Market Review as of 03/31/2016

The U.S. equity market (as represented by the S&P 500® Index1) rebounded from its worst start to any year to finish modestly higher during the first quarter of 2016. After the Federal Reserve (the Fed) raised interest rates for the first time since 2006, in December 2015, it decided to hold its benchmark interest rate unchanged during the first quarter, citing global financial market weakness as a concern. A disappointing corporate earnings season contributed to investor uncertainty during the quarter. According to research from FactSet, fourth quarter 2015 earnings suffered a slight year-over-year decline, and less than 70% of companies in the S&P 500 Index reported earnings above their mean estimates. Reasonably constructive economic data during the period helped offset some of this sluggishness. According to the third estimate from the Bureau of Economic Analysis,  U.S. real gross domestic product (GDP) in the fourth quarter expanded by 1.4%,2 an upward revision from previous estimates, with a rise in personal consumption expenditures and residential fixed investment among the primary contributors. 

The Fed noted that U.S. economic activity, as a whole, continued to expand in most districts around the country between December 2015 and February 2016. The majority of districts reported increased consumer spending and positive developments in their residential estate markets. Conversely, manufacturing activity struggled in a number of regions due in large part to further weakness in the energy sector.3

International equities4 also experienced an uneven first quarter, led by notable volatility in China’s capital markets at the beginning of the quarter. Chinese equities suffered sharp losses to start 2016, triggering trading halts, and concerning investors who were already skeptical of the market’s growth prospects. In January, the Bank of Japan introduced negative rates on excess reserves in an effort to stimulate economic growth and support Japanese markets during this tumultuous period. In Europe, markets were bolstered by the European Central Bank’s announcement in March that it would add to its existing monetary easing program.

The S&P 500 returned 1.35% during the first quarter. Of the 10 major sectors, only the health care and financials sectors underperformed the broader market. Value stocks5 outperformed growth stocks,6 while large cap stocks7 outperformed small cap stocks.8


Fund Review
as of 03/31/2016

The Lord Abbett Alpha Strategy Fund returned -2.69%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested, for the three-month period ended March 31, 2016, compared to the benchmark, the 85% Russell 2000® Index8/15% S&P Developed Ex-U.S. SmallCap Index,9 which returned -1.21%.  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 March 31, 2016, are: one year: -14.11%; five years: 5.59%; and 10 years: 5.98%. Expense ratio, gross: 1.62%; and net: 1.34%.

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 by using 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 Fund’s strategic allocation detracted from performance, while performance of underlying investment strategies contributed to relative performance.

The Fund’s weighting in domestic small-cap growth equities detracted from relative performance, as this category underperformed the Fund’s benchmark. The Fund’s allocation to domestic mid-cap stocks contributed to relative performance, as mid-cap equities outperformed the Fund’s benchmark.

The leading detractor from relative performance during the period was security selection in the consumer discretionary sector. Within this sector, the Fund’s position in Liberty TripAdvisor Holdings, Inc., a holding company that is engaged in the online travel research and commerce industries, detracted most. Liberty TripAdvisor’s primary asset is a controlling stake in TripAdvisor, and, as such, its shares trade in lockstep with shares of TripAdvisor. Shares of TripAdvisor faced some weakness during the quarter, as the company worked to transition from a click-based, advertising-driven business model to a commissions-based model that relies on its “instant bookings” feature. Another detractor within the consumer discretionary sector was the Fund’s position in 2U, Inc., a provider of platforms that allow colleges and universities to deliver online degree programs. Despite reporting its eighth straight “beat and raise” quarter during the period, 2U faced some share price weakness as investors favored companies that exhibited earnings stability over higher upside companies that had yet to deliver positive earnings, such as 2U. 

Within the Fund’s domestic mid-cap equity strategy, which outperformed its underlying benchmark, stock selection within the health care sector contributed to relative performance. Shares of Exam Works Group, Inc., an independent medical examinations and management services company, increased following a strong fourth quarter earnings report in which sales increased year-over-year, topping consensus estimates. In addition, shares of HealthSouth Corporation, an owner and operator of inpatient rehabilitation hospitals, rose, as performance was driven by better-than-expected hospital admission in the company’s fourth-quarter earnings report. Within the energy sector, shares of EQT Corporation, an energy production company, steady increased, as the company continues to hit growth targets and possesses a strong balance sheet.

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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