Going Global in High Yield | Lord Abbett
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Institutional Perspectives

High yield credit is now a global asset class, offering investment opportunity in markets outside the United States. We believe Lord Abbett’s time-tested, high yield investment philosophy can serve as a driver of potential outperformance for investors in global high yield.

 

In Brief

  • Our analysis shows that a lack of bias, either by ratings, sector, or geography, may create opportunity for potential outperformance versus benchmarks.
  • Looking specifically to quality, we find that an unconstrained global high yield strategy has favorably outperformed both ‘BB’-credit rated and ‘B’-rated portfolios (BB/B) over the trailing three- and five-year periods ended December 31, 2019.
  • Rotation opportunities exist across geographies, and the correlation of returns across the United States, Europe, and emerging markets (EM) breaks down when macro challenges emerge that are specific to regions.

 

We subscribe to the view that an interconnected world has rapidly moved toward the globalization and democratization of financial markets alike. Among other implications, this suggests that a flexible and unbiased approach to portfolio management across geographies, credit quality, and sectors should have some appeal to investors. Additionally, as high yield credit investors since 1971, Lord Abbett has consistently maintained that the primary drivers of performance in any high yield portfolio should come from the combination of an informed view of macroeconomic and technical factors as well as in-depth, fundamental credit research. With this backdrop, we explore the global high yield market opportunity today. We believe the Lord Abbett Global High Yield strategy is well-positioned to implement our historically successful approach to US high-yield investing across a global opportunity set and to offer global investors the potential for attractive risk-adjusted returns.

The Starting Block to Global High Yield Portfolio Management
We believe one powerful result of combining the above-noted approaches is that our investment strategy is scalable both within and across asset classes, allowing us to potentially extend our historical investment success in the US high yield market to the broader global high yield market. In fact, a hallmark of our investment process has been this flexibility. Over the past decade, our flagship high yield strategy has had significant exposure to non-US domiciled high-yield issues, albeit primarily in US dollar-denominated bonds, averaging approximately 19% of the strategy’s representative portfolio (in the 10-year period ended December 31, 2019) and ranging from as high as 29% to as low as 7%. We believe this experience illustrates both our credit analysts’ ability to uncover potential value globally and our portfolio managers’ flexibility to rotate as the macroeconomic environment dictates.

We start by simply noting that the size of the global high yield market (as measured by the ICE BofAML Global High Yield Index) has more than doubled over the last 10 years to nearly $2.1 trillion (as of December 31, 2019). Further, over 60% of this growth has come from outside the United States. Given the evolution of the sub-investment-grade corporate bond market, how should a global high yield portfolio manager proceed? It comes down to three decision levers in our view, summarizing a process we have similarly employed successfully in our US high yield strategies:

  1. Deciding on the overall level of portfolio risk based on an assessment of the broader macro and technical environment;
  2. Identifying where on the credit curve, and in which regions and industries, we want to deploy capital; and then
  3. Executing individual security selection informed by the themes and broader opportunities identified through the assessment of what are likely to be the key drivers of credit spreads going forward.

So why marry this framework with an unbiased approach? As Chart 1 shows, even within the same economic cycle, there have been wide disparities in returns across credit ratings and sectors.  Maintaining a bias either by credit quality or by limiting the pool of sectors within just this cycle would have served intermittently as a significant drag on returns. Conversely, identifying those segments of the market that outperformed and maintaining meaningful active weights in these areas may drive compelling performance, all things being equal. We believe an unbiased approach would better position a skilled, flexible, and tactical manager to capture these yearly variations through a top-down directed view, better allocating credit research resources. Yes, a well-resourced credit research function is at the core of our firm. But we believe relying solely on credit and security selection with an otherwise static quality, sector, and/or geographic weighting within global high yield would risk missing the forest through the trees.

 

Chart 1. A Typically Wide Gap between Best and Worst Returns across Global High Yield Industry and Ratings Cohorts Suggests a Top-Down Approach Matters
% Total returns by sector (top chart) and credit rating (lower chart) (31 December, 2012–31 December, 2019)

Source: ICE Data Indices, LLC (ICE BofAML Global High Yield Index). The historical data are for illustrative purposes only, do not represent the performance of any specific portfolio managed by Lord Abbett or any particular investment, and are not intended to predict or depict future results. Indices are unmanaged, do not reflect the deduction of fees or expenses, are not available for direct investment. Investors may experience different results.
Past performance is not a reliable indicator or guarantee of future results.

