Market Review

as of 03/31/2016

Global equity market performance was mixed in the first quarter of 2016. The MSCI EAFE Index1 fell by 3.01% (in U.S. dollar terms). Emerging markets stocks (as represented by the MSCI Emerging Markets Index2) performed positively during the quarter, rising by 5.71% (in U.S. dollar terms), thereby outperforming developed markets over the course of the first quarter.

Within developed markets, the United Kingdom and France were outperformers, while Japan and Germany underperformed. With regards to sector performance, energy and consumer staples outperformed, while financials and health care stocks lagged the broader index. After a difficult start to the year, global equity markets recovered some of the losses in the second half of the quarter as investors were encouraged by stabilizing oil prices, slowing, but positive, economic growth, and accommodative central bank policies.

U.S. dollar weakness was one of the key themes of the quarter; the currency fell by nearly 5% against the euro and by almost 7% against the Japanese yen, marginally reversing the moves seen over the past five years. After the U.S. Federal Reserve raised interest rates in December 2015, it decided to hold its benchmark interest rate unchanged during the first quarter, citing softer global economic growth. The weaker U.S. dollar supported crude oil prices, which rallied in the first quarter, moving closer to $40 per barrel, having fallen throughout 2015, while prices were supported by a drawdown in U.S. crude inventories. Copper and iron ore prices also rose over the period.

Following weak performance in the first two months of the year, European equity markets steadied in March after the European Central Bank announced that it would increase its existing monetary easing program from €60 billion to €80 billion per month. From the time of that announcement to the end of the quarter, the euro rallied against the U.S. dollar.

In January, the Bank of Japan introduced negative rates on excess reserves in an effort to stimulate economic growth. However, despite the action initially supporting the Japanese equity market, expectations of further quantitative easing were not enough to keep returns in positive territory during the quarter.

Fund Review as of 03/31/2016

The Fund returned 0.32%, reflecting performance at the net asset value (NAV) of Class A shares, with all distributions reinvested, for the quarter ended March 31, 2016, compared to its benchmark, the MSCI All Country World Ex-U.S. Value Index with Gross Dividends,3 which returned -0.29%, and the MSCI All Country World Ex-U.S. Value Index with Net Dividends,3 which returned -0.41%.  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: -16.60%; five years: -1.64%; and since inception (June 30, 2008): -0.83%. Expense ratio, gross: 1.15%, 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 www.lordabbett.com.

The largest contributors to the Fund’s relative performance over the first quarter of 2016 were stock selection in the utilities and consumer discretionary sectors, and a significant underweight to the financials sector, as financials stocks underperformed the broader index over the period. The Fund was invested in better-performing real estate investment trusts in Canada, France and Australia, which were bolstered by generally supportive real estate markets and low interest rates globally.

Within the consumer discretionary sector, the Fund was supported by Macau integrated resort developer Sands China Ltd., which rose after reporting better than expected earnings results, committing to a dividend, and stating that it saw signs of stabilization for its properties. In addition, Tofaş, a Turkish automaker, saw its share price rise on the back of stronger than forecast net profit in the fourth quarter of 2015, and solid growth in net income for the full year.

Security selection in the utilities sector also supported returns. During the quarter, Italian natural gas infrastructure company Snam S.p.A. benefited from better than expected net profit for 2015, as well as the announcement of a potential de-merger of its gas distribution business Italgas. Furthermore, an overweight to the telecommunications sector was also supportive.

Conversely, stock selection within the energy sector detracted from the Fund’s relative performance. Within the sector, shares of Canadian oil and natural gas producer Whitecap Resources Inc. declined, weighed down by general equity market weakness and dividend cuts by several Canadian energy firms. The sharp fall in the price of oil over the last year prompted the company to reduce its dividend and capital expenditure program. In addition, French multinational oil and gas company Total S.A. underperformed the broader sector, due to concerns in the marketplace that low oil prices may force the firm to sell assets to fund its dividend.

Finally, stock selection in and an underweight to the materials sector hurt the Fund on a relative basis. Shares of Rio Tinto, a British-Australian multinational metals and mining corporation, underperformed, as analysts reduced their iron ore price forecasts. Separately, companies which had fallen significantly last year outperformed from a low base. The broader sector outperformed the index; therefore, our underweight was a detractor from relative returns.

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

Global equity markets recovered during the first quarter, as economic news from the United States and China, the world’s two largest economies, was better than expected. Looking forward, the International Monetary Fund continues to see a prolonged period of slow global growth. At the margin, higher commodity prices, if maintained near current levels, will give the developing world a better growth outlook.

Modest global growth has encouraged a number of central banks around the world to enact unconventional monetary policies; almost 25% of global gross domestic product (GDP) is represented by countries with negative central bank interest rates. These negative rates across parts of Europe and Japan have put significant pressure on commercial banks’ profits in these countries. As a result, the Fund is underweight financials, and also Japanese stocks in aggregate, which generally have lower dividend yields than other countries.

We continue to be attracted to stable growth companies with reasonable valuations and stable to improving fundamentals.  The Fund is overweight in the consumer discretionary, consumer staples, energy, telecommunications, and utilities sectors, and has underweight positions in financials, health care, industrials, information technology, and materials

As always, there are certain risk events that we are tracking closely.  The referendum on June 23, 2016, on whether the United Kingdom will stay in the European Union is an important event for the United Kingdom, Europe, and the West.  A “leave” vote would cause growth to slow within the United Kingdom, as investment and trade would likely slow. In the past quarter, we reduced the Fund’s exposure to the United Kingdom, although retain an overweight position, given the global construct of many United Kingdom-listed companies.

Investors currently face a low interest rate world with modest global growth rates. We believe that our focus on companies with above average dividend yields and below average valuations should result in attractive total return opportunities.

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