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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 Fed noted that "national economic activity continued to expand at a modest to moderate pace" between early July and late August, based on reports from the 12 Fed districts. The Fed said manufacturing activity expanded modestly. Consumer spending rose in most Fed districts, reflecting, in part, strong demand for automobiles and housing-related goods.1 The third estimate for the second quarter of 2013 showed that the economy grew by an annualized rate of 2.5%, in line with the previous estimate. First-quarter 2013 growth was 1.1%.2
The S&P 500® Index3 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 Index4) outperformed value stocks (as represented by the Russell 3000® Value Index5). Small cap stocks (as represented by the Russell 2000® Index6) outperformed large caps (as represented by the Russell 1000® Index7).
The Fund returned 18.78%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the quarter ended September 30, 2013. The Fund outperformed its benchmark, the Russell 2000® Growth Index,8 which returned 12.80% 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 September 30, 2013, are: one year: 33.92%; five years: 16.81%; and 10 years: 12.15%. 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 on solid footing, bolstered by positive economic reports, favorable employment numbers and improved consumer sentiment, which sent U.S. equities to all-time highs. In August, concerns surrounding the Syrian crisis and the effect of a potential wind-down of the Fed's bond-buying program caused equity markets to correct. By September, however, equities again advanced to fresh all-time highs, following an announcement by Fed chairman Ben Bernanke that the bond-buying program would not be reduced and would likely continue into the foreseeable future.
We were pleased with our performance during the quarter, as the Fund outperformed its benchmark, the Russell 2000® Growth Index. The Fund was able to outperform the benchmark both as the market gained in July and September and as the market moved lower in August. Our pure growth investment process—that is, one which looks for companies with strong revenue and earnings growth along with conservative capital structures—benefited in an environment where growth broadly outperformed value.
Security selection within the health care sector, notably biotechnology names, was a strong contributor to the Fund's relative performance. 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. Alnylam Pharmaceuticals, Inc., which develops therapeutics to treat genetically defined diseases, also rose by more than 100%. Shares of the company surged in July, following positive top-line results from its ongoing phase I trial of a therapy to treat a genetic mutation which causes nerve and heart disease.
Security selection within the information technology sector also contributed to the Fund's relative performance during the quarter. 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.
As the Fund enjoyed both strong absolute and relative performance, only a few segments of the Fund were significant detractors. Within consumer discretionary, SodaStream International, a manufacturer of home beverage carbonation systems, detracted from Fund performance as rumors the company was struggling to find a purchaser and concerns around lower margins caused shares to decline. Restoration Hardware Holdings Inc., a retailer of high-end home furnishings and décor, saw its shares decline as the company reported disappointing earnings. Although earnings exceeded consensus expectations, this was brought about by reduced expenses rather than higher sales. Within technology, shares of Jive Software, which provides social media services for companies, fell sharply as earnings disappointed on an unexpected lengthening of sales cycles and below forecast revenue guidance.
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 in September, after the Fed opted to delay the taper of quantitative easing. This move supported our contention that any withdrawal of easing would be carefully paced to avoid disrupting the economic recovery. In September, the Fed re-emphasized that progress in tapering bond purchases would depend on the condition of the economy. With unemployment remaining high and inflation remaining below the Fed's 2% target, we believe the Fed will maintain an accommodative stance. Meanwhile, central banks in Europe, Japan, and China have indicated they, too, will remain 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.