 

The Global High Yield Market Today
Before we delve further into the potential performance drivers across global high yield, Table 1 provides a brief snapshot of the opportunity set. For example, the market value of emerging market (EM) high yield now eclipses that of Europe. Meanwhile Europe is a notch better than both the US and EM markets on a composite ratings basis. Finally, average issue size and duration is comparable across all three regions, but EM has benefitted from the lowest dollar price at the overall index level.

 

Table 1. Comparing Regional High Yield Markets

Source: ICE Data Indices, LLC (ICE BofAML US High Yield Index, ICE BofAML High Yield US Emerging Markets Liquid Corporate Plus Index, ICE BofAML European Currency High Yield Index). The historical data are for illustrative purposes only, do not represent the performance of any specific portfolio managed by Lord Abbett or any particular investment, and are not intended to predict or depict future results. Investors may experience different results. Indices are unmanaged, do not reflect the deduction of fees or expenses, are not available for direct investment. Investors may experience different results.
Past performance is not a reliable indicator or guarantee of future results.

 

Lack of Bias by Credit Quality
Despite the outperformance of higher quality high yield in 2019 (specifically in the United States), the allure of “up in quality” BB/B mandates is not matched by outperformance over high yield mandates that embrace an unbiased approach over the longer term. We first examined this reality in our 2018 publication,“Taking the Bias Out of Your High-Yield Portfolio,"  then with a particular focus on the US high yield market. Here, we extend that analysis to the broader global high yield market.

In particular, in Chart 2 we show the rolling five-year performance differential between the ICE BofAML Global High Yield Index and the ICE BofAML BB-B Global High Yield Index. Observations above the line indicate outperformance of the broad high yield index most of the time. Indeed, with the exception of the three shorter periods around the 2008 recession, the 2015-2016 pullback related to the commodity market, and 2019, the broader market opportunity has outperformed a ratings biased approach. Further, examining all the rolling five-year periods since the indices’ inceptions, we find that broad global high yield outperformed the BB/B index 79% of the time, with a maximum outperformance of 2.4% and a maximum underperformance of just less than 1% (see table below).

 

Chart 2: Historically, the Broad Global High Yield Index Has Outperformed the BB/B Index Most of the Time
Rolling 5-year Index Performance Comparison (31 December, 2004–31 December, 2019)

Source: ICE Data Indices, LLC (ICE BofAML Global High Yield Index and ICE BofAML BB-B Global High Yield Index). The historical data are for illustrative purposes only, do not represent the performance of any specific portfolio managed by Lord Abbett or any particular investment, and are not intended to predict or depict future results. Indices are unmanaged, do not reflect the deduction of fees or expenses, are not available for direct investment. Investors may experience different results.
Past performance is not a reliable indicator or guarantee of future results.

 

The Rationale for Having a Product That Can Be Tactical Among Regions
While we believe stand-alone geographic high yield credit allocations can have a role to play in a well-diversified portfolio, we also believe that alpha can be better generated by a manager having a geographically unconstrained and flexible approach to allocate finite resources. Part of the challenge of an expanded opportunity set across the globe is having a view on which markets, which sectors, and which securities to own and when. Through a global credit cycle, different markets will offer differing levels of opportunity (and risk) and therefore at different times may deserve varying levels of exposure as we showed above. In line with our opening comments, we believe the best approach is to start with a portfolio-level decision regarding overall risk stance, followed by decisions at the market and sector levels, and then best implemented at the single-security level.

As we see in Chart 3, while EM, US and European high yield market spreads have generally moved together over time, there have been periods where the performance has diverged. For example, the intensification of the European sovereign debt crisis in 2011 saw regional spreads materially underperform those of the United States. EM spreads widened materially in late 2014 as corruption in Brazil and the continued Russian intervention in Ukraine weighed materially on EM investor sentiment. However, the move lower in commodities over 2015 and 2016 affected the US market more heavily, with state-owned energy entities in EMs faring better than US leveraged shale plays. And finally, a strengthening US dollar, ramping trade tensions, and related EM mutual fund outflows in early 2018 again pressured EM long before the rollover of the US market in fourth quarter 2018.

 

Chart 3: There Were Similar Spread Moves in Regional Markets over Time, but Opportunity to Rotate as Well
Spreads (basis points) (30 June, 2010-30 September, 2019)

Source: ICE Data Indices, LLC (ICE BofAML US High Yield Index, ICE BofAML High Yield US Emerging Markets Liquid Corporate Plus Index, ICE BofAML European Currency High Yield Index). The historical data are for illustrative purposes only, do not represent the performance of any specific portfolio managed by Lord Abbett or any particular investment, and are not intended to predict or depict future results. Indices are unmanaged, do not reflect the deduction of fees or expenses, are not available for direct investment. Investors may experience different results.
Past performance is not a reliable indicator or guarantee of future results.

