Market Review as of 03/31/2016

The U.S. equity market (as represented by the S&P 500® Index1) rebounded from its worst start to any year to finish modestly higher during the first quarter of 2016. After the Federal Reserve (the Fed) raised interest rates for the first time since 2006, in December 2015, it decided to hold its benchmark interest rate unchanged during the first quarter, citing global financial market weakness as a concern. A disappointing corporate earnings season contributed to investor uncertainty during the quarter. According to research from FactSet, fourth quarter 2015 earnings suffered a slight year-over-year decline, and less than 70% of companies in the S&P 500 Index reported earnings above their mean estimates. Reasonably constructive economic data during the period helped offset some of this sluggishness. According to the third estimate from the Bureau of Economic Analysis,  U.S. real gross domestic product (GDP) in the fourth quarter expanded by 1.4%,2 an upward revision from previous estimates, with a rise in personal consumption expenditures and residential fixed investment among the primary contributors. 

The Fed noted that U.S. economic activity, as a whole, continued to expand in most districts around the country between December 2015 and February 2016. The majority of districts reported increased consumer spending and positive developments in their residential estate markets. Conversely, manufacturing activity struggled in a number of regions due in large part to further weakness in the energy sector.3

International equities4 also experienced an uneven first quarter, led by notable volatility in China’s capital markets at the beginning of the quarter. Chinese equities suffered sharp losses to start 2016, triggering trading halts, and concerning investors who were already skeptical of the market’s growth prospects. In January, the Bank of Japan introduced negative rates on excess reserves in an effort to stimulate economic growth and support Japanese markets during this tumultuous period. In Europe, markets were bolstered by the European Central Bank’s announcement in March that it would add to its existing monetary easing program.

The S&P 500 returned 1.35% during the first quarter. Of the 10 major sectors, only the health care and financials sectors underperformed the broader market. Value stocks5 outperformed growth stocks,6 while large cap stocks7 outperformed small cap stocks.8

 

Fund Review as of 03/31/2016

The Lord Abbett Growth Leaders Fund returned -3.91%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the quarter ended March 31, 2016.  The Fund underperformed its benchmark, the Russell 1000® Growth Index,9 which returned 0.74% 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 March 31, 2016, are: one year: -7.72%; three years: 11.88%; and since inception (June 30, 2011): 10.01%. 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 information technology sector. Within this sector, the Fund’s position in Salesforce.com, Inc., a provider of enterprise cloud-computing solutions, detracted most. Shares of Salesforce.com fell amid a broad-based sell-off in software stocks after a notable peer reported a surprising quarterly revenue deceleration. Salesforce.com proved that investors’ fears regarding its business were unfounded when it later reported continued revenue acceleration that was above consensus estimates. Gogo, Inc., an aero-communications service provider, was another detractor within the information technology sector. Shares of GoGo fell after a large client threatened litigation against the company in an attempt to terminate its contract.     

The largest contributor to relative performance during the quarter was security selection in the utilities sector. Within this sector, the Fund’s position in American Water Works Company, Inc., a wastewater utility company operating in 47 states, contributed most. Shares of American Water Works benefited from a high level of investor demand for companies with stable earnings models during a volatile period for equities. The company reported an in-line quarter, and maintained its forward earnings growth guidance, rewarding investors who sought this stability. The healthcare sector also contributed to relative performance during the period. Within this sector, the Fund’s position in Edwards Lifesciences Corp., a developer of heart-valve therapies, contributed most. Shares of Edwards Lifesciences rose after the company reported its seventh consecutive quarter of better than consensus sales and raised forward guidance.  

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

The first quarter was particularly challenging for the high-growth segment of the market, with many former market-leading areas falling out of favor amid general market volatility as investors preferred stability to dynamism. Looking ahead, we believe the worst of this market turmoil is behind us, but that we likely will see investor uncertainty persist. We also believe that the domestic economy will continue to exhibit relative strength in a slow-growth global environment. As such, we continue to maintain a Fund that is balanced between stable and high-growth companies, with a tilt toward companies that benefit from domestic economic expansion. 

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