Market Review as of 12/31/2015

The U.S. equity market1 advanced during the fourth quarter of 2015, rebounding from the correction experienced in the previous quarter. Markets were supported during the period by a reasonably positive earnings season in which 74% of the companies in the S&P 500 beat consensus earnings estimates. In December, the U.S. Federal Reserve (Fed) raised interest rates for the first time since 2006, as economic data during the quarter continued to suggest a strengthening domestic economy. Specifically, U.S. real gross domestic product (GDP) in the third quarter expanded by 2.0%2, with a rise in personal consumption expenditures and state and local government spending among the primary contributors. 

The Fed noted that U.S. economic activity, as a whole, continued to increase at a modest pace around the country between October and December. Most districts reported improving growth in consumer activity, and positive developments in their residential and commercial real estate markets. Conversely, manufacturing activity struggled in a number of regions3.

International equities4 also rebounded in the fourth quarter, as generally accommodative monetary policies around the globe helped lift equity markets. In Europe, markets were bolstered by the European Central Bank’s announcement that it would be willing to increase the size of its quantitative easing program. In Japan, expectations of further quantitative easing by the Bank of Japan increased, while an upward revision to third quarter GDP growth showed that the country narrowly avoided a technical recession. Finally, the People’s Bank of China cut interest rates for the sixth time in a year, as it sought to support economic growth in its economy.

The S&P 500 returned 7.04% during the fourth quarter. Of the 10 major sectors, the materials, consumer staples, healthcare, industrials, and information technology sectors outperformed the broader market. Value stocks5 underperformed growth stocks6, while large cap stocks7 outperformed small cap stocks8

 

Fund Review as of 12/31/2015

The Fund returned 2.50%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the period ended December 31, 2015, compared to its benchmark, the Russell Midcap® Value Index,9 which returned 3.12% for the same period. Average total returns, which reflect performance at the maximum 5.75% sales charge applicable to Class A share investments and include the reinvestment of all distributions, as of  December 31, 2015, are: one year: -12.12%; and since inception (December 29, 2011): 12.40%.  Expense ratio: gross: 1.07%, and net: 0.85%.

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. To obtain performance data current to the most recent month-end, call Lord Abbett at 888-522-2388 or visit us at www.lordabbett.com.

Consistent with our Calibrated investment approach, which seeks to achieve excess returns through a focus on security selection, individual stock positions drove relative performance during the quarter. The performance of select individual positions led to the Fund’s underperformance, relative to its benchmark, the Russell Midcap® Value Index, during the three-month period. Specifically, the Fund’s overweight position in Santander Consumer USA Holdings, Inc., a financial holding company, detracted from relative performance.  Shares of Santander sold off following CEO Jason Kulas’s announcement that the company would exit the personal-lending space and refocus on its core auto-lending business. Also detracting from relative performance were shares of Fidelity National Information Services, Inc., a global provider of banking and payments technologies. A disappointing earnings report, caused largely by poor management execution, resulted in shares of Fidelity National selling off during the quarter. However, we continue to believe the company has attractive organic growth prospects and the potential for margin expansion.  In addition, the recent acquisition of SunGard brings incremental cross-selling and cost-cutting opportunities. Another detractor from relative performance was the Fund’s underweight position in NVIDIA Corp., a developer of visual computing processors. NVIDIA continues to benefit from growing revenues in the automotive and video gaming markets.

The Fund’s overweight position in Orbital ATK, Inc., a global aerospace and defense system company, contributed to relative performance during the period. Instability in the Middle East, the Ukraine, and the South China Sea should increase the need for defense systems in general and missile defense systems in particular. An overweight to Westar Energy Inc., an electric utility company, also contributed to relative performance. Shares of Westar advanced after the company reached a settlement with the staff of the Kansas Corporation Commission in a general rate case, thus reducing regulatory overhang. This favorable resolution provided investors comfort that going forward the company can resume modest earnings growth.  Finally, the Fund’s overweight position in Mallinckrodt plc, a specialty pharmaceutical company, contributed to relative performance. Shares of Mallinckrodt advanced after the company reported earnings well ahead of consensus projections.  The top-line beat was driven by much better-than-expected Acthar sales.

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

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