Market Review as of 03/31/2015

Looking back at the first quarter of 2015, investors were struck by how much developed and emerging markets diverged from one country to another amid contrasting central bank policies and significant swings in currency values. While the U.S. Federal Reserve (the “Fed”) was widely expected to hike interest rates later in the year, the European Central Bank (ECB) began a quantitative easing (QE) program of its own, the Bank of Japan maintained its aggressive stimulus program, and the People’s Bank of China delved deeper into its toolbox to address slowing growth. As a result, considerable amounts of capital flowed into Europe, Japan, and China, and the MSCI EAFE Index1 rebounded from its prior malaise with a gain of approximately 5.00% in U.S. dollars.

Among the biggest gainers in Europe were Denmark, Germany, Belgium, Sweden, Switzerland,  and France, where exporters were generally expected to benefit from weaker currency and companies in a variety of sectors developed a much stronger appetite for mergers and acquisitions (M&A), driving global deal-making to its highest point in nearly eight years. Rising exports also boosted equities in Portugal and Italy, raising recovery hopes, notwithstanding fears that an exit by Greece from the eurozone could undermine investor confidence in other peripheral countries. But some currency analysts considered a so-called “Grexit” a low probability event.

Emerging markets stocks (as represented by the MSCI Emerging Markets Index2) gyrated wildly amid large market declines in Greece, Colombia, Turkey, and Brazil, but the asset class finished 2.28% higher for the quarter in U.S. dollars, as China, Russia, India, Korea, and Hungary all advanced. While some investors considered emerging markets cheap based on the forward price-to-book ratio3 of the MSCI Emerging Markets Index versus other, larger international indexes, others proceeded cautiously, given slowing growth prospects and the risk that higher U.S. interest rates could exacerbate those risks.

In terms of sectors, the biggest gainers in the MSCI EAFE Index included health care (in part thanks to weaker currency, an upsurge in M&A, and an improved development pipeline), consumer discretionary (increased exports), and information technology (M&A, ECB stimulus). Industrials, financials, consumer staples, and telecom services also advanced in U.S. dollars. The only laggards were the utilities and energy sectors.

Fund Review as of 03/31/2015

The Fund returned 3.72%, reflecting performance at the net asset value (NAV) of Class A shares, with all distributions reinvested, for the quarter ended March 31, 2015, compared to its benchmark the MSCI EAFE with Gross Dividends Index,4 which returned 5.00%, and the MSCI EAFE with Net Dividends Index,4 which returned 4.88%. 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, 2015, are: one year: -9.74%; five years: 3.01%; and 10 years: 3.83%.  Expense ratio, gross:  1.26%, and net: 1.12%.

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

Stock selection within the information technology sector detracted from the Fund’s relative performance during the first quarter of 2015. Within the information technology sector, shares of Chinese web services company, Inc. declined, as earnings missed analyst expectations and investors were concerned that management had lowered its outlook for the current quarter. In addition, Japan-based Hitachi Limited had a difficult quarter and also missed earnings expectations, while the company forecasted revenues and net income would fall slightly over the year.

Stock selection within the health care sector also detracted from the Fund’s relative performance. The main company to highlight is German biotechnology firm MorphoSys AG. Toward the end of March, the share price fell sharply after the company announced that it was ending a partnership to develop a cancer-fighting antibody with another firm, surprising the market. In general, it was a relatively challenging quarter for the biotech names within the Fund.

Conversely, stock selection and a tactical overweight within the financials sector contributed to the Fund’s relative performance. We expect flows into equities in Europe to rise, given the prevailing low interest-rate environment that has been accentuated since the introduction of the ECB’s QE program. Italian asset manager Anima Holding SpA so far has been one of the beneficiaries of this, and was one of the Fund’s strongest performing stocks last quarter.

The Fund also benefited from stock selection in the utilities sector. During the quarter, shares of Chinese infrastructure firm Cheung Kong Infrastructure Holdings rose after the firm agreed to purchase a British rail company, while at the same time the stock has been supported by improving sentiment around China’s investment plans. An underweight to materials also supported relative returns, as the sector underperformed the benchmark.

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


After a year of negative economic surprises consolidating overseas markets throughout 2014, international equities were finally ignited by positive surprises. The biggest occurred in January, as an unexpectedly broad and lengthy QE program by the ECB boosted equities and weakened currencies. While it has been helpful from a market standpoint in the short term, we believe that the most significant impact has been the lower value of the euro. It is arguably too soon to judge the efficacy of the QE program, but we have seen a small improvement in eurozone loan growth and positive GDP revisions, and we expect the secondary effects to ultimately help the consumer in Europe.

Somewhat surprisingly, Japan has been the best performing major equity market year to date, in both U.S. dollar and local currency terms. Japan is addressing serious corporate governance reforms that are likely to have a positive impact on corporate profitability and shareholder returns. Prime Minister Shinzo Abe’s government has increased pressure on Japanese companies to improve their return on equity ratios and to improve asset efficiency. We believe that this trend will be a multiyear development, and we continue to look for ways to participate. In the emerging markets, we’re focused on beneficiaries of lower oil prices rather than commodity-producing regions. With valuations low, we continue to search for new ideas.

Despite the enthusiastic early-year advance, there are a number of risks on which we remain focused. The Greek debt issue will, for better or worse, play out over the next few months. The possibility of Greece leaving the eurozone is manageable, but not without significant costs. The outcome is likely to affect the intentions of other euro-area separatist movements, but a painful exit by Greece is unlikely to be followed elsewhere. The Ukrainian conflict has been relatively quiet year to date, but remains unstable. The key risk is whether Russia encroaches upon another country in the region—a risk that is difficult to handicap.

China’s economy continues to slow, as it seeks to shift to a broader source of growth than massive capital investment. To smooth this multiyear transition, authorities have responded with numerous, small fiscal stimulus programs, which investors have applauded in the short term. We’ve seen this process played out in other export-dominated economies in Asia over the years, and know it’s a bumpy road, not a smooth path. 

The major risk in global equity markets is still the path of U.S. central bank policy as it withdraws all the stimulatory support programs of recent years. Given our belief that the Fed will err on the side of caution so as to not abruptly change solid U.S. economic progress, we remain optimistic that no mistakes will be made and that the policy will be suitably tailored to the economic numbers.

Contact a Representative