 

Displayed another way, in Chart 4 we see that return correlations can break down at points in time between different markets. While these charts are busy—that’s also the point. Correlation of returns across markets can vary, and as a result, having a flexible approach to tactically rotate among these regional high yield markets allows for greater alpha potential in our view.

 

Chart 4. …And Viewed Another Way, Correlations of Returns Are Volatile Themselves
Total return correlation (30 June, 2010-30 September, 2019)

Note: Correlation measured by trailing 63 trading day (approximately 3 months) correlation between respective markets’ total return indices
Source: ICE Data Indices, LLC (ICE BofAML US High Yield Index, ICE BofAML High Yield US Emerging Markets Liquid Corporate Plus Index, ICE BofAML European Currency High Yield Index). The historical data are for illustrative purposes only, do not represent the performance of any specific portfolio managed by Lord Abbett or any particular investment, and are not intended to predict or depict future results. Indices are unmanaged, do not reflect the deduction of fees or expenses, are not available for direct investment. Investors may experience different results.
Past performance is not a reliable indicator or guarantee of future results.

 

Moving away from index data to real-world application, the removal of bias from high yield investing, whether anchored in credit quality, geography, or industry, has permitted the Lord Abbett Global High Yield strategy to consistently outperform historically not only its peer group, as measured by the eVestment Global High Yield Category Average, but also the strategy’s benchmark index and the up-in-quality version of the global high yield index – both of which are not investable. Lord Abbett’s Global High Yield strategy also handily outperformed the investable passive global high yield alternative, the London-listed HYLD ETF.

 

Table 2. Demonstrated Historical Capability across the Global High Yield and U.S. High Yield Markets

Past performance is not a reliable indicator or guarantee of future results. The gross performance shown does not reflect the deduction of investment advisory fees, but does reflect the deduction of any applicable transaction costs. Net of fees performance reflects the deduction of the highest applicable management fee (“Model Net Fee”) that would be charged based on the fee schedule appropriate to a typical institutional separate account investor for this mandate without the benefit of breakpoints. Please be advised that the composite may include other investment products that are subject to management fees that are inapplicable to a typical institutional separate account investor but are in excess of the Model Net Fee. Therefore, the actual performance of all the portfolios in the composite on a net-of-fees basis will be different, and may be lower, than the Model Net Fee performance. However, such Model Net Fee performance is intended to provide the most appropriate example of the impact management fees would have by applying management fees relevant to a typical institutional separate account investor to the gross performance of the composite.
The performance ranking information is based on each strategy’s institutional composite vs. its eVestment category average. eVestment rankings are based on gross of fees performance. Source: eVestment Alli- ance data as of 12/31/19. Preliminary and subject to change. Number of managers in the eVestment universe for the US High Yield Category for the 1-, 3-, 5-year, and since inception time periods is 235, 223, 210, and 63 respectively. Number of managers in the eVestment universe for the Global High Yield Category for the 1-, 3-year, since inception time periods is 82, 76, and 75 respectively.

 

Chart 5. Our Active, Flexible and Unconstrained Approach Has Led to Outperformance Historically in Global High Yield
Hypothetical investment (US dollar) (30 October, 2016–31 December, 2019)


Source: ICE Data Indices, LLC (ICE BofAML Global High Yield Index, ICE BofAML BB-B Global High Yield Constrained Index) and eVestment Alliance. Based on a hypothetical investment of $100 in the Lord Abbett Global High Yield Composite on October 30, 2016. The gross performance shown does not reflect the deduction of investment advisory fees, but does reflect the deduction of any applicable transaction costs. Please refer to the End Notes to Performance at the end of this document for additional performance information, including the effect of fees on performance. The index and ETF data are for illustrative purposes only, do not represent the performance of any specific portfolio managed by Lord Abbett or any particular investment, and are not intended to predict or depict future results. Indices are unmanaged, do not reflect the deduction of fees or expenses, are not available for direct investment. Investors may experience different results.

 

So, what explains this consistent outperformance historically? We think there are a few key differentiators that contribute to how we have successfully extended our approach to US high yield investing into the global opportunity set, especially as it pertains to protecting investor capital in volatile market environments. These include:

  • A continuous focus on what we believe will drive credit market performance. This top-down approach allows us to potentially capture regional and sector themes that can be significant causes of performance dispersion in the markets. Managers who focus solely on a bottom-up approach may miss the bigger trends that define market opportunity.
  • Flexibility to participate, but with risk limits on lower-tier credits. Part of the allure of ‘BB’-/‘B’- rated mandates for some investors is that many high yield managers have not done a great job navigating the ‘CCC’-rated space. We have rigid position-sizing guidelines for ‘CCC’-rated credits that help us to mitigate idiosyncratic risk in volatile credit environments.
  • Experience. We have almost 50 years of experience as a firm honing our craft in the leveraged-credit markets, along with a deep bench of experienced portfolio management and credit analyst teams.


