Image alt tag

Error!

X

There was a problem contacting the server. Please try after sometime.

Sorry, we are unable to process your request.

Error!

X

We're sorry, but the Insights and Intelligence Tool is temporarily unavailable

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Error!

X

We're sorry, but the Literature Center checkout function is temporarily unavailable.

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Tracked Funds

You have 0 funds on your mutual fund watch list.

Begin by selecting funds to create a personalized watch list.

(as of 12/05/2015)

Pending Orders

You have 0 items in your cart.

Subscribe and order forms, fact sheets, presentations, and other documents that can help advisers grow their business.

A verification Email Has Been Sent

Close

An email verification email has been sent to .
Follow the instructions to complete the email validation process.

I have not received my verification email

Check your SPAM mailbox and make sure that twelcome@lordabbett.com is allowed to send you mail.

I'm still having trouble

If you're still having trouble verifying your email address. feel free to contact us.

1-888-522-2388
clientservices@lordabbett.com


OK

We're sorry. We found no record of the email address you provided.

Close

Register For a LordAbbett.com Account
Using Your Email Address.

  • Registered Financial Advisors gain access to:
  • Our data mining tool, Insight & Intelligence
  • Best in-class practice management content
  • Educational events, videos and podcasts.
  • The Lord Abbett Review - Subscribe now!

Registered but Having Problems?

If you believe you are registered and are having problems verifying your email address, feel free to contact us.

1-888-522-2388 clientservices@lordabbett.com

Terms & Condition

X

These Terms of Use ("Terms of Use") are made between the undersigned user ("you") and Lord, Abbett & Co. ("we" or "us"). They become effective on the date that you electronically execute these Terms of Use ("Effective Date").

A. You are a successful financial consultant that markets securities, including the Lord Abbett Family of Funds;

B. We have developed the Lord Abbett Intelligence System (the "Intelligence System"), a state of the art information resource that we make available to a limited community of broker/dealers through the Internet at a secure Web site (the "LAIS Site"); and

C. We wish to provide access to the Intelligence System to you as an information tool responsive to the demands of your successful business pursuant to these Terms of Use. Accordingly, you and we, intending to be legally bound, hereby agree as follows:]

1. Overview. · Scope. These Terms of Use (which we may amend from time to time) govern your use of the Intelligence System. · Revisions; Changes. We may amend these Terms of Use at any time by posting amended Terms of Use ("Amended Terms of Use") on the LAIS Site. Any Amended Terms of Use will become effective immediately upon posting. Your use of the Intelligence System after any Amended Terms of Use become effective will be deemed to constitute your acceptance of those Amended Terms of Use.We may modify or discontinue the Intelligence System at any time, temporarily or permanently, with or without notice to you. Purpose of the Intelligence System. The Intelligence System is intended to be an information resource that you may use to contribute to your business research. The Intelligence System is for broker/dealer use only; it is not to be used with the public in oral, written or electronic form. The information on the Intelligence System and LAIS Site is for your information only and is neither the tax, legal or investment advice of Lord Abbett or its third-party sources nor their recommendation to purchase or sell any security.

2. Your Privileges. · Personal Use. Your use of the Intelligence System is a nontransferable privilege granted by us to you and that we may deny, suspend or revoke at any time, with or without cause or notice. · Access to and Use of the Intelligence System. The User ID and password (together, an "Access ID") issued by us to you (as subsequently changed by you from time to time) is for your exclusive access to and use of the Intelligence System. You will: (a) be responsible for the security and use of your Access ID, (b) not disclose your Access ID to anyone and (c) not permit anyone to use your Access ID. Any access or use of the Intelligence System through the use of your Access ID will be deemed to be your actions, for which you will be responsible. · Required Technology. You must provide, at your own cost and expense, the equipment and services necessary to access and use the Intelligence System. At any time, we may change the supporting technology and services necessary to use the Intelligence System. · Availability. We make no guarantee that you will be able to access the Intelligence System at any given time or that your access will be uninterrupted, error-free or free from unauthorized security breaches.

3. Rights in Data. Our use of information collected from you will be in accordance with our Privacy Policy posted on the LAIS Site. Our compliance with our Privacy Policy will survive any termination of these Terms of Use or of your use of the Intelligence System.

