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 Fund returned 2.61%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the quarter ended June 30, 2015. The Fund outperformed its benchmark, the Russell 2000® Growth Index,8 which returned 1.98% for the same period. Average annual 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 June 30, 2015, are: one year: 5.04%; five years: 20.13%; and 10 years: 12.68%.  Expense ratio: 0.98%.

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.

Security selection in the consumer discretionary sector was the largest contributor to relative performance during the second quarter. Within the sector, the Fund’s holdings of Skechers USA, Inc., a footwear designer and marketer, contributed most. Shares climbed throughout the period as strong sales data released in early May followed up the company’s impressive first quarter earnings report in late April and suggested ongoing momentum for the company in its core markets. Also contributing to performance during the quarter was security selection in the consumer staples sector. Within this sector the Fund’s position in Diplomat Pharmacy, Inc., an independent specialty pharmacy, was the leading contributor. The firm’s share price rose throughout the quarter, buoyed by a strong first quarter earnings report in May that saw the company beat consensus EPS estimates and raise forward EPS guidance following better than expected margin expansion.  

The largest detractor during the quarter was stock selection in the health care sector. Within this sector the Fund’s position in Fluidigm Corp., a manufacturer of life science tools for clinical laboratories and biotech and pharmaceutical companies, was a primary detractor. Shares declined sharply in early May following disappointing first quarter earnings that missed consensus revenue estimates due to lower than expected sales from the company’s marquee BioMark product. Management noted that the decline in sales appeared to be transitory as it was not associated with a loss in the company’s competitive share of the market. Also detracting during the quarter was security selection in the information technology sector. Within this sector the Fund’s holdings of GrubHub, Inc., an online and mobile platform for restaurant pickup and delivery orders, detracted most. The firm’s shares faced some weakness following the company’s first quarter earnings report, as strong earnings driven by better-than-expected revenue growth was overshadowed by unchanged forward earnings guidance, which company management attributed to increased investments in delivery services in response to some competitive pressure.

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

Outlook

After suffering a slight contraction in the first quarter, the U.S. economy appeared to resume its gradual expansion in the second quarter of 2015. Additionally, first quarter domestic earnings as a whole beat consensus estimates, overcoming concerns related to U.S. dollar strength and weak energy prices. Within the growth universe, cyclical growth stocks continued to perform well in the second quarter, exhibiting market leadership over their secular growth and stable growth peers for much of the period. While the Fund remains balanced between cyclical and secular growth stocks given this slow growth environment, the Fund has begun to assume a tilt toward secular growth as these stocks started to assert themselves in the final portion of the quarter, and appear well set to continue to deliver strong earnings growth.

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