The authors wish to gratefully acknowledge the assistance of Katie Cheung, Associate Director in Digital Services, for her contribution to this report.

 

END NOTES TO PERFORMANCE

The Global Investment Performance Standards (GIPS®) compliant performance results shown represent the investment performance record for the Lord, Abbett & Co. LLC  (Lord Abbett) High Yield Opportunistic Institutional Composite.  Prior to December 31, 2015, the composite was named High Yield Institutional Composite. This composite is comprised of all fully discretionary portfolios investing in debt securities, including corporate debt, convertible securities, bank loans, structured products, and non-dollar denominated bonds, rated below investment grade at the time of purchase by one or more nationally recognized statistical rating organizations or deemed to be of equivalent quality. Effective November 2017, only accounts with a value of $20 million or more are included in the composite. Prior to November 2017, only portfolios with a value of $10 million or more are included in the composite. Effective January 2018, accounts funded on or before the 15th of the month will be included in the Composite effective the first day of the first following month. Accounts funded after the 15th of the month will be included effective on the first day of the second following month. Prior to January 2018, other than registered investment companies sponsored by Lord Abbett, accounts opened/funded on or before the 15th day of the month were included in the Composite effective the first day of the second following month and accounts opened/funded after 15th of the month were included effective on the first day of the third following month. Registered investment companies sponsored by Lord Abbett are included in the Composite in the first full month of management. Closed accounts are removed from the Composite after the last full month in which they were managed in accordance with applicable objectives, guidelines, and restrictions. Performance results are expressed in U.S. dollars and reflect reinvestment of any dividends and distributions. The Composite was created in 2013. A complete list of Lord Abbett composites and a description of their investment strategies is available on request. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request.

For GIPS® purposes, the firm is defined as Lord, Abbett & Co. LLC (“Lord Abbett”). Total Firm Assets are the aggregate fair value of all discretionary and non-discretionary assets for which the Firm has investment management responsibility. Accordingly, Total Firm Assets include, but are not limited to, mutual funds (all classes of shares), privately placed investment funds, non-U.S. domiciled investment funds, separate/institutional portfolios, individual portfolios and separately managed accounts (“Wrap Fee/SMA Portfolios”) managed by Lord Abbett. Total Firm Assets also include any collateralized, structured investment vehicle, such as a collateralized debt obligation or collateralized loan obligation, for which Lord Abbett has been appointed as the collateral manager. For the period prior to January 1, 2000, the definition of the Firm does not include any hedge fund or SMA program accounts where Lord, Abbett & Co. LLC did not have the records so long as it is impossible for Lord, Abbett & Co. LLC to have the records (within the meaning of relevant GIPS® standards interpretations). Total Firm Assets also exclude separately managed  program accounts that involve model delivery.

The number of portfolios and total assets in the Composite, and the percentage of total “firm” assets represented by the Composite at the end of each calendar year for which performance information is provided are as follows:

Calendar Year Ended

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

# of Portfolios

5

3

2

2

2

1

1

1

1

1

Total Assets ($M)

$7,233

$8,167

$6,200

$3,896

$3,964

$2,782

$2,232

$1,780

$1,281

$827

Percentage of Firm Assets

4.49%

5.23%

4.61%

3.14%

2.92%

2.05%

1.70%

1.70%

1.20%

0.90%

Total Firm Assets ($M)

$161,055

$156,110

$134,565

$124,007

$135,945

$135,786

$127,753

$107,449

$106,528

$88,895

Dispersion

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Lord Abbett High Yield Opportunistic Institutional Composite Gross (Annual)

-4.18%

9.46%

16.98%

-1.33%

4.45%

10.75%

17.63%

4.16%

15.42%

52.05%

Lord Abbett High Yield Opportunistic Institutional Composite Gross (3 year Annualized Return)

7.06%

8.11%

6.43%

4.51%

10.81%

10.71%

12.24%

22.29%

10.81%

6.92%

Lord Abbett High Yield Opportunistic Institutional Composite Gross (3 year Annualized Ex-Post Standard Deviation)

4.89%

5.25%

5.72%

5.22%

4.71%

6.68%

7.40%

10.17%

15.29%

15.15%

Lord Abbett High Yield Opportunistic Institutional Composite Net (Annual)

