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U.S. equity markets advanced during the fourth quarter of 2013 amid indications of an acceleration of economic growth. Investors appeared to be comfortable with the prospect that the U.S. Federal Reserve would begin to withdraw monetary accommodation via reduced monthly bond purchases. Indeed, the Fed announced on December 18 that it would start "tapering" at a modest pace during 2014. The outlook for other major global economies was decidedly mixed: the eurozone remained sluggish; Japan's growth rate decelerated despite an enormous stimulus program; and China's growth pace quickened amid government efforts to restructure the economy.
The Fed noted that "the economy continued to expand at a modest to moderate pace" between early October and mid-November, based on reports from the 12 Fed districts. The Fed said manufacturing activity expanded in most districts, with gains noted in the motor-vehicle and high-technology industries. Reports on retail spending were positive, though retailers reported being "hopeful, but cautious" ahead of the holiday season.1 The second estimate for the third quarter of 2013 showed that the economy grew by an annualized rate of 3.6%, above the previous estimate of 2.8%. Second-quarter 2013 growth was 2.5%.2
The S&P 500® Index3 rose 11% during the quarter, reaching an all-time closing high on December 31. Gains occurred in all of the 10 major sectors. The information technology and industrials sectors outperformed the broader market. Growth stocks (as represented by the Russell 3000® Growth Index4) outperformed value stocks (as represented by the Russell 3000® Value Index5). Large cap stocks (as represented by the Russell 1000® Index6) outperformed small caps (as represented by the Russell 2000® Index7).
The Fund returned 6.00%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the quarter ended December 31, 2013. The Fund underperformed its benchmark, the Russell 2000® Growth Index,8 which returned 8.17% for the same period. Average annual 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 December 31, 2013, are: one year: 48.12%; five years: 26.41%; and 10 years: 11.87%. Expense ratio: 1.11%.
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.
Equity markets began the quarter with a sharp sell-off, fueled by a 16-day shutdown of the U.S. government. In mid-October, however, Congress reached an agreement to raise the debt limit, reopening closed offices. This, in combination with positive economic data from China and continued accommodation by the U.S. Fed, sparked a market advance that continued through year-end. Equity prices in the United States ultimately reached all-time highs in December, bolstered by an improving macroeconomic picture. In December, the Fed began a well-telegraphed "taper" in its quantitative easing (QE) program. Market participants appear hopeful that central bankers will engineer a transition that can sustain the economy's slow, but positive, growth trajectory.
The Fund underperformed its benchmark, the Russell 2000® Growth Index, during the quarter. Security selection within the information technology sector was the most significant detractor from relative Fund performance. Shares of MercadoLibre, Inc., an online e-commerce marketplace in Latin America, fell after a weak quarterly earnings report highlighted slower-than-anticipated sales for the retailer. Real estate search engine Trulia, Inc. also saw its shares decline in the period. The company's shares had nearly tripled year to date before pulling back in the quarter, as investors took profits amid fears that rising interest rates would slow the housing recovery.
Security selection within the consumer discretionary sector was also a detractor from relative Fund performance. K12, Inc., a technology-based education company providing individualized learning, was among the most significant detractors from relative Fund performance within the sector. Shares of the company fell after management reported quarterly revenues significantly lower than consensus due to sluggish enrollment growth. Shares of Shutterfly, Inc., an operator of an Internet-based publishing service that allows users to print pictures and create merchandise, also fell; although revenues from the previous quarter beat expectations, guidance was revised lower due to the loss of a large corporate client.
Security selection within the financials sector contributed to relative Fund performance during the quarter. WisdomTree Investments, Inc., an operator of exchange-traded funds, was among the most significant contributors. Shares of the asset manager rose as domestic equity markets hit fresh all-time highs during the period. Consumer loan provider Springleaf Holdings, Inc. also contributed. Shares of the company have risen sharply since its initial public offering in October, as investors anticipate considerable loan growth going forward.
Security selection within the consumer staples sector also contributed to relative Fund performance. PriceSmart, Inc., which operates an international membership-only shopping warehouse chain, was among the most significant contributors to the Fund, as the company reported fiscal fourth-quarter earnings above expectations due to improved margins and higher membership renewal rates. The Hain Celestial Group, Inc., a distributor of natural and organic foods, was another notable contributor. The company has experienced considerable growth through acquisitions and has benefited from the growing global demand for natural foods.
Please refer to www.lordabbett.com under the "Portfolio" tab for a complete list of holdings of the Fund, including the securities discussed above.
U.S. equity markets soared to all-time highs throughout the quarter, fueled by an improving macroeconomic environment and the resolution of a U.S. government shutdown in October. Such improvement in the economy moved the Fed to taper its quantitative easing program, as central bankers engineer a transition that should allow the economy to maintain its slow, but positive, growth trajectory. This move continues to support our long-held contention that any withdrawal of easing would be carefully paced to avoid disrupting the economic recovery. Meanwhile, central banks in Europe, Japan, and China have remained accommodative; such global measures should, in the larger scheme of things, help offset concerns over the domestic monetary and political situation.
This fund is closed to new investors, with the exception of certain retirement and benefit plans, existing mutual funds advisory programs, and variable annuity programs.
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.