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 Growth Leaders Fund returned 7.26%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the quarter ended December 31, 2015.  The Fund underperformed its benchmark, the Russell 1000® Growth Index,9 which returned 7.32% 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: 0.54%; three years: 17.56%; and since inception (June 30, 2011): 11.57%. Expense ratio, gross: 0.99%, and net: 0.85%.

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.

The leading detractor from relative performance during the period was security selection in the health care sector. Within this sector, the Fund’s holdings of Eli Lilly & Co., a drug manufacturer, detracted most. Shares of Eli Lilly fell in early October after the company discontinued a clinical trial for one of its treatments. Another detractor within the sector was the Fund’s position in Incyte Corp., a biopharmaceutical company. Shares of Incyte faced some weakness in early November after the company reported data from an early stage clinical trial that demonstrated efficacy, but left investors with some lingering long-term questions about the treatment.      

The largest contributor to relative performance during the quarter was security selection in the information technology sector. 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 within the sector 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.

Outlook

Declining energy prices and slowing global growth have weighed on the energy and materials sectors. Conversely, low energy prices and a strong U.S. dollar have created a favorable environment for the U.S. consumer and domestically oriented “high-growth” companies. We have positioned the Fund with an emphasis on secular growth sectors such as information technology and consumer discretionary, while maintaining the Fund’s underweight to the energy and materials sectors, which we believe will continue to exhibit weakness.

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