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, and EM currencies depreciation. 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. 

Market expectations of consistent U.S. dollar strength versus the euro, driven by monetary policy differences in the United States and Europe, was a major theme in the currency market at the beginning of the year, but this proved to be less popular this quarter, as the dollar / euro 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 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 assets 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.

Country-specific risks remained a factor, with Latin America underperforming Asia during the period. Specifically, a Brazil downgrade, political instability, and economic recession caused risk premiums to widen for the region, while lower commodity prices, in general, benefited Asian countries during the quarter. In Europe, Ukraine was able to successfully restructure the majority of its foreign debt with private creditors, although the conflict with Russia continued, albeit at a slower pace.

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 -11.09%, reflecting performance at the 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 JPMorgan GBI-EM Global Diversified Index,1 returned -10.54% in the same period. The Fund’s average annual total returns, which reflect 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: -23.23%; and since inception (June 28, 2013): -12.08%. Expense ratio, gross: 3.01%, and net: 1.05%.

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 underweight position in the euro and other European currencies such as Polish zloty and Hungarian forint was the primary detractor from overall performance, as these currencies outperformed after the European Central Bank did not expand its quantitative easing program this quarter. Indonesian bond positions also hurt relative performance, as investors abandoned local currency-denominated bonds due to soaring hedging costs in light of the massive sell-off in Asian currencies. We reduced our exposure to U.S. rates during the quarter, in line with our belief of a September interest rate hike by the Fed, which detracted from performance, as the Fed decided to keep interests rates unchanged.

We reduced our exposure to Latin America, and especially the longer end of the Brazilian yield curve. This underweight contributed to performance in the third quarter, as the country and the region were negatively affected by political instability and economic recession. The Fund’s underweight to Turkey also helped performance, as the country was affected by political turmoil and the situation on its border with Syria escalated. 

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 coming back 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 the model focused on the domestic consumption.

We continue to look for buying opportunities in Asia, as valuations look attractive after the massive sell-off in Asian currencies. We expect gradual stabilization of the currencies and consequent increased demand for local bonds in the region in the fourth quarter of 2015.

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

We also believe that an eventual interest-rate hike by the Fed could be a positive, as it would remove continuing uncertainty around U.S. interest-rate policy. Investors will look for signs of stability in economic data that would alleviate concerns regarding global growth, and should prove beneficial for the emerging-markets universe. In line with our belief of an eventual interest-rate hike by the Fed we reduced our exposure to U.S. rates.

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