Market Review as of 09/30/2015

Global markets declined in the third quarter of 2015. The MSCI EAFE Index1 fell by 10.75% (in U.S. dollar terms). Regionally, in Continental Europe, Switzerland outperformed, although its market was still down during the quarter, while in Asia, Hong Kong lagged. The main culprit negatively affecting equity markets was the devaluation of the Chinese yuan, which heightened concerns regarding the impact of slowing Chinese growth on the global economy. Moreover, angst over the future course of U.S. monetary policy, with the Federal Reserve opting not to raise interest rates at its meeting on September 16–17, and continued volatility in commodity prices also contributed to market volatility.

In the first half of the third quarter, equity performance was broadly flat, as Greece struck a deal with its eurozone creditors and Japanese and European monetary policy remained loose. However, global equity markets proceeded to fluctuate in August, experiencing some of the largest intraday moves since the financial crisis of 2008–09. The aforementioned currency devaluation by the People’s Bank of China (PBoC) amid disappointing Chinese economic data was unexpected and knocked confidence in markets. In the weeks following the August 10th devaluation announcement, global equity markets fell more than 10%.

Commodities also saw sharp moves down in price, as ample oil supply and ongoing weak demand was amplified by expectations for slower growth in China. Ultimately, this broader uncertainty hurt European, U.S., and emerging markets across the board. Although equities recovered from some of their largest declines, August’s performance pushed the majority of global equity indices into the red for the quarter.

Emerging markets stocks (as represented by the MSCI Emerging Markets Index2) fell sharply during the quarter, most notably in the immediate aftermath of the yuan devaluation. The index declined by 18.53% (in U.S. dollar terms), thereby underperforming developed markets over the course of the third quarter.

All sectors in the MSCI EAFE Index were down during the third quarter, although defensive stocks declined less than the index as a whole. The largest declines were in materials and energy, while consumer staples and utilities outperformed. With regards to commodities, WTI crude oil gave back some of its gains experienced in the second quarter, falling by nearly 25% in the third quarter, and copper and iron ore prices declined by more than 10%.

Fund Review as of 09/30/2015

The Fund returned -13.49%, reflecting performance at the net asset value (NAV) of Class A shares, with all distributions reinvested, for the quarter ended September 30, 2015, compared to its benchmark, the MSCI All Country World Ex-U.S. Value Index with Gross Dividends,3 which returned -13.50%, and the MSCI All Country World Ex-U.S. Value Index with Net Dividends,3 which returned -13.60%.  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 September 30, 2015, are: one year: -21.68%; five years: -0.17%; and since inception (June 30, 2008): -1.20%. Expense ratio, gross: 1.14%, 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 and an overweight position in the telecommunications sector contributed to the Fund’s relative performance during the third quarter of 2015. Shares of Israeli telecommunications group Bezeq International Ltd. rose after the company reported positive results, showing healthy growth in its fixed line business, despite concerns surrounding the opening of the market to more competition. This was better than expected and the company has consistently managed to maintain group stability in the face of a difficult mobile market in Israel. Spark New Zealand Ltd. (formerly Telecom New Zealand) was another strong performer, after quarterly results suggested the business is transforming from decline to growth. Dividends were significantly increased as a result of management’s improving confidence in the future of the company.

In addition, security selection in the financials sector supported the Fund’s relative returns. Within the sector, the share price of U.K.-listed insurance company Lancashire Holdings Ltd. increased, as the company has benefited from the continued consolidation within the Lloyd’s of London insurance sector. A Japanese firm recently agreed to purchase another British insurer, and this has led to expectations that other companies in the industry may be targets of mergers and acquisitions. The Fund’s underweight to the materials sector also added to relative returns.

Conversely, stock selection and an overweight position within the energy sector detracted from the Fund’s relative performance. Within the sector, share-price declines were experienced by Canadian oil and natural gas producer Baytex Energy Corp. and Canada-based crude oil production company Crescent Point Energy Trust. The price of oil fell substantially during the quarter, which hurt both companies, while reduced investor expectations for earnings and cash flows were also headwinds for the firms over the period. Finally, an underweight position in the health care sector adversely affected relative returns, as the sector outperformed the index over the period.

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


The world economy is likely to grow at its slowest pace since the global financial crisis of 2008–09, with the recovery in the developed world being offset by a slowdown in China and other emerging economies. The outlook for 2015 was expected to be challenging, with heightened investor concern about the timing and impact of an increase in U.S. interest rates. A slowing Chinese economy, plunging metals and energy prices, and weak emerging markets equity and currency prices have created a lot of uncertainty in a short period of time. Barring a global recession in 2016, the recent pullback in global equity markets has created an attractive buying opportunity.

In Europe, the European Central Bank’s quantitative easing program is only six months old. Economic momentum continues to slowly improve, valuations are reasonable, and profit margins have room to expand.

The Japanese equity market has pulled back by more than 15% from its early August 2015 levels, while the Bank of Japan is likely to continue to remain supportive; we are finding good value in multiple sectors at present. We expect the recent trend towards improving corporate governance and better shareholder returns to continue.

While the portfolio remains underweight both the materials and energy sector, we are conducting a great deal of analysis in these areas. Better economic news from China (which is entirely possible over the next three to six months) could reverse the negative sentiment currently affecting these sectors. Slower Chinese growth, increased capital flight out of the country, or a weaker Chinese currency is likely to weigh on global growth expectations in general, and emerging markets equities, debt, and currencies directly. As a result of the uncertain investment environment, we believe that companies with above average dividend yields and below average valuations create attractive total return investment opportunities.

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