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 Reviewas of 12/31/2015

The Lord Abbett Diversified Equity Strategy Fund returned 4.12%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested, for the three-month period ended December 31, 2015, compared to its benchmark, the 85% Russell 3000® Index9/15% MSCI EAFE Index with Gross Dividends,10 which returned 6.04%. The Fund’s 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, 2015, are: one year: -5.93%; five years: 6.96%; and since inception (June 30, 2006): 5.83%. Expense ratio, gross: 1.34%, and net: 1.00%.

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. Most recent performance is published online at each month-end. 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.

The Fund seeks to outperform its benchmark over time by using two broad sources of performance variance. First, the Fund’s strategic allocation is designed to enhance return opportunities, while using diversification to control risk. Second, the Fund’s actively managed underlying strategies can increase return opportunities by outperforming relative to their respective indexes. 

During the quarter, the performance of underlying investment strategies and the Fund’s strategic allocation both detracted from performance. The Fund’s weighting in international core stocks hurt the performance, as they underperformed the Fund’s benchmark. The Fund’s allocation to U.S. growth equities contributed to relative performance, as growth stocks outperformed the Fund’s benchmark.

The international core equity strategy underperformed its underlying benchmark, thereby detracting from relative performance. Within the international core equity strategy, stock selection in the telecommunication sector adversely affected relative performance during the fourth quarter of 2015. Shares of South Korean wireless telecommunications operator SK Telecom Co., Ltd. lagged in the period. The Korean mobile telecom industry is experiencing significant changes, which, despite being long-term positive developments, hurt the stock in the quarter. In addition, security selection in the industrials sector detracted from the Fund’s relative return. Shares in French multinational aerospace and security company Safran S.A. fell over the quarter after the French government cut its stake in the firm as part of a plan to reduce debt and free up funds.

Within the Fund’s U.S. growth equities strategy, which outperformed its underlying benchmark during the period, security selection in the information technology sector was the largest contributor to performance during the quarter. Within this sector, the Fund’s holdings of Alphabet, Inc., the parent company of Google, contributed most. Shares of Alphabet advanced throughout the quarter, driven by year-over-year growth in mobile search and YouTube. Another contributor was the Fund’s position in Facebook, Inc., a social networking company. Facebook reported a strong third quarter in early November, as impressive year-over-year advertising revenue growth helped the company beat consensus earnings 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.

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