Market Review as of 12/31/2014

The U.S. equity market (as represented by the S&P 500® Index1) advanced during the fourth quarter of 2014, bolstered by reports indicating growing strength in the U.S. economy. But the market became more volatile as well, with falling oil prices and global economic weakness raising concerns. U.S. real gross domestic product (GDP) in the third quarter expanded 5.0%, (according to the third estimate by the U.S Bureau of Economic Analysis), exceeding Wall Street expectations.2  Business investment and consumer spending, particularly on durable goods, were among the primary contributors. 

The Federal Reserve (the “Fed”) noted that U.S. economic activity expanded around the country, with most districts reporting gains in employment and advances in consumer spending. Manufacturing, construction, and real estate activity also expanded, while lower oil prices presented concerns in two districts.3

Elsewhere, the eurozone narrowly avoided slipping back into recession, and falling prices led to concerns about deflationary pressures.  In Japan, economic activity contracted, making it likely that this year’s planned tax hike will be delayed. In China, the economy appeared to decelerate to its slowest pace in nearly 25 years, prompting the central bank to cut its official interest rate for the first time in two years.

The S&P 500 Index rose 4.9% during the quarter, but remained below new highs set earlier in the quarter. Gains occurred in seven of 10 major sectors. The energy, materials, and telecom sectors underperformed the broader market. Value stocks (as represented by the Russell 3000® Value Index4) edged out growth stocks (as represented by the Russell 3000® Growth Index5). Large cap stocks (as represented by the Russell 1000® Index6) underperformed small caps (as represented by the Russell 2000® Index7). 

Fund Review as of 12/31/2014

The Fund returned 7.59%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the quarter ended December 31, 2014. The Fund underperformed its benchmark, the Russell 2000® Growth Index,8 which returned 10.06% 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 December 31, 2014, are: one year: -2.68%; five years: 17.79%; and 10 years: 11.58%.  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 within the information technology sector was the largest detractor from relative performance during the fourth quarter. The largest detractor within the sector was Arista Networks, Inc., a supplier of cloud networking solutions. In early December, Arista was sued by a large competitor over potential patent violations, which drove shares lower as investors projected that, at the very least, increased legal fees would hurt the company’s bottom line in coming quarters. Security selection within the consumer discretionary sector was another detractor from relative performance. Within this sector, the leading detractor was Zulily, Inc., an e-commerce company. The firm reported solid quarterly earnings in early November; however, management offered conservative forward guidance that was potentially indicative of a deceleration in user growth, which worried investors and drove the company’s share price lower.

An underweight position in the energy sector was the most significant contributor to relative performance, as a continued decline in oil prices sent the entire sector into a bear market. Strong security selection within the consumer staples sector was another significant contributor during the quarter. Within this sector, the leading contributor was Diplomat Pharmacy, Inc., an independent specialty pharmacy. The firm had a successful initial public offering in early October, as investors valued the company’s focus on treatments of rare diseases and the unique distribution network that results from this specialization. Another contributor within this sector was The Hain Celestial Group, Inc., a manufacturer and distributor of organic food products. Shares rose during the period as the company reported strong quarterly earnings, with both sales growth and earnings per share beating consensus estimates.   

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

The U.S. economy has continued to gradually expand, leading Fed policymakers to shift their language toward a normalization of monetary policy. However, our view is that continued slack in global markets, particularly in Japan, China, and Europe, will keep U.S. interest rates at low levels. We believe that these factors—reasonably accommodative monetary policy along with steady U.S. economic growth—will create a favorable backdrop for stocks moving forward, and that the secular growth areas of the market will outperform stable growth, while large and small capitalization stocks will trade in relative parity. We have positioned the fund accordingly, with emphasis on secular growth sectors such as information technology and health care, while maintaining an underweight to the energy sector, which we believe will continue to exhibit weakness.

Contact a Representative