Use this form to give us your feedback or report any problems you experienced finding information on our Website.
* Indicates Required Fields
Thank you for providing feedback.
U.S. Equity markets climbed during the first quarter of 2013, as investors focused on solid growth in corporate earnings and continued monetary accommodation from the Federal Reserve. The gains came against a backdrop of continued uncertainty regarding the European sovereign debt crisis, and signs of improved economic growth in China and other key emerging markets.
The Fed noted that the U.S. economy "generally expanded at a modest to moderate pace" in January and early February, based on reports from the 12 Fed districts. The Fed said most districts reported expansion in consumer spending, although retail sales slowed in several districts. The manufacturing and service sectors showed improvement.1 The third estimate for the fourth quarter of 2012 showed that the economy grew by an annualized rate of 0.4%, versus the previous estimate of an increase of 0.1%. Third-quarter 2012 growth was 3.1%.2
The S&P 500® Index3 rose 10.6% during the quarter, reaching an all-time closing high on March 28. Gains occurred in all of the 10 major sectors. The consumer discretionary, consumer staples, financials, health care, industrials, and utilities sectors outperformed the broader market. Value stocks (as represented by the Russell 3000® Value Index4) outperformed growth stocks (as measured by the Russell 3000® Growth Index5). Small cap stocks (as represented by the Russell 2000® Index6) outperformed large caps (as represented by the Russell 1000® Index7).
The Fund returned 13.99%, reflecting the performance at the net asset value (NAV) of Class A shares with all distributions reinvested for the period ended March 31, 2013, outperforming the Russell 2500™ Index,8 which returned 12.85% for the same period. Average annual total return, which reflects performance at the maximum 5.75% sales charge applicable to Class A share investments and include the reinvestment of all distributions, as of March 31, 2012, are one year: 8.19%; three years: 8.87%; five years: 8.26%; and since inception (December 30, 2005): 9.60%. Expense ratio: 1.31%.
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.
This quarter was marked by an apparent shift in investor psychology and behavior. Unlike in recent quarters in which macroeconomic events were the driving force behind market performance, a returned focus on fundamentals appeared to be the predominate factor in investor decisions. Perceived macro headwinds—including the inaction in Washington, D.C., regarding sequestration and the Cypress bank bailout, which may have derailed previous market rallies—were viewed as relative hiccups, at least in the interim. Investors instead focused on improving economic fundamentals in the United States, particularly the continuation of the domestic housing recovery. These factors led to a new all-time closing high for both the Dow Jones Industrial Average and the S&P 500 Index.
Within the smid cap universe, value outperformed growth, with the Russell 2500™ Value Index9 returning 13.35% and the Russell 2500™ Growth Index10 returning 12.20% for the quarter. Consumer staples was one of the best performing sectors in the Russell 2500™ Index,8 while the telecommunication services sector was among the worst.
Stock selection across multiple sectors was the preeminent driver of relative outperformance during the first quarter. Key contributions resulted from investments in health care holding Community Health Systems, Inc., materials holding Rock-Tenn Co., information technology holding Rovi Corp., and industrials holding Jacobs Engineering Group, Inc. Shares of Community Health Systems, an owner and operator of hospitals in the United States, continued to ride the wave of positive momentum in the hospital industry. Investor enthusiasm gained as expectations grew for improved fundamentals based on the implementation of the Patient Protection and Affordable Care Act. The company also released a satisfactory earnings report and provided in-line guidance for 2013. Shares of Rock-Tenn Co. climbed steadily upward during the period. The manufacturer of corrugated and consumer packaging handily beat consensus earnings estimates due mainly to the resolution of internal execution problems as well as an improving market for containerboard. Following the announcement of three significant licensing agreements, shares of Rovi Corp., a provider of integrated solutions for digital entertainment, jumped. The improved clarity resulting from these agreements gave investors confidence that the company could meet or exceed its previous earnings estimates. Positive momentum continued for shares of engineering and construction firm Jacobs Engineering Group, following a solid earnings release highlighted by an increase in backlog and strength in the oil and gas and chemicals end markets.
Stock selection within the consumer discretionary sector, particularly Men's Warehouse, Inc. and Abercrombie & Fitch Co., detracted from the Fund’s relative performance. Shares of Men's Warehouse, a specialty apparel retailer, languished in a very strong up market. Despite ramping up its promotional activity, evidence suggested slower in-store traffic as the company faced a tough retail environment. After a couple of negative preannouncements by some close competitors, we decided there were better opportunities elsewhere and exited the position in late February. Even with a strong earnings report, shares of Abercrombie & Fitch slumped lower following a disappointing initial guidance announcement and, perhaps more important, confusion relating to an accounting methodology change. However, we believe management has made progress in stabilizing the business and used the sell-off as an opportunity to add to our position in the apparel company. One of the largest detractors to the Fund's relative performance was Nuance Communications, Inc. Following a poor earnings announcement in which management trimmed earnings guidance, the share price of the information technology holding tumbled. The soft quarter was attributed to weakness in the company's health care division as well as to slower sales of its Dragon products. Although we still believe in the growth prospects for the voice and language solutions provider, we reduced our position, and do not intend to increase it until we are more confident in the recovery of the company's medical solutions. A fourth detractor was information technology holding Jabil Circuit, Inc. Shares of the electronics manufacturer slid following disappointing guidance due to a difficult macro environment.
Please refer to www.lordabbett.com under the "Portfolio" tab for a complete list of holdings of the Fund, including the securities discussed above.
It was our belief heading into this quarter that there would be a continued global recovery as moderate growth persisted in the United States and the economies of Asia reaccelerated. As the quarter carried on, it became evident that these events were, in fact, continuing. However, despite the Fund benefiting from the improvement in Asia, it is our view that the expansion may be unsustainable at current levels. Therefore, we reduced our exposure in those companies that are more directly affected by the health of Asian economies. Conversely, we view the U.S. economy as healthier than those in the rest of the world. As the domestic economy continues to strengthen, albeit at a steady pace, we believe there will be an escalation in capital expenditures as well as an increase in both residential and nonresidential construction. Therefore, in order to benefit from these domestic growth trends, we added securities with exposure to building materials and construction. Within the health care sector, we continue to invest in companies that provide products and services that should benefit from the implementation of the Patient Protection and Affordable Care Act. Within the financials sector, our focus has shifted to asset-sensitive companies that typically have outperformed during the beginning of a rising interest rate environment. Overall, we continue to seek companies with secular growth opportunities that we believe the market has misvalued in the short term.
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 affect of fee waivers or expense limitation arrangements.