-4.66%

8.92%

16.40%

-1.84%

3.92%

10.20%

17.05%

3.64%

14.85%

51.32%

Lord Abbett High Yield Opportunistic Institutional Composite Net (3 year Annualized Return)

6.52%

7.57%

5.90%

3.98%

10.26%

10.16%

11.69%

21.67%

10.26%

6.39%

ICE BofAML U.S. High Yield Constrained Index (Annual)

-2.27%

7.48%

17.49%

-4.61%

2.51%

7.41%

15.55%

4.37%

15.07%

58.10%

ICE BofAML U.S. High Yield Constrained Index (3 year Annualized Return)

7.27%

6.40%

4.73%

1.65%

8.36%

9.01%

11.54%

23.83%

10.36%

6.20%

ICE BofAML U.S. High Yield Constrained Index (3 year Annualized Ex-Post Standard Deviation)

4.70%

5.67%

6.10%

5.34%

4.50%

6.51%

7.12%

11.12%

17.00%

16.87%


Dispersion is represented by the asset-weighted standard deviation, a measure that explains deviations of portfolio rates of return from the asset-weighted composite return. Only portfolios that have been managed within the Composite style for a full year are included in the asset-weighted standard deviation calculation. The measure may not be meaningful (N/A) for composites consisting of five or fewer portfolios or for periods of less than a full year.

The performance of the Composite is shown net and gross of advisory fees, and reflects the deduction of transaction costs. The deduction of advisory fees and expenses (and the compounding effect thereof over time) will reduce the performance results and, correspondingly, the return to an investor. Net performance of the Composite as presented in the table on the previous page reflects the deduction of a “model” advisory fee, calculated as the highest advisory fee, borne by any account (without giving effect to any performance fee that may be applicable) in the Composite (an annual rate of 0.50% of assets) and other expenses (including trade execution expenses). For example, if $10 million were invested and experienced a 10% compounded annual return for 10 years, its ending dollar value, without giving effect to the deduction of the advisory fee, would be $25,937,425. If an advisory fee of 0.50% of average net assets per year for the 10-year period were deducted, the annual total return would be 9.45% and the ending dollar value would be $24,782,276. The management fee schedule is as follows: 0.50% on the first $50 million, 0.40% on the next $100 million, 0.38% on the next $100 million, and 0.35% on all assets over $250 million. Net-of-fee performance reflects the deduction of the highest applicable institutional advisory fee that would be charged to a new institutional client account based on the current fee schedule for this strategy. The composite includes one or more registered investment companies sponsored by Lord Abbett (“Lord Abbett Funds”) that are subject to fees and expenses that would be inapplicable to an institutional client account. Therefore, the actual performance of Lord Abbett Fund accounts included in the composite may be lower than the net-of-fee composite performance presented.

Fees and expenses applicable to the Lord Abbett Funds are disclosed in each Fund’s Prospectus, which is available upon request. Past performance does not guarantee future results. Certain securities held in portfolios contained in this composite may have valuations determined using both subjective observable and subjective unobservable inputs. The Firm’s valuation hierarchy does not materially differ from the hierarchy in the GIPS Valuation Principles.

Lord Abbett claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Lord Abbett has been independently verified for the periods 1993 through 2018. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The High Yield Opportunistic Institutional composite has been examined for the periods 1999 through 2018. The verification and performance examination reports are available upon request.

The ICE BofAML U.S. High Yield Constrained Index is a capitalization-weighted index of all US dollar denominated below investment grade corporate debt publicly issued in the US domestic market. Qualifying securities must have a below investment grade rating (based on an average of Moody’s, S&P and Fitch), at least 18 months to final maturity at the time of issuance, at least one year remaining term to final maturity as of the rebalancing date, a fixed coupon schedule and a minimum amount outstanding of $100 million. The index caps individual issuer at 2%. Index constituents are capitalization-weighted, based on their current amount outstanding, provided the total allocation to an individual issuer does not exceed 2%. Issuers that exceed the limit are reduced to 2% and the face value of each of their bonds is adjusted on a pro-rata basis. The face values of bonds of all other issuers that fall below the 2% cap are increased on a pro-rata basis. In the event there are fewer than 50 issuers in the Index, each is equally weighted and the face values of their respective bonds are increased or decreased on a pro-rata basis. The benchmark has not been examined by Deloitte & Touche LLP.

