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 Review as of 12/31/2015

The Lord Abbett Fundamental Equity Fund returned 5.73%, reflecting the performance at the net asset value (NAV) of Class A shares with all distributions reinvested for the quarter ended December 31, 2015, compared to the Fund’s benchmark, the Russell 1000® Value Index,8 which returned 5.64% 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, 2015, are: one year: -8.70%; five years: 7.25%; and 10 years: 6.36%. Expense ratio: 0.97%.

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.

Stock selection within the materials sector contributed to the Fund’s relative performance during the period. Shares of Dow Chemical Company, an integrated science and technology company, benefited from a strong third quarter report driven by its Infrastructure and Plastics segments. In addition, shares of E. I. du Pont de Nemours and Company, a science and technology-based company, increased as its earnings outperformed consensus expectations. Within the information technology sector, shares of Intel Corporation, a designer and manufacturer of digital technology platforms, rose due to impressive third quarter results despite tough macro headwinds

Stock selection within the health care sector detracted from relative performance during the period. Shares of Pfizer Inc., a global biopharmaceutical company, slid sideways as the market may have had mixed views on the merger with Allergan. In addition, shares of St. Jude Medical, Inc., a developer, manufacturer, and distributor of medical devices, stumbled despite an in-line third quarter report. Within the consumer discretionary sector, shares of Target Corporation, a provider of everyday essentials at discounted prices, fell as consumer demand remains stagnant.

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

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.

We continue to focus on U.S.-centric companies that have financial and capital management flexibility to compete strategically. As a result of this view, we are paying close attention to stock-specific decisions, near-term fundamentals, and focusing on the rigorous execution of our buy/sell discipline. The Fund continues to be underweight the utilities and energy sectors, based on our fundamental and valuation analyses. 

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