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Since the beginning of May 2013, emerging market (EM) currencies, bonds, and equities have experienced significant declines on fears of a reduction in U.S. Federal Reserve stimulus. However, the fall-out from the Fed announcement in the fourth quarter of 2013 of a modest tapering of its quantitative easing program was limited. The Barclays GEMS Index1 returned -0.42% for the quarter while the MSCI Emerging Markets Equity Index2 posted a 1.86% gain.
As opposed to previous quarters, performance among emerging market currencies began to diverge from one another. Countries making structural reforms, such as India and Mexico, recovered losses from earlier in the year, while concerns of political instability hampered the performance of Thailand and Turkey. As a result, we remain focused on relative value positions that differentiate among currencies based primarily on domestic macroeconomic fundamentals.
The Fund returned 0.34%, reflecting performance at the net asset value (NAV) of Class A shares, with all distributions reinvested, for the three-month period ended December 31, 2013. The Fund's benchmark, the Barclays Global Emerging Markets Strategy [GEMS] Index,1 returned -0.42% in the same period. The Fund's average annual total returns, which reflect performance at the maximum 2.25% sales charge applicable to Class A share investments and include the reinvestment of all distributions, as of December 31, 2013, are: one year: -5.35%; five years: 4.68%; and 10 years: 2.56%. Expense ratio: 1.01%.
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 largest contributor to relative performance was the Fund's underweight of the Czech koruna. The currency depreciated as a continued economic slowdown and lower than expected inflation boosted the case for the central bank to initiate selling its currency. The Czech National Bank established a floor relative to the euro to help avoid deflation and boost exports. In addition, the Fund's position within the Hungary forint also contributed to relative performance. Although the Hungarian National Bank reduced the amount of easing during the quarter, it remained dovish, which helped stimulate growth during the quarter. Furthermore, the political environment has helped support the currency, although upcoming elections might jeopardize this stability.
The largest detractor from relative performance was an underweight of the euro as improvement in the Eurozone growth outlook led to continued appreciation during the quarter. The Fund's allocation to the South African rand also slightly detracted from relative performance. The currency experienced heightened volatility during the quarter. Unlike some other vulnerable countries, South Africa did not introduce any fiscal or monetary policy measures to help alleviate its structural issues.
Please refer to www.lordabbett.com under the "Portfolio" tab for a complete list of holdings of the Fund, including the securities discussed above.
We remain focused on relative value positions that differentiate among currencies based primarily on domestic macro-economic fundamentals. Within this posture, we are concentrating on countries with increasing growth, positive structural reforms, and credible monetary and fiscal policies.
We also are actively seeking opportunities in countries that we believe will benefit from a more constructive outlook for growth in the developed countries and that are less negatively correlated with higher U.S. interest rates.
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.