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

Some of the hand-wringing about liquidity in leveraged credits is based on misperceptions about the asset class itself. Below we discuss those issues and some of the strategies we have in place that are designed to manage volatility when the Fed ultimately raises rates.

For several years now, as the U.S. economy began its slow recovery from the 2008-09 financial crisis, investors have been debating the timing of the Federal Reserve’s first increase in short-term interest rates. As we grow closer to the expected event, however, investor skittishness seems to be on the increase, particularly with regard to the impact of a Fed rate hike on the fixed-income markets. Financial media are adding fuel to the fire with articles suggesting that liquidity in the leveraged-credit markets may not be sufficient to satisfy investor redemptions from mutual funds and ETFs.

While we have concerns about the volatility that tends to develop around Fed “exits,” it seems to us that some of the hand-wringing occurring over the current state of the fixed-income markets has become a bit extreme. We don’t want to minimize investor concerns, and we recognize that past performance does not necessarily guarantee future results, but we believe it would be helpful to take a step back and look at how the leveraged-credit markets have performed in prior periods of stress.  

In this article, we attempt to dispel what we see as some of the current misperceptions surrounding the current health of the leveraged-credit markets. We also discuss the current positioning of our high-yield strategies and highlight elements of Lord Abbett’s risk-management processes.

Historical Perspectives on Liquidity and Fund Flows
Antecedent to the claim that liquidity has declined in the leveraged-credit market is the implication that trading in the high-yield market heretofore typically has been an easy task—an implication that is definitely contrary to our experience. In the 40-plus years that Lord Abbett has participated in the leveraged-credit market, it has always been much more challenging to trade leveraged-credit instruments than other sectors of the fixed-income markets. Have certain changes in market structure and financial regulations made it more difficult to transact in the high-yield market relative to before 2008? Yes they have. During volatile periods such as 1998 and 2002, it was difficult to find deep liquidity. Dealer balance sheets were much larger then, but they definitely were not being used to purchase large amounts of high-yield bonds when the credit markets became volatile.

All that considered, we have always met our clients’ requests for liquidity in volatile periods such as 2002, 2008, and during the “taper tantrum” of 2013. (We discuss the “taper tantrum” in more detail below.)

One relatively new item that has been a major topic of discussion has been the rising influence of exchange-traded funds (ETFs) in the leveraged markets. Lord Abbett does not offer ETFs to investors. But in our view, this is not a “new” challenge for the high-yield market, as short-term flows have been heavily influenced by the sentiment of retail investors in mutual funds dating back to the mid-1990’s.

 

Chart 1. Mutual Funds Driving the High-Yield Market Is Nothing New

Source: Bank of America/Merrill Lynch. Data as of September 30, 2014.

 

Chart 1 provides some perspective on high-yield holdings by both mutual funds and ETFs as a percentage of the high-yield market. Similar to selling ETFs, when investors want to withdraw assets from mutual funds, those funds will need to raise cash to meet redemption requests. If we look back to the mid to late 1990s, we can see periods when mutual funds held an even higher portion of high-yield assets than they do now. In November 1994, for example, when the Fed surprised markets with a sudden 75 basis-point hike in the fed funds rate, mutual fund holdings were at levels that we see in the markets today, yet requests for redemptions were met without difficulty. (Keep in mind that this was a period when the Fed was much more opaque than it is now. There were no press conferences or meeting minutes disseminated for investors to analyze. We would argue that the current communications policy should assist in preparing the markets and investors better for changes in the direction of policy than they have in the past.) Another example occurred in the summer of 1998 when mutual funds held almost one-third of high-yield assets. That was not particularly a stellar summer in the credit markets. (For examples of the misery, search “Long-Term Capital Management” and the “Russian debt crisis.”) Once again, liquidity was tested, but redemption requests were met as investors pulled almost $2 billion from high-yield mutual funds in just two months.* At the time, that was 1% of the high-yield market. So, while the rise of ETFs in the leveraged markets is a concern, we do believe the risks are consistent with what we have seen from retail-driven flows in the past.

 

Chart 2. Exchange-Traded Funds (ETFs) Have Increased as a Percentage of the Leveraged-Credit Markets


Source: Morgan Stanley and Lipper. Data as of June 30, 2015.

 

Recent History—The “Taper Tantrum” Experience
High-yield mutual funds and ETFs also were a significant presence in the market during the “taper tantrum” of 2013. Back in May of that year, an uptick in U.S. economic data led former Fed chairman Ben Bernanke to suggest, during testimony before Congress, that the Fed might start slowing (i.e., tapering) the pace of its bond purchases later that year. From the start of May to mid-September 2013, yields on the 10-year U.S. Treasury rose 140 basis points (bps), and yields on the BofA Merrill Lynch U.S. High Yield Constrained Index quickly spiked, from 5.00% in early May to 6.85% by the end of June, according to Bloomberg. Emerging-market (EM) bonds also were hit during the sell-off. Investor sentiment toward the high-yield market fluctuated wildly with high-yield mutual funds seeing outflows of $11.8 billion in June, 2013, followed by $6.4 billion of inflows in July, followed by $2.7 billion of outflows in August. Still, redemptions were met without difficulty.

