Market Review as of 09/30/2015

The U.S. equity market (as represented by the S&P 500® Index1) declined during the third quarter of 2015 amid a bout of substantial volatility in August and September. The impact of slowing Chinese growth on the global economy and ongoing uncertainty surrounding the timing and magnitude of the Federal Reserve’s (Fed) first rate hike contributed to investor concerns. On the positive side of the ledger, expanding U.S. real gross domestic product (GDP) provided support for U.S. equities during the period. GDP in the second quarter increased by 3.9% (according to the third estimate by the U.S. Bureau of Economic Analysis2), with a rise in exports and state and local government spending among the primary contributors. 

The Fed noted that U.S. economic activity, as a whole, continued to expand around the country between July and mid-August, with most districts reporting modest to moderate growth in labor demand and advancement in consumer activity. Additionally, most districts reported positive developments in their residential and commercial real estate markets. Existing home sales and residential leasing showed wide improvements, commercial construction rose in most districts, and commercial leasing increased across the board. Manufacturing activity during the period was mostly positive, although four of the 12 districts reported a mixed picture, and two cited declines.3

International equity markets also experienced notable volatility during the quarter, primarily as a result of weakness in the Chinese economy. The People’s Bank of China (PBoC) devalued the yuan following disappointing Chinese economic data, leading to increased investor concern across global markets. Commodities also experienced sharp moves during the period, with concerns once again tied to the transition in China from an export-based economy to one that relies more on domestic consumption. Ultimately, this broader uncertainty hurt global equities unilaterally.

The S&P 500 declined -6.44% during the three-month period. Of the 10 major sectors, only the utilities sector managed a positive return for the quarter. Despite posting losses, the consumer staples, consumer discretionary, financials, and information technology sectors outperformed the broader market. Value stocks (as represented by the Russell 3000® Value Index4) underperformed growth stocks (as represented by the Russell 3000® Growth Index5), while large cap stocks (as represented by the Russell 1000® Index6) outperformed small cap stocks (as represented by the Russell 2000® Index7). 

Fund Review
as of 09/30/2015

The Lord Abbett Alpha Strategy Fund returned -10.04%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested, for the three-month period ended September 30, 2015, compared to the benchmark, the 85% Russell 2000® Index7/15% S&P Developed Ex-U.S. SmallCap Index,8 which returned -11.31%.  The Fund’s average annual total returns, which reflect performance at the maximum 5.75% sales charge applicable for Class A share investments and include the reinvestment of all distributions, as of September 30, 2015, are: one year: -3.05%; five years: 10.15%; and 10 years: 7.88%. Expense ratio, gross: 1.63%, and net: 1.35%.

Performance data quoted represent past performance, which is no guarantee of future results.  Current performance may be higher or lower than the performance data quoted. The investment return and principal value of an investment in the Fund will fluctuate so that shares, on any given day or when redeemed, may be worth more or less than their original cost.  Most recent performance is published online at each month’s end.  To obtain performance data current to the most recent month-end, call Lord Abbett at 888-522-2388 or visit us at

The Fund seeks to outperform its benchmark over time as a result of two broad sources of performance variance.  First, the Fund’s strategic allocation is designed to enhance return opportunities, while using diversification to control risk. Second, the Fund’s actively managed underlying strategies can increase return opportunities by outperforming relative to their respective indexes. 

During the quarter, the performance of underlying investment strategies contributed to relative performance, while the Fund’s strategic allocation detracted from performance. The Fund’s allocation to small-cap international equities contributed to relative performance, as international small-cap stocks outperformed the Fund’s benchmark. The Fund’s weighting in micro-cap growth equities detracted from relative performance, as this category underperformed the Fund’s benchmark.

Within the Fund’s international small-cap equity strategy, which outperformed its underlying benchmark, Japanese systems integration firm SCSK Corp. performed very well over the period, supported by an upgrading cycle for corporations and government entities in the country. Second quarter operating profit was better than consensus forecasts, while management guidance for the first half of the year was raised. Shares of U.K.-based software solutions company Innovation Group plc rallied in August, after the company announced that it had agreed to a takeover offer from private equity firm Carlyle Group, at a premium to the share price at the time.

The Fund’s micro-cap growth strategy underperformed relative to its underlying benchmark, thereby detracting from relative performance. Security selection in the consumer discretionary sector was the largest detractor from relative performance for the strategy this quarter. Shares of Rentrak Corp., a global media measurement and information company, detracted most. The company reported quarterly revenue in August that missed consensus estimates. In addition, negative perception surrounding the cable TV model weighed on Rentrak, as a pronounced shift of consumers away from cable TV toward streaming options would have a proportionate effect on Rentrak’s TV measurement revenue stream. Another detractor within the consumer discretionary sector was MarineMax, Inc., a recreational boat dealer. Shares declined following the release of the company’s second quarter earnings, which saw both sales and revenue growth fall short of consensus expectations as a function of bad weather during the period in a couple of their core markets.

Please refer to under the “Portfolio” tab for a complete list of holdings of the Fund, including the securities discussed above.

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