Source ICE Data Indices, LLC (“ICE”), used with permission. ICE PERMITS USE OF THE ICE BofAML INDICES AND RELATED DATA ON AN “AS IS” BASIS, MAKES NO WARRANTIES REGARDING SAME, DOES NOT GUARANTEE THE SUITABILITY, QUALITY, ACCURACY, TIMELINESS, AND/OR COMPLETENESS OF THE ICE BofAML INDICES OR ANY DATA INCLUDED IN, RELATED TO, OR DERIVED THEREFROM, ASSUMES NO LIABILITY IN CONNECTION WITH THE USE OF THE FOREGOING, AND DOES NOT SPONSOR, ENDORSE, OR RECOMMEND LORD ABBETT, OR ANY OF ITS PRODUCTS OR SERVICES.

Past performance is not a reliable indicator or a guarantee of future results. Differences in account size, timing of transactions, and market conditions prevailing at the time of investment may lead to different results among accounts. Differences in the methodology used to calculate performance also might lead to different performance results than those shown. Composite performance is compared to that of an unmanaged index, which does not incur management fees, transaction costs, or other expenses associated with a managed account.

The Global Investment Performance Standards (GIPS®) compliant performance results shown represent the investment performance record for the Lord, Abbett & Co. LLC  (Lord Abbett) Global High Yield Institutional Composite. This composite is comprised of all fully discretionary portfolios managed on behalf of institutional investors investing primarily in below investment grade debt securities of U.S. and non-U.S. issuers, including in emerging market countries. The portfolios may also invest in investment grade debt securities. The securities held may be fixed or floating rate government, supranational, quasi-sovereign or corporate debt instruments denominated in any currency. These debt instruments may include perpetual floating  rate bonds, inflation-linked securities, stripped debt securities, zero coupon instruments, mortgage-backed and mortgage-related  securities, and CDOs and other types  of  asset-backed securities. Effective January 2018, accounts funded on or before the 15th of the month will be included in the Composite effective the first day of the first following month. Accounts funded after the 15th of the month will be included effective on the first day of the second following month. Prior to January 2018, other than registered investment companies sponsored by Lord Abbett,  accounts opened/funded on or before the 15th day of the month were included in the Composite effective the first day of the second following month and accounts opened/funded after 15th of the month were included effective on the first day of the third following month. Registered investment companies sponsored by Lord Abbett are included in the Composite in the first full month of management. Closed accounts are removed from the Composite after the last full month in which they were managed in accordance with applicable objectives, guidelines and restrictions.

Performance results are expressed in U.S. dollars and reflect reinvestment of any dividends and distributions. The Composite was created in 2016. A complete list of Lord Abbett composites and a description of the investment strategies is available on request. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request.

For GIPS® purposes, the firm is defined as Lord, Abbett & Co. LLC (“Lord Abbett”). Total Firm Assets are the aggregate fair value of all discretionary and non-discretionary assets for which the Firm has investment management responsibility. Accordingly, Total Firm Assets include, but are not limited to, mutual funds (all classes of shares), privately placed investment funds, non-U.S. domiciled investment funds, separate/institutional portfolios, individual portfolios and separately managed accounts (“Wrap Fee/SMA Portfolios”) managed by Lord Abbett. Total Firm Assets also include any collateralized, structured investment vehicle, such as a collateralized debt obligation or collateralized loan obligation, for which Lord Abbett has been appointed as the collateral manager. For the period prior to January 1, 2000, the definition of the Firm does not include any hedge fund or SMA program accounts where Lord, Abbett & Co. LLC did not have the records so long as it is impossible for Lord, Abbett & Co. LLC to have the records (within the meaning of relevant GIPS® standards interpretations). Total Firm Assets also exclude separately managed  program accounts that involve model delivery.

The number of portfolios and total assets in the Composite, and the percentage of total “firm” assets represented by the Composite at the end of each calendar year for which performance information is provided are as follows:

Calendar Year Ended

2018

2017

11/2016—12/2016

# of Portfolios

1

1

1

Total Assets ($M)

$11

$12

$11

Percentage of Firm Assets

0.01%

0.01%

0.01%

Total Firm Assets ($M)

$161,055

$156,110

$134,565

Dispersion

N/A

N/A

N/A

Lord Abbett Global High Yield Institutional Composite Gross (Annual)

-3.47%

14.84%

1.22%

Lord Abbett Global High Yield Institutional Composite Gross (3 year Annualized Return*)

N/A

N/A

N/A

Lord Abbett Global High Yield Institutional Composite Gross (3 year Annualized Ex-Post Standard Deviation*)

N/A

N/A

N/A

Lord Abbett Global High Yield Institutional Composite Net (Annual)

-3.95%

14.27%

1.13%

Lord Abbett Global High Yield Institutional Composite Net (3 year Annualized Return*)

N/A

N/A

N/A

ICE BofAML Global High Yield Index (Annual)

-3.35%

10.20%

0.64%

ICE BofAML Global High Yield Index (3 year Annualized Return)

N/A

N/A

N/A

ICE BofAML Global High Yield Index (3 year Annualized Ex-Post Standard Deviation)

N/A

N/A

N/A

*N/A for performance periods with less than 3 years of data based on the composite inception date.  