A key factor that contributed to the volatility back then was investor positioning and sentiment toward the high-yield market relative to the equity market. Coming out of the financial crisis of 2008–09, investors appeared to be loath to put money back into the equity markets after suffering losses during the “lost decade” for equities. From the start of 2000 to the end of 2008, the total return of the S&P 500® Index was down more than 25%, according to Bloomberg. Unless investors wanted to keep their money under the mattress, fixed-income investments appeared to be the least bad option. As a result, we saw virtually uninterrupted inflows into the high-yield market from 2009 until the spring of 2013. By the time all was said and done, in 2013, high-yield mutual funds still took in $4.6 billion that year, and the U.S. High Yield Constrained Index posted a total return near 7.5%, per Bank of America. Post-taper tantrum, there has been a renewed interest in equities and a healthy dose of skepticism toward fixed-income assets. And, since the end of 2013, the high-yield market’s popularity has ebbed and flowed, with the asset class seeing a modest net outflow of $160 million.

 

Chart 3. Since 2013, Enthusiasm for High Yield Has “Tapered” Off
(Cumulative Net Inflows)

Source: Morgan Stanley,Lipper.  Data as of June 30, 2015.

 

Lord Abbett’s Approach to Liquidity and Risk Management
While some managers may be revisiting their approach toward risk management in light of current market conditions, we will continue to follow a process that is designed to generate competitive performance and to navigate market dislocations. Below are a few components of our process that we believe will allow us to manage risk effectively when volatility increases in the leveraged-credit markets.

▪ Managing duration—We seek to manage portfolio duration within a narrow band to that of the benchmark. Our approach is designed to eliminate the kind of tracking error that can be added to a portfolio when a portfolio manager takes duration views. We aim to generate performance through security selection and by being positioned appropriately along the credit spectrum not by speculating on rates. In our view, taking duration views is not an efficient way to generate alpha. We also have a very thoughtful approach to managing duration in our high-yield portfolios. Without getting into the idiosyncrasies of bond math, modified duration is the weighted average maturity of the present value of a bond’s cash flow. This calculation may not fully account for the spread of a bond issue relative to Treasuries. The fact is that high-yield securities have less interest-rate sensitivity than high-grade debt: a bond with a duration of four-and-a-half years that trades 100 bps above Treasuries will be much more sensitive to a move in rates than a bond with a similar duration trading at 700 bps above Treasuries. We adjust durations to account for the fact that a ‘CCC’-rated bond tends to be less rate sensitive than a ‘BB’-rated bond. Quite often, the duration of a high-yield portfolio ends up being simply a byproduct of what a firm is buying. Our view is that duration and convexity matter in all fixed-income asset classes, not just investment-grade portfolios. These risks must be monitored and addressed appropriately and with alacrity and precision. The goal here is to ensure that we do not bleed performance through unintentional rate risk and instead allow our sector and security selection to shine through.

▪ Product design—We are mindful of liquidity at the initial stages of product design. Our Funds’ Board of Directors approves new products and strategies and the liquidity of both are an important consideration. Liquidity remains a key consideration as we construct our leveraged-credit portfolios. For example, in our opportunistic high-yield strategies, we have the ability to invest in other asset classes such as bank loans, convertibles, equities, and investment-grade bonds. In recent periods of volatility, we have been able to find liquidity in other asset classes when the high-yield market liquidity was under stress. Within our bank loan strategies, we have used short-duration high-yield bonds as an additional source of liquidity if needed. With these liquidity buffers, we position ourselves not only to meet redemptions, should they occur, but to redeploy the capital quickly and seek to take advantage of market participants that are forced sellers of leveraged credits.

▪ Risk limits—Our limits on position-sizing by ratings bucket are designed to give us a more diverse portfolio and to limit the impact of a potential drag on performance due to one issuer. We believe this makes it easier to exit a position if our view changes on the credit, especially compared to a firm that takes a more concentrated approach.

▪ Our trading team—Lord Abbett’s trading team is an integral part of the investment process, which entails a collaborative effort with investment professionals in portfolio management and credit research. Our fixed-income trading team has extensive experience trading in the leveraged credit markets. The trading team plays an important role in our investment process, which includes actively participating in security selection. The trading team also evaluates the ability to trade the securities of an issuer before we make an initial investment. And the team seeks best execution and provides market knowledge in real time. Finally, traders are continuously evaluating new technology and platforms for trading leveraged-credit markets as they develop.

▪ Additional tools—When appropriate, we can use high-yield credit derivatives index products to manage the liquidity profile of a fund or strategy.

Conclusion
In our high-yield strategies, we currently have an underweight to ‘BB’-rated securities, which tend to be the most sensitive to interest-rate volatility. We are also close to equal weight ‘B’- and ‘CCC’-rated credits. The proceeds from our ‘BB’ underweight are invested primarily in asset classes that we believe should perform well if rates rise as a function of the continued improvement of the U.S. economy. Recent data on consumer spending and housing lead us to believe that the improvement in the U.S. economy is accelerating.

At the end of the day, the proof is in the proverbial pudding. The leveraged-credit markets have seen a significant amount of volatility over the last few years from Fed fears, European-related dramas, and concerns about the strength/weakness of the global economy. We believe that our approach to liquidity management should be able to help us meet our clients’ liquidity needs.

 

*All fund flow data herein are sourced from J.P. Morgan.

 

RELATED TOPICS

ABOUT THE AUTHOR

Fixed Income: The 2015 Halftime Report

videoRobert Lee discusses the outlook for the economy, the U.S. Federal Reserve, inflation, and interest rates.

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