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Since the beginning of May 2013, emerging market (EM) assets experienced significant declines on fears of a reduction in U.S. Federal Reserve stimulus. However, the market was prepared when the Fed announced its decision to start a modest tapering of its quantitative easing program in December and the resulting market volatility was limited. The JP Morgan Government Bond Index-Emerging Markets (GBI-EM) Global Diversified1 returned -1.54%, while the MSCI Emerging Markets Equity Index2 posted a 1.86% gain.
As opposed to previous quarters, performance among emerging market bonds began to diverge from one another. Countries that made efforts towards structural reforms, such as Indonesia and Mexico, recovered losses from earlier in the year, while concerns of political instability hampered the performance of countries such as Thailand and Turkey. As a result, we remain focused on countries with steady growth, positive structural reforms, and credible monetary and fiscal policies.
The Fund returned -1.48%, 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 JPMorgan GBI-EM Global Diversified,1 returned -1.54% 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: since inception (June 28, 2013): -4.04%. Expense ratio, gross: 1.29%. net: 1.05%.
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.
Contributing positively to relative performance was the Fund's shorter duration in Turkish bonds. Turkish bonds experienced significant volatility as foreign investors sold bonds at the fastest pace in two years. The Central Bank of Turkey has tightened monetary policy as inflation exceeded its targets and the currency experienced substantial depreciation. In addition, the Fund's longer duration in Colombian bonds also contributed to relative performance. Colombia is relatively isolated from Fed-related volatility as there is limited foreign investment in the local bond market. The country recently benefited from stable growth and policy stability. Furthermore, bonds from the Philippines performed well. As a result, the Fund's longer duration in Philippine bonds aided relative performance.
Detracting from relative performance was the Fund's positioning in Mexican bonds throughout the quarter. Based on a positive reform outlook the Fund initiated an overexposure in Mexican bonds early in the quarter. This proved to be too early as Mexican bonds were persistently volatile as market participants remained concerned about Fed tapering. In December the Fund's view started playing out as Mexico earned a higher debt rating from Standard & Poor's and energy reforms opened barriers to private sector participation. Furthermore, the Fund's overweight in the Malaysian ringgit also detracted from relative Fund performance as the currency depreciated during the quarter.
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 remains shorter duration relative to the benchmark overall because we think U.S. Treasury market fluctuations could continue to have a negative impact on EM local markets. Within this posture, we are focusing heavily on steady growth, positive structural reforms, and credible monetary and fiscal policies.
We are actively seeking contrarian opportunities across yield curves that have steepened significantly more than domestic fundamentals would suggest as a result of an exaggerated correlation with the U.S. Treasury yield curve.
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.