Market Reviewas of 09/30/2015

Emerging markets (EM) continued to face serious headwinds in the third quarter of 2015. The sell-off across the asset class was driven by risk aversion and worsening in overall market sentiment due to concerns over global growth, commodity price weakness, EM currencies depreciation, and doubts about Chinese growth. The biggest negative factor was deepening worries over Chinese growth and macro stability, triggered by a rout in the equity markets and devaluation of the Chinese yuan. Political uncertainty also played a role in some EM countries, such as Brazil, Turkey, Venezuela, Argentina, and Ukraine. 

The U.S. dollar versus the euro trade, driven by monetary policy differences in the United States and Europe, was a major theme in the market at the beginning of the year, but proved to be less popular this quarter, as the exchange rate remained flat. Instead, the focus shifted to EM currencies, which suffered substantial losses on the back of concerns over economic slowdown in China and a devaluation of the yuan. Within the emerging markets universe, Asian and Latin American currencies sold off the most, while euro-tied currencies, such as the Polish zloty and Czech krona, outperformed. The Barclays Global Emerging Markets Strategy (GEMS) Index1 (a general proxy for the emerging markets currency asset class) returned -6.79% for the three-month period ended September 30, 2015, compared with 0.57% in the second quarter of 2015.

The People’s Bank of China’s (PBC) surprising decision to devalue the yuan in August 2015 had a ripple effect in the world economy, and emerging markets in particular. The market interpreted this decision as a desperate measure by the Chinese government to stem an economic slowdown and to regain export competitiveness. The ensuing sell-off in EM currencies and broad commodities continued, despite the PBC’s multiple attempts to alleviate investors’ fears regarding the strength of China’s economy. The PBC had to rely on massive foreign exchange interventions to stabilize the yuan, spending more than US$120 billion in August alone, according to the PBC’s internal estimates.

Toward the end of the third quarter, EM currency markets were in panic mode, pricing in a major global economic slowdown. The situation improved at the very end of the period, with a dovish stance by the U.S. Federal Reserve (Fed) providing some support. On the other hand, uncertainty over U.S. interest rate policy caused some investors to question the Fed’s credibility and, subsequently, shifted the focus back to global growth concerns.

Fund Review as of 09/30/2015

The Fund returned -7.26%, reflecting performance at net asset value (NAV) of Class A shares, with all distributions reinvested, for the three-month period ended September 30, 2015. The Fund’s benchmark, the Barclays Global Emerging Market Strategy (GEMS) Index, returned -6.79% in the same period. The Fund’s average annual total returns, which reflects performance at the maximum 2.25% sales charge applicable to Class A share investments and include the reinvestment of all distributions, as of September 30, 2015, are: one year: -15.69%; five years: -3.35%; and 10 years: 0.61%. 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

The Fund’s overweight positioning in Latin American currencies was the most significant detriment to relative performance in the third quarter of 2015. Specifically, exposure to Brazil in the beginning of the quarter hurt performance, as the country plunged into political and economic turmoil. In addition, the Fund’s exposure to Chile and Mexico detracted from performance, as the Fund was positioning itself for a September interest rate hike by the Fed. The hike should have benefited both the Mexican and the Chilean peso, since central banks in both countries generally tie their monetary policy to that of the U.S. central bank. Further, we were expecting more of the U.S. dollar’s dominance this quarter versus the euro; thus, we slightly reduced the Fund’s euro exposure, which detracted from performance, as the European Central Bank did not expand its stimulus program in the third quarter and the euro remained flat.

Underweight positions to currencies across Asia contributed positively to Fund performance during the third quarter. The top four contributors were the currencies of Taiwan, Thailand, Singapore, and Malaysia. In particular, an underweight to the Malaysian ringgit helped, as the country was rocked by corruption scandals and resulting political unrest. The Fund also maintained a small overweight position in the Indian rupiah. The rupiah was a positive contributor to relative performance, as the currency outperformed, relative to the benchmark, in the third quarter due to a continued push for economic reform by Indian prime minister Narendra Modi. 

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


We expect fears about China’s economy to abate somewhat in the fourth quarter, as the Chinese government introduced a number of stimulus measures aimed at stabilizing growth and restoring investor confidence, which should have a positive effect on emerging-market economies. We do not imagine Chinese growth returning to double digits, but we do anticipate gradual stabilization and eventual growth, albeit at a much lower pace, as the country transforms its economy to a model focused on domestic consumption. Consequently, the Fund increased its Asian exposure at the end of the third quarter, as lower valuations now present a buying opportunity.

In addition, we believe that the panic regarding growth in major developed economies that consumed EM currency markets at the end of the third quarter should abate to some extent. We still expect 2015 European and U.S. growth to amount to about 1.0% and 2.5%, respectively, which should provide some support for the EM universe.

Finally, a dovish stance by the Fed has recently helped emerging markets.  However, we believe that an eventual rate hike will have a limited effect on currency valuations.  Although an initial Fed move may lead to short-term volatility, we believe that it will remove continuing uncertainty around U.S. interest-rate policy. More important than Fed policy, we believe the market will look for signs of stability in the economic data that would alleviate concerns regarding global growth, and should prove beneficial for emerging-market currencies.  

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