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 Fund returned 2.13%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the period ended March 31, 2016, compared to its benchmark, the Russell Midcap® Value Index,9 which returned 3.92% 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  March 31, 2016, are: one year: -12.97%; and since inception (December 29, 2011): 12.19%.  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

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 services holding company, detracted from relative performance.  Although Santander posted top-line growth, it was more than offset by a negative impact from recognized changes in value of the personal lending portfolio held for sale. Also detracting from relative performance were shares of Fifth Third Bancorp., a regional banking company.  Lower market expectations for the pace and magnitude of interest rate increases by the Fed,  combined with fears of rising provisions for credit losses, particularly in energy lending, resulted in lower earnings expectations for Fifth Third and banks more broadly. Another detractor from relative performance was the Fund’s overweight position in Mallinckrodt Plc., a global specialty pharmaceuticals company. Broad industry weakness within pharmaceuticals resulted in shares of Mallinckrodt trading lower during the quarter. However, we believe execution of the company’s growth initiatives, including pipeline advancements, share buybacks, debt repurchases, and M&A can drive multiple expansion going forward.

The Fund’s overweight position in Whirlpool Corp., a home appliances company, contributed to relative performance during the period. Shares of Whirlpool advanced, as management successfully demonstrated the ability to overcome recent execution challenges in the United States, while continuing to integrate recent acquisitions in Europe and Asia. An overweight to Alere Inc., a manufacturer of medical diagnostic products, also contributed to relative performance. Shares of Alere advanced after Abbott Laboratories announced an agreement to acquire the company for $5.8 billion, or $56 per share, representing a significant premium. Finally, the Fund’s overweight position in SCANA Corp., an electricity and natural gas company, contributed to relative performance. Shares of SCANA advanced, as construction risk around the VC Summer Nuclear Generating Station continued to decline.

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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