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Lord Abbett Multi-Asset Income Fund returned 3.54%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested, for the three-month period ended December 31, 2013, compared to the benchmark, the 50% Barclays U.S. Aggregate Bond Index1/25% BofA Merrill Lynch U.S. High Yield Master II Constrained Index2/15% Russell 1000® Index3/10% MSCI EAFE Index with Gross Dividends,4 which returned 2.87%. 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: 8.30%; five years: 13.55%; and since inception (June 30, 2005): 6.16%. Expense ratio, gross: 1.15%, and net: 0.97%.
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.
Relative to the benchmark, the Fund was well positioned across asset classes within this environment. The Fund's allocation to equities contributed to relative performance, as stocks outperformed bonds during the period. Detracting from relative performance was the Fund's weighting in emerging market currencies, as this asset class underperformed the Fund's benchmark.
In addition to benefiting from the Fund's asset-class positioning, the outperformance of underlying investment strategies contributed to relative Fund performance, as certain strategies outperformed their respective underlying indexes. The outperformance of the short-duration fixed-income strategy versus its benchmark benefited the Fund’s relative performance. The international dividend equity strategy underperformed its benchmark, thereby detracting from the Fund's relative performance.
The short-duration fixed-income strategy's concentration on 'BBB' rated securities contributed to relative performance, as lower-rated securities outperformed higher-rated issues during the period. The strategy's allocation to high-yield corporates was also a positive contributor to relative performance, as the high-yield market outperformed investment-grade bonds. The strategy's position in CMBS also added to relative performance during the quarter, as conditions in the commercial real estate market continued to improve.
Detracting from relative performance within the international dividend equity strategy was stock selection within the energy and information technology sectors. Within the energy sector, shares of Lightstream Resources Ltd., a Canadian oil and gas exploration and production company, underperformed as higher operating costs led to a disappointing earnings report. Also detracting from performance within the energy sector was Seadrill Ltd., an offshore deep-water drilling service company. Despite an increase in the firm's dividend, Seadrill was unable to overcome the negative industry sentiment during the quarter, causing the firm's shares to decline, as several oil firms began delaying drilling investments in an effort to save capital. Within the information technology sector, Ricoh Co., Ltd., a Japan-based office and industrial equipment manufacturer, was a significant detractor. The firm posted results that were below previously issued guidance as new products being produced and shipped in China were delayed.
Please refer to www.lordabbett.com under the "Portfolio" tab for a complete list of holdings of the Fund, including the securities discussed above.
Financial markets in 2013 proceeded on the path toward normalization, which resulted in higher equity valuations and higher fixed-income yields, and produced a significant divergence between stock and bond performance. Probabilities favor a muted continuation of these trends in 2014. Low inflation, economic growth, and monetary accommodation are a mixture that is generally supportive of equities, convertible securities, and lower rated corporate bonds. All indications are that this may continue.
While the relative outperformance of stocks has narrowed their relative attractiveness, we believe that stocks are still undervalued. Accordingly, we continue to maintain a higher than normal allocation in stocks despite a modest reduction in exposure during the fourth quarter.
We reduced our exposure to emerging market currencies and international equities during the quarter, as we expect that the wind down of the U.S. Federal Reserve's quantitative easing (QE) program will contribute to a strengthening U.S. dollar.
Although bond yields rose significantly in 2013, the removal of the QE program seems likely to cause market volatility, perhaps leading to a further rise in yields. As a result, we maintain a smaller than normal allocation to intermediate-term bonds and expect to tactically adjust that allocation to take advantage of any bond market volatility. High-yield corporate bond spreads are lower than they have been historically, and we are concerned that high-yield corporate bond returns will be lackluster going forward. Consequently, we reduced high-yield corporate bond exposure, while increasing allocations to high-yield municipal bonds.
The Fund invests all of its net assets directly in the underlying funds. The percentages shown are based on individual securities owned in one or more of the underlying funds. The Fund's portfolio is actively managed and therefore, its percentage allocations may change from time to time. Holdings are for informational purposes only and are not a recommendation to buy, sell, or hold any security.
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.