and marketer, rose as the company continued to benefit from the rise in U.S. oil production, which has created a historically wide differential between the price of West Texas intermediate crude oil and Brent crude oil. Within the consumer discretionary sector, shares of Hasbro, Inc., a global toy and board game company, rose after management announced a 20% dividend increase and cost saving initiatives. Shares of Leggett & Platt, Inc., a diversified manufacturer of engineered products for home, office, and commercial furnishings, rose as the company announced positive guidance that should be supported by positive trends in residential space.
Stock selection within the information technology and utilities sectors detracted from relative performance. Within the information technology sector, shares of Jabil Circuit, Inc., a provider of electronic manufacturing services and solutions, declined due to sluggish demand and anticipated order weakness from a top customer. Despite the firm's improving execution, shares of Network Appliance, Inc., a provider of data storage and content-delivery solutions, decreased as investors became concerned that competition and a weak macro environment could threaten revenue growth. Within the utilities sector, shares of Entergy Corp., an integrated energy company that provides electricity to some of the southern United States, underperformed as power prices remain depressed and costs continue to rise at the firm’s nuclear plants. Within the materials sector, shares of Ashland Inc., a global specialty chemical company, declined as the company reported weaker than expected results driven by lower than expected revenue and earnings in the specialty ingredients and performance materials segments.
Please refer to www.lordabbett.com under the "Portfolio" tab for a complete list of holdings of the Fund, including the securities discussed above.
Consistent with the central tenets of the investment strategy, the portfolio continues to be approximately equal-weight in all sectors relative to its index, as of March 31, 2013.
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 affect of fee waivers or expense limitation arrangements.