4. Your Conduct in the Use of the Intelligence System. You may access, search, view and store a personal copy of the information contained on the LAIS Site for your use as a broker/dealer. Any other use by you of the Intelligence System and the information contained on the LAIS Site these Terms of Use is strictly prohibited. Without limiting the preceding sentence, you will not: · Engage in or permit any reproduction, copying, translation, modification, adaptation, creation of derivative works from, distribution, transmission, transfer, republication, compilation or decompilation, reverse engineering, display, removal or deletion of the Intelligence System, any portion thereof, or any data, content or information provided by us or any of our third-party sources in any form, media or technology now existing or hereafter developed, that is not specifically authorized under these Terms of Use.

· Remove, obscure or alter any notice, disclaimer or other disclosure affixed to or contained within the Intelligence System, including any copyright notice, trademark and other proprietary rights notices and any legal notices regarding the data, content or information provided through the Intelligence System.

· Create a hyperlink to, frame or use framing techniques to enclose any information found anywhere on the LAIS Site without our express prior written consent.

· Impersonate any person, or falsely state or otherwise misrepresent his or her affiliation with any person in connection with any use of the Intelligence System.

· Breach or attempt to breach the security of the Intelligence System or any network, servers, data, or computers or other hardware relating to or used in connection with the Intelligence System; nor (b) use or distribute through the Intelligence System software or other tools or devices designed to interfere with or compromise the privacy, security or use of the Intelligence System by others or the operations or assets of any person.

· Violate any applicable law, including, without limitation, any state federal securities laws. 5. Your Representations and Warranties. You hereby represent and warrant to us, for our benefit, as of the time of these Terms of Use and for so long as you continue to use the Intelligence System, that (a) you are, and will continue to be, in compliance with these Terms of Use and any applicable laws and (b) you are authorized to provide to us the information we collect, as described in our Privacy Policy.

6. Disclaimer of Warranties.

· General Disclaimers.

THE INTELLIGENCE SYSTEM, THE LAIS SITE AND ALL DATA, INFORMATION AND CONTENT ON THE LAIS SITE ARE PROVIDED "AS IS" AND “AS AVAILABLE” AND WITHOUT ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND. WITHOUT LIMITING THE PRECEDING SENTENCE, LORD ABBETT, ITS AFFILIATES, AGENTS, THIRD-PARTY SUPPLIERS AND LICENSORS, AND THEIR RESPECTIVE EMPLOYEES, CONTRACTORS, DIRECTORS, OFFICERS AND SHAREHOLDERS (COLLECTIVELY, THE “LORD ABBETT GROUP”) EXPRESSLY DISCLAIM ALL WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, AND NONINFRINGEMENT. YOU EXPRESSLY AGREE THAT YOUR USE OF THE LAIS SITE, THE INTELLIGENCE SYSTEM, AND THE DATA, INFORMATION AND CONTENT PRESENTED THERE ARE AT YOUR SOLE RISK AND THAT THE LORD ABBETT GROUP WILL NOT BE RESPONSIBLE FOR ANY (A) ERRORS OR INACCURACIES IN THE DATA, CONTENT AND INFORMATION ON THE LAIS SITE AND THE INTELLIGENCE SYSTEM OR (B) ANY TERMINATION, SUSPENSION, INTERRUPTION OF SERVICES, OR DELAYS IN THE OPERATION OF THE LAIS SITE OR THE INTELLIGENCE SYSTEM.

· Disclaimer Regarding Investment Research.

