Market Review as of 06/30/2015

The U.S. equity market (as represented by the S&P 500® Index1) advanced slightly during the second quarter of 2015, supported by a generally supportive earnings season and signs of strength in the domestic labor and housing markets. The quarter was not without some bouts of volatility, however, with questions surrounding the timing and magnitude of the Federal Reserve’s (“the Fed”) first rate hike, political headwinds related to Greek solvency, and fears of a slowing Chinese economy all contributing to investor concerns during the period. In addition, U.S. real gross domestic product (GDP) in the first quarter contracted 0.2% (according to the third estimate by the U.S. Bureau of Economic Analysis2), with declines in exports and state and local government spending among the primary detractors.  

The Fed noted that U.S. economic activity, as a whole, likely expanded around the country between early April and late May, with most districts reporting slight gains in employment and wages along with advances in consumer spending. Construction, real estate activity, and home prices also rose across most districts during the period, while manufacturing was primarily flat, with more than half of the districts reporting tempered manufacturing growth due to the downturn in the oil and gas industry.3

Elsewhere in the world, the European Central Bank’s continued quantitative easing was not enough to overcome the political risk related to Greece’s status in the eurozone, sending European markets generally lower. Chinese markets fluctuated during the quarter, as the supportive decision by the People’s Bank of China to cut its lending rate for the fourth time since November 2014 was offset by uncertainty surrounding the economy’s overall strength. Japanese equities continued to rise in the second quarter, buoyed by the continuation of aggressive monetary easing policies from the Bank of Japan, leading the U.S. dollar to reach a 13-year high relative to the Japanese yen in June.

The S&P 500 advanced 0.28% during the three-month period, but remained below new highs set earlier in the quarter. Gains occurred in five of 10 major sectors. The consumer staples, energy, industrials, materials, and utilities sectors underperformed 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) trailed small cap stocks (as represented by the Russell 2000® Index7). 

Fund Review
as of 06/30/2015

The Lord Abbett Alpha Strategy Fund returned 1.89%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested, for the three-month period ended June 30, 2015, compared to the benchmark, the 85% Russell 2000® Index7/15% S&P Developed Ex-U.S. SmallCap Index,8 which returned 1.08%.  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 June 30, 2015, are: one year: 0.51%; five years: 15.36%; and 10 years: 10.19%. 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, both the Fund’s strategic allocation and the performance of underlying investment strategies contributed to relative 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 domestic smid 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, Italian asset manager Anima Holding SpA was one of the strongest performers in the first quarter of the year, and has continued to rally in the past three months. The company is well positioned to capitalize on investors’ willingness to seek equity alternatives to fixed-income investments in Europe. German real estate firm Patrizia Immobilien AG also added to relative returns, gaining over the second quarter, as low interest rates increased investor appetite for higher yields. In addition, the company bought a suite of assets in Germany, and now is very well positioned in the industry.

The Fund’s micro-cap value strategy underperformed relative to its underlying benchmark, thereby detracting from relative performance. Within the health care sector, our position in Spark Therapeutics, Inc., a gene therapy biotechnology company, detracted most. Shares of Spark Therapeutics weathered some volatility during the quarter due to overall weakness across the biotech industry early in the period and some uneven data from a clinical trial related to one of Spark’s gene therapy treatments. The confusion surrounding this data led shares of Spark to decline in the immediate aftermath of the published data; however, it was ultimately revealed that the specific trial for Spark’s treatment had advanced to Phase III. Within the information technology sector, our holdings of FARO Technologies, Inc., a developer and manufacturer of 3-D measurement, imaging, and realization systems, detracted most. Shares of FARO declined sharply in late April after the company pre-released first-quarter earnings far below consensus estimates, with first-quarter sales notably lower than anticipated.  

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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