Dispersion is represented by the asset-weighted standard deviation, a measure that explains deviations of portfolio rates of return from the asset-weighted composite return. Only portfolios that have been managed within the Composite style for a full year are included in the asset-weighted standard deviation calculation. The measure may not be meaningful (N/A) for composites consisting of five or fewer portfolios or for periods of less than a full year.

The performance of the Composite is shown net and gross of advisory fees, and reflects the deduction of transaction costs. The deduction of advisory fees and expenses (and the compounding effect thereof over time) will reduce the performance results and, correspondingly, the return to an investor. Net performance of the Composite as presented in the table on the previous page reflects the deduction of a “model” advisory fee, calculated as the highest advisory fee, borne by any account (without giving effect to any performance fee that may be applicable) in the Composite (an annual rate of 0.50% of assets) and other expenses (including trade execution expenses). For example, if $10 million were invested and experienced a 10% compounded annual return for 10 years, its ending dollar value, without giving effect to the deduction of the advisory fee, would be $25,937,425. If an advisory fee of 0.50% of average net assets per year for the 10-year period were deducted, the annual total return would be 9.45% and the ending dollar value would be $24,782,276. The management fee schedule is as follows: 0.50% on the first $50 million, 0.40% on the next $100 million, 0.38% on the next $100 million, and 0.35% on all assets over $250 million. Net-of-fee performance reflects the deduction of the highest applicable institutional advisory fee that would be charged to a new institutional client account based on the current fee schedule for this strategy. The composite includes one or more registered investment companies or collective investments sponsored by Lord Abbett (“Lord Abbett Funds”) that are subject to fees and expenses that would be inapplicable to an institutional client account. Therefore, the actual performance of Lord Abbett Fund accounts included in the  composite  may  be  lower  than  the  net-of-fee  composite performance presented. Fees and expenses applicable to the Lord Abbett Funds are disclosed in each Fund’s Prospectus, which is available upon request. Past performance does not guarantee future results. Certain securities held in portfolios contained in this composite may have valuations determined using both subjective observable and subjective unobservable inputs. The Firm’s valuation hierarchy does not materially differ from the hierarchy in the GIPS Valuation Principles.

Lord Abbett claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Lord, Abbett & Co.  LLC has been independently verified for the periods 1993 through 2018. The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.

Effective 01/02/2019 the composite’s index changed to the ICE BofAML Global High Yield Index USD Hedged, as the composite has 20% in non-USD exposure which will be hedged back to USD as of that date. Prior to 01/02/2019 the composite’s index was the ICE BofAML Global High Yield Index. The ICE BofAML Global High Yield Index tracks the performance of USD, CAD, GBP and EUR denominated below investment grade corporate debt publicly issued in the major domestic or Eurobond markets. Qualifying securities must have a below investment grade rating (based on an average of Moody’s, S&P and Fitch), at least 18 months to final maturity at the time of issuance, at least one year remaining term to final maturity as of the rebalancing date, a fixed coupon  schedule and a minimum amount outstanding of USD 100 million, EUR 100 million, GBP 50 million, or CAD100 million. Original issue zero coupon bonds, Eurodollar bonds, 144a securities (with and without registration rights), and pay-in-kind securities (including toggle notes) are included in the index. Callable perpetual securities are included provided they are at least one year from the first call date. Fixed-to-floating rate securities are included provided they are callable within the fixed rate period and are at least one year from the last call prior to the date the bond  transitions from a fixed to a floating rate security. Contingent capital securities are excluded, but capital securities where conversion can be mandated by a regulatory authority, but which have no specified trigger, are included. Other hybrid capital securities, such as those issues that potentially convert into preference shares, those with both cumulative and noncumulative coupon deferral provisions, and those with alternative coupon satisfaction mechanisms, are also included in the index. Securities issued or marketed primarily to retail investors, equity-linked securities, securities in legal default, hybrid securitized corporates, taxable and tax-exempt US municipal securities and DRD-eligible securities are excluded from the index. The benchmarks have not been examined by Deloitte & Touche LLP.