THE INTELLIGENCE SYSTEM INCORPORATES DATA, CONTENT AND INFORMATION FROM VARIOUS SOURCES THAT WE BELIEVE TO BE ACCURATE AND RELIABLE. HOWEVER, THE LORD ABBETT GROUP MAKES NO CLAIMS, REPRESENTATIONS OR WARRANTIES AS TO THE ACCURACY, TIMELINESS, COMPLETENESS OR TRUTHFULNESS OF SUCH DATA, CONTENT AND INFORMATION. YOU EXPRESSLY AGREE THAT YOU ARE RESPONSIBLE FOR INDEPENDENTLY VERIFYING YOUR INVESTMENT RESEARCH PRIOR TO FORMING YOUR INVESTMENT DECISIONS OR RENDERING INVESTMENT ADVICE. THE LORD ABBETT GROUP WILL NOT BE LIABLE FOR ANY INVESTMENT DECISION MADE BY YOU OR ANY OTHER PERSON BASED UPON THE DATA, CONTENT AND INFORMATION PROVIDED THROUGH THE INTELLIGENCE SYSTEM OR ON THE LAIS SITE.

· Survival.

THIS SECTION 6 SHALL SURVIVE ANY TERMINATION OF THESE TERMS OF USE OR YOUR USE OF THE INTELLIGENCE SYSTEM..

7. Limitations on Liability.

NONE OF THE MEMBERS OF THE LORD ABBETT GROUP WILL BE LIABLE TO YOU OR ANY OTHER PERSON FOR ANY DIRECT, INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE, SPECIAL OR EXEMPLARY DAMAGES (INCLUDING LOSS OF PROFITS, LOSS OF USE, TRANSACTION LOSSES, OPPORTUNITY COSTS, LOSS OF DATA, OR INTERRUPTION OF BUSINESS) RESULTING FROM, ARISING OUT OF OR IN ANY WAY RELATING TO THE INTELLIGENCE SYSTEM, THE LAIS SITE OR YOUR USE THEREOF, EVEN IF THE LORD ABBETT GROUP HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THIS SECTION 7 WILL SURVIVE ANY TERMINATION OF THESE TERMS OF USE OR YOUR USE OF THE INTELLIGENCE SYSTEM.

8. Miscellaneous Provisions.

· Governing Law. This Agreement will governed by and construed in accordance with the laws of the State of New York, without giving effect to applicable conflicts of law principles.

THE UNIFORM COMPUTER INFORMATION TRANSACTIONS ACT OR ANY VERSION THEREOF, ADOPTED BY ANY STATE, IN ANY FORM ("UCITA") WILL NOT APPLY TO THESE TERMS OF USE. TO THE EXTENT THAT UCITA IS APPLICABLE, THE PARTIES HEREBY AGREE TO OPT OUT OF THE APPLICABILITY OF UCITA PURSUANT TO THE OPT-OUT PROVISION(S) CONTAINED THEREIN.

The Intelligence System is not intended to be used by consumers, nor are the consumer protection laws of any jurisdiction intended to apply to the Intelligence System. You agree to initiate and maintain any action, suit or proceeding relating to these Terms of Use or arising out of the use of the Intelligence System exclusively in the courts, state and federal, located in or having jurisdiction over New York County, New York.

YOU HEREBY CONSENT TO THE PERSONAL JURISDICTION AND VENUE OF THE COURTS, STATE AND FEDERAL, LOCATED IN OR HAVING JURISDICTION OVER NEW YORK COUNTY, NEW YORK. YOU AGREE THAT YOU WILL NOT OBJECT TO A PROCEEDING BROUGHT IN YOUR LOCAL JURISDICTION TO ENFORCE AN ORDER OR JUDGMENT OBTAINED IN NEW YORK.

· Relationship of Parties. The parties to these Terms of Use are independent contractors and nothing in these Terms of Use will be construed as creating an employment relationship, joint venture, partnership, agency or fiduciary relationship between the parties.

· Notice. All notices provided under these Terms of Use will be in writing and will be deemed effective: (a) when delivered personally, (b) when received by electronic delivery, (c) one business day after deposit with a commercial overnight carrier specifying next day delivery, with written verification of receipt, or (d) three business days after having been sent by registered or certified mail, return receipt requested. We will only accept notices from you in English and by conventional mail addressed to: General Counsel Lord, Abbett & Co. 90 Hudson Street Jersey City, N.J. 07302-3973 We may give you notice by conventional mail or electronic mail addressed to the last mail or electronic mail address transmitted by you to us.

