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 Fund returned -9.81%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the period ended September 30, 2015, compared to its benchmark, the Russell Midcap® Value Index,8 which returned -8.04% 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  September 30, 2015, are: one year: -6.75%; and since inception (December 29, 2011): 12.54%.  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 that 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 Huntsman Corp., a global manufacturer of chemical products, detracted from relative performance.  Shares of Huntsman continue to face pressure from falling oil prices and slowing GDP in China. Also detracting from relative performance were shares of Mallinckrodt plc, a specialty pharmaceutical company. Mallinckrodt sold off following a reduction in the near-term outlook for its specialty generic drug business. Increased uncertainty surrounding potential competition for Acthar, its drug for the treatment of autoimmune and inflammatory conditions, also impacted the company’s share price. Another detractor from relative performance was the Fund’s overweight position in Kohl’s Corp., an operator of department stores. Although Kohl’s faces headwinds in the competitive retail market, company management is executing on new corporate initiatives, helping Kohl’s outperform most apparel retailers in a weak quarter.

The Fund’s overweight position in insurance provider Hartford Financial Services Group, Inc. contributed to relative performance during the period. Hartford Financial followed up a strong second quarter by announcing an increase in its share repurchase plan. Also benefiting Hartford during the period were unconfirmed rumors that Travelers was interested in acquiring the company.  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, reducing regulatory overhang.  Finally, the Fund’s overweight position in SCANA Corp., a regulated electric and natural gas utility company, contributed to relative performance. Shares of SCANA advanced after South Carolina’s Public Service Commission approved the company’s revised construction and capital cost schedules. Similar to Westar, SCANA’s regulatory overhang has now been reduced.

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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