Source ICE Data Indices, LLC (“ICE”), used with permission. ICE PERMITS USE OF THE ICE BofAML INDICES AND RELATED DATA ON AN “AS IS” BASIS, MAKES NO WARRANTIES REGARDING SAME, DOES NOT GUARANTEE THE SUITABILITY, QUALITY, ACCURACY, TIMELINESS, AND/OR COMPLETENESS OF THE ICE BofAML INDICES OR ANY DATA INCLUDED IN, RELATED TO, OR DERIVED THEREFROM, ASSUMES NO LIABILITY IN CONNECTION WITH THE USE OF THE FOREGOING, AND DOES NOT SPONSOR, ENDORSE, OR RECOMMEND LORD ABBETT, OR ANY OF ITS PRODUCTS OR SERVICES.

Past performance is not a reliable indicator or a guarantee of future results. Differences in account size, timing of transactions, and market conditions prevailing at the time of investment may lead to different results among accounts. Differences in the methodology used to calculate performance also might lead to different performance results than those shown. Composite performance is compared to that of an unmanaged index, which does not incur management fees, transaction costs, or other expenses associated with a managed account.

IMPORTANT INFORMATION

A Note about Risk: The value of investments in fixed-income securities will change as interest rates fluctuate and in response to market movements. Generally, when interest rates rise, the prices of debt securities fall, and when interest rates fall, prices generally rise.

High-yield securities, sometimes called junk bonds, carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal. Bonds may also be subject to other types of risk, such as call, credit, liquidity, interest-rate, and general market risks. Longer-term debt securities are usually more sensitive to interest-rate changes; the longer the maturity of a security, the greater the effect a change in interest rates  is likely to have on its price. Lower-rated bonds may be subject to greater risk than

higher-rated bonds. No investing strategy can overcome all market volatility or guarantee  future results. Investing in international denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. The securities markets of emerging countries tend to be less liquid, especially subject to greater price volatility, have a smaller market capitalization, have less government regulation and may not be subject to as extensive and frequent accounting, financial and other reporting requirements as securities issued in more developed countries.

The information contained herein is provided by Lord, Abbett & Co. LLC (“Lord Abbett”). The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. Lord Abbett has no obligation to update any or all of such information. All amounts, market value information, and estimates included herein have been obtained from outside sources where indicated or represent the  good faith judgment of Lord Abbett. Where such information has been obtained from outside sources, Lord Abbett cannot guarantee the accuracy or completeness of such information. These materials are not intended to be an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services. These materials do not constitute investment advice and should not be used as the basis for any investment decision.

These materials do not take into account individual client circumstances, objectives, or needs. No determination has been made regarding the suitability of any securities, financial instruments, or strategies for particular clients or prospects.

The information contained herein is provided on the basis and subject to the explanations, caveats, and warnings set out in this notice and elsewhere herein. Any discussion of risk management is intended to describe Lord Abbett’s efforts to monitor and manage risk but does not imply low risk.

These materials do not purport to provide any legal, tax, or accounting advice.

Any performance targets contained herein are subject to revision, and there can be no  assurance that any product or strategy described herein will meet any such performance targets. An investor could lose some or all of its investment in such product or strategy. Past performance is not a guarantee or reliable indicator of future results. Investments are not guaranteed by Lord Abbett, its affiliates, or any governmental agency.

The financial indices referenced herein as benchmarks are provided for information purposes only.  Portfolio holdings and characteristics will differ from those of the benchmark(s), and  such differences may be material. Factors affecting portfolio performance that do not affect benchmark performance may include portfolio rebalancing, the timing of cash flows, credit quality, diversification, and differences in volatility. In addition, financial indices do not reflect the impact of fees, applicable taxes, or trading costs, which reduce returns. Unless otherwise noted, financial indices assume reinvestment of dividends.  You cannot make a direct  investment in an index.

The credit quality of the securities in a portfolio are assigned by a nationally recognized statistical rating organization (NRSRO), such as Standard & Poor’s, Moody’s, or Fitch, as an indication of an issuer’s creditworthiness. Ratings range from ‘AAA’ (highest) to ‘D’ (lowest). Bonds rated ‘BBB’ or above are considered investment grade. Credit ratings ‘BB’ and below are lower-rated securities (junk bonds). High-yielding, non-investment-grade bonds (junk bonds) involve higher risks than investment-grade bonds. Adverse conditions may affect the issuer’s ability to pay interest and principle on these securities.

The opinions in the preceding commentary are as of the date of publication and subject to change  based on subsequent developments and may not reflect the views of the firm as a whole. This material is not intended to be legal or tax advice and is not to be relied upon as a forecast, or research or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or depict performance of any investment. Investors should not assume that investments in the securities and/or sectors described were or will be profitable. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy or completeness of the information.

About The Author

Institutional Strategy
 

Global High Yield

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