· Third-Party Beneficiaries. The members of the Lord Abbett Group are third-party beneficiaries of the rights and benefits provided to us under these Terms of Use. You understand and agree that any right or benefit available to us or any member of the Lord Abbett Group hereunder will also be deemed to accrue to the benefit of, and may be exercised directly by, any member of the Lord Abbett Group to the extent applicable.

· Survival. This Section 8 will survive any termination of these Terms of Use or your use of the Intelligence System. The undersigned hereby signs these Terms of Use. By electronically signing and clicking "Accept" below, these Terms of Use will be legally binding on me. To sign these Terms of Use, confirm your full name and enter your User ID and Password (as your electronic signature) in the fields indicated below and click the “I Accept” button.

Reset Your Password

Financial Professionals*

Your password must be a minimum of characters.

Confirmation Message

Your LordAbbett.com password was successully updated. This page will be refreshed after 3 seconds.

OK

 

Fixed-Income Insights

A recent press report suggested that 10 large corporate-bond funds’ holdings of illiquid securities exceeded regulatory maximums. Here’s what the article gets wrong.

 

In Brief

  • A Wall Street Journal article published on September 22, 2015, suggested that a number of large corporate-bond funds recently held percentages of illiquid securities in their portfolio that exceeded the maximum level allowed by the Securities and Exchange Commission (SEC).
  • We believe that the Journal’s methodology in assessing bond portfolio illiquidity is narrow and ignores both how bonds trade and the factors that determine market liquidity.  It also should be noted that the SEC does not employ or support the Journal’s particular methodology.
  • Lord Abbett recognizes that illiquidity is an ongoing concern in large bond portfolios. The firm uses a variety of internal and external resources to monitor the level of liquidity in its portfolios, and devotes substantial resources to remain in compliance with regulatory requirements.

 

A Wall Street Journal article published Tuesday, September 22, 2015, analyzed the liquidity of corporate bond holdings of a number of large fixed-income mutual funds as part of the newspaper’s series on bond mutual funds and its concerns about bond market liquidity.

The Journal started out by looking at the 35 largest corporate bond funds during two six-month periods, July–December 2013 and January–June 2015. (Only the latter period was cited in the published article.) It then narrowed that list to the 18 funds that had at least 25% of their portfolio in corporate bonds. The reporters then set out to assess the illiquidity of each fund’s portfolio holdings using a method of the Journal’s own devising, based on the amount of corporate bonds held representing more than seven days of the average daily trading volume in that specific bond issue. The Journal identified 10 funds for which, by its measure, the level of “illiquid” securities that exceeded the SEC’s required maximum of 15%. (We will discuss how the Journal arrived at these figures in greater detail below.) The survey included the Lord Abbett Short Duration Income Fund.

The Investment Company Institute (ICI) has called the Journal’s approach to measuring liquidity “narrow [and] simplistic.” We agree, and will detail here why the Journal’s story presents a misleading picture of the level of illiquid assets in the bond portfolios surveyed in the article. We will start with an examination of how the Journal arrived at its numbers and then explain why we consider its methodology to be flawed and its findings inaccurate. We also will discuss what Lord Abbett does to assess portfolio liquidity in order to ensure compliance with SEC regulations.

1) How did the Journal assess portfolio illiquidity?

As we indicated earlier, the Journal devised its own method, originally calculating whether a fund could sell its entire holding of a particular issue within seven days, based on the average daily trading volume in that specific bond issue. The Journal obtained the observed funds’ bond holdings reported to Morningstar for March 31, 2015. The reporters used FINRA TRACE trading data from MarketAxess for the corporate bonds contained in these portfolios to calculate the average daily par amount traded of each corporate bond for a period that extended from three months before each of the portfolio dates to three months after. The period examined was January–June 2015.

The Journal then divided the par amount of each corporate bond held by the portfolios by the average daily volume to arrive at an estimate of how many trading days it would take to sell the fund’s position in that bond at that average rate. (The reporters later revised the methodology to reflect only the portion of the issue that represented more than the seven days based on the average daily trading volume.)

Finally, the reporters added up the market value of the bonds that they determined would take more than seven days to sell and divided that value by the market value of all assets in the fund to derive an estimate of what portion of a fund’s total portfolio could be considered illiquid under the SEC’s definition.

