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 Lord Abbett Fundamental Equity Fund returned  3.74%, reflecting the performance at the net asset value (NAV) of Class A shares with all distributions reinvested for the quarter ended December 31, 2014, compared to the Fund’s benchmark, the Russell 1000® Value Index8, which returned 4.98% 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 December 31, 2014, are: one year: 0.80%; five years: 11.80%; and 10 years: 7.27%. Expense ratio: 0.96%.

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

During the period, the U.S. economy has continued to show steady improvements, returning to a more normal state as the Fed considers an increase in the Fed Funds rate in 2015. Within the U.S. equity market, our process-driven emphasis on larger capitalization companies with more U.S.-oriented businesses benefited, as did the portfolio’s lower allocation to companies with more global growth exposure. Relative performance was aided by stock selection in materials and an underexposure to telecom services and energy.

Stock selection within the consumer discretionary sector detracted from the portfolio’s relative performance during the period. Shares of Starwood Hotels & Resorts Worldwide, Inc., an international hotel and leisure company, stumbled as strong earnings performance and share buybacks were overshadowed by macroeconomic concerns. Shares of Kohl’s Corporation, a family-oriented department store, fell driven by lower same-store sales in the third quarter. Stock selection within the consumer staples sector also detracted from relative portfolio performance. Shares of PepsiCo, Inc., a global food and beverage company, struggled due to foreign currency fluctuations despite reporting strong third quarter earnings.

Stock selection within the materials sector contributed to relative performance during the period. Shares of PPG Industries, Inc., a manufacturer and distributer of optical and specialty materials, climbed as a result of the acquisition of Comex and lower input costs. Shares of International Paper Co., a global paper and packaging company, increased due to a strong third quarter driven by solid demand, in addition to management increasing dividends. Within the industrials sector, shares of General Dynamics Corp., an aerospace and defense company, jumped as it benefited from continued margin expansion in their aerospace segment and accelerated share repurchases.

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


We believe the domestic equity market as a whole to be near a fairly valued level owing to an improving economic backdrop. However, a number of individual companies are still being underappreciated by consensus, allowing for compelling idea generation and driving our belief that individual stock picking should be the primary driver of alpha in the portfolio. In addition, profit taking in companies that occurred early in the quarter has abated, creating an opportunity to enter into select companies with strong fundamentals that are now trading at more attractive valuations.

We continue to favor companies that are more U.S.-centric, as they should benefit from an improved domestic economy and be less affected by global issues and geopolitical tensions. We also have more broadly diversified the portfolio to further mitigate global macroeconomic exposures.

During the fourth quarter, we increased the portfolio’s exposure to the health care sector, increasing its overweight relative to the benchmark. Within the sector, we are focusing on companies that should benefit from expanding coverage under U.S. healthcare reform and/or increased scale and global reach driven by investments and acquisitions. The portfolio also is overweight the information technology sector, where we focus on companies that should benefit from an increase in technology infrastructure spending, data-storage demand, and information security. Also, our focus on U.S.-centric companies has resulted in an underweight within the energy and industrials sectors.

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