Here, though, are additional points to consider before we discuss the flaws in the Journal’s analysis:

  • The ICI notes that the Journal reporters acknowledged that they understood that their methodology is not used by the SEC.
  • Further, the reporters said that they do not intend to present their “illiquidity” measure as an SEC-required test or standard for funds, and do not intend to claim that funds with more than 15% “illiquid” securities by their measure are out of compliance with regulatory standards.

2) What are the flaws in the Journal’s methodology?

Basically, the Journal looked at only one narrow segment of the bond market ecosystem—trading volume—and from that the reporters extrapolated what they considered a measure of illiquidity. As we shall see, they ignored a number of other important considerations in determining illiquidity.

The Journal’s first mistake was to borrow a liquidity-measurement technique from the equity markets, where trading is done on exchanges with continuous trading in small volumes, and apply it to the bond markets, which are over-the-counter and feature intermittent trading in potentially large amounts, without making any adjustments to reflect the different characteristics of the market. “Not every bond trades every day,” says Lord Abbett Partner & Director Andrew O’Brien. The absence of trading activity on TRACE does not necessarily reflect a lack of buyers, he adds; rather, it may reflect the fact that there were no sellers. Also, unlike equities, which typically trade under a single ticker symbol, a company’s fixed-income securities can trade under dozens, if not hundreds, of CUSIP numbers.

The second shortcoming of the Journal’s methodology was in not considering a range of other indicators, which O’Brien says are essential to understanding potential illiquidity of a bond issue, including time to maturity, time to call, deal size, issue concentration, yield spread analysis, and issuer credit quality. There are a number of different approaches to gauging the liquidity of a particular holding, he said, but none of them use TRACE data exclusively to do so.

In the article, the Journal highlighted one holding within the Lord Abbett Short Duration Income Fund: a $271 million position in a single bond of Air Lease Corp. (0.75% of the fund’s assets as of March 31, 2015) that under the research methodology “would have taken 369 days [emphasis added] to sell based on average trading volume at the time.”

Let’s take a closer look at this “one-year” sale candidate. The Air Lease security in question, with a coupon of 5.625%, carries investment grade ratings from the major rating agencies, and has a very short maturity (April 1, 2017). Based on our understanding of current market conditions, a bond with such characteristics likely would not find it difficult to attract buying interest after being placed on the market.

The predictive value of the Journal’s analysis has already come into question based on a telling example from another asset manager cited in the article: A $96 million “illiquid” holding in an automaker which the Journal figured would take 65 days to sell was sold within five days.

3) What steps does Lord Abbett take to properly evaluate portfolio liquidity and ensure regulatory compliance?

As the ICI noted, mutual funds have a 75-year track record of successful liquidity management. How does Lord Abbett approach the task?

The SEC generally defines a security as being illiquid if it cannot be sold within seven days at approximately the price at which the fund is valuing it.  In order to meet the SEC’s definition of illiquid, Lord Abbett’s Compliance team, in conjunction with the Valuation and Pricing team, conducts daily reviews to provide an independent evaluation of each fund’s liquidity.  In addition, Lord Abbett adheres to SEC interpretations that limit the holdings of illiquid securities held in each registered investment company to not more than 15% of net assets. 

Lord Abbett has number of objective tools at its disposal, including TRACE, which Lord Abbett Partner and Chief Compliance Officer Joseph McGill notes is useful, but that it is not the sole input for tracking liquidity. “We have a broader perspective on liquidity than the Journal reporters; we seek to evaluate liquidity by looking at various factors such as the number of tranches of debt in the capital structure, the size of the issue, the ratings of the issuer, and the number of market makers following the issuer, among other methods.”  Lord Abbett’s liquidity methodology process is consistent with that employed by many mutual fund groups and SEC guidance.

In addition to its own in-house efforts to measure and analyze price movement in portfolio securities, Lord Abbett uses the services of a number of independent valuation firms to help it assess portfolio valuation and liquidity. 

RELATED TOPICS

Please confirm your literature shipping address

Please review the address information below and make any necessary changes.

All literature orders will be shipped to the address that you enter below. This information can be edited at any time.

Current Literature Shipping Address

* Required field