Market Review as of 06/30/2015

Global markets eased slightly lower in the second quarter of 2015, following positive performance in the prior quarter. The MSCI EAFE Index1 (in U.S. dollars) fell by 0.37%; performance across the capitalization spectrum was mixed, with small-cap stocks performing the strongest. Regionally, in Asia, Japan was the best performer, while in the eurozone, Germany lagged. Key drivers of equity markets include the future course of U.S. monetary policy, the slowing Chinese economy, and the ongoing Greek and eurozone drama.

European markets were adversely affected by concerns around Greece’s solvency and the country’s ability to make interest payments. This issue increased market volatility, as it has for much of the year, as creditors pressed the country’s government for fiscal reform in exchange for cash. Earnings season was broadly encouraging in Europe, as favorable economic tailwinds, a weaker euro, and lower energy prices supported earnings. Despite better earnings and the continuation of the European Central Bank’s quantitative easing program, the wider political risk and uncertainty around Greece eventually drove markets lower.

In the United Kingdom, there was a positive surprise in the outcome of the general election. The Conservative Party won a majority in Parliament, initially supporting domestic equity market performance and the pound sterling.

The Japanese equity market performed relatively strongly, and is still the best performing developed market year to date. The Bank of Japan remains relatively confident that the economic recovery will continue, 2 while the Japanese yen reached a 13-year low in June, which investors believe should support corporate profits going forward. Asian markets, particularly in China, fluctuated, as the People’s Bank of China cut its lending rate twice this quarter and for the fourth time since November 2014, along with announcing other easing measures.

Broadly speaking, emerging markets stocks (as represented by the MSCI Emerging Markets Index3) fell slightly during the quarter. The index fell by 0.24% (in U.S. dollar terms), although this masks divergent performance between specific countries, particularly declines in Indonesia and Turkey and gains in Russia and Brazil.

With regards to commodities, WTI crude oil rose by more than 17% last quarter, the majority of which occurred in April, while iron ore also experienced significant gains in the past three months. Copper, on the other hand, was weaker, falling by nearly 5%.

In terms of sectors, the biggest gainers in the MSCI EAFE Index included energy and telecoms, reflecting strong gains in energy prices. Laggards included health care, materials, and information technology.

Fund Review as of 06/30/2015

The Fund returned -0.06%, reflecting performance at the net asset value (NAV) of Class A shares, with all distributions reinvested, for the quarter ended June 30, 2015, compared to its benchmark, the MSCI All Country World Ex-U.S. Value Index with Gross Dividends,4 which returned 0.72%, and the MSCI All Country World Ex-U.S. Value Index with Net Dividends,4 which returned 0.48%.  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 June 30, 2015, are: one year: -15.59%; five years: 5.87%; and since inception (June 30, 2008): 0.82%. 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 within the energy sector detracted from the Fund’s relative performance during the second quarter of 2015. Within the energy sector, shares of Canadian Oil Sands Ltd. and Enerplus Corp. fell. The profitability of both companies is leveraged to a recovery in oil prices, which was mainly confined to the first month of the quarter. In addition, the stock price of Canadian Oil Sands was negatively affected by the newly elected Alberta government’s pledge to review the oil and gas royalty framework and increase environmental compliance costs.

Security selection within the telecommunications sector also detracted from the Fund’s relative performance. Shares of South Korean wireless telecommunications firm SK Telecom Co. fell; investors were disappointed with the company’s short-term earnings numbers, despite the firm announcing that it plans a share buyback that should ultimately support the share price in the long term. However, the overweight position to the broader sector added to performance.

Conversely, stock selection within the consumer discretionary sector contributed to the Fund’s relative performance. Shares of United Kingdom-based house builder Berkeley Group Holdings plc rallied after the Conservative Party unexpectedly won a majority in the U.K.’s general election, improving investor sentiment around domestic stocks. Similarly, British media company ITV plc also performed well in the second quarter.

Finally, the Fund’s underweight to the materials sector supported relative performance, as the sector slightly underperformed the benchmark. Within the sector, shares of British-Australian mining company Rio Tinto plc contributed positively on a relative basis after the firm reported solid production numbers, while iron ore prices increased over the quarter.

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


Global equity markets are facing three important uncertainties as we transition into the third quarter. The ongoing Greek negotiations have heightened risk-aversion among European equity and debt investors. While a resolution is still likely, the probability of Greece exiting the eurozone and the euro has increased significantly. Political risk continues to drive market volatility in Continental Europe, and as such it remains important to keep abreast of these developments as they occur, as well as the fundamental attractiveness of companies in the single currency union.

China, the world’s second largest economy, continues to decelerate. This slowdown in growth continues to affect industries that have benefited from China’s recent acceleration (for example mining and industrials). While the People’s Bank of China has announced accommodative measures to try to boost growth and stabilize equity markets, the pace of economic growth and whether policymakers can mitigate volatile market performance will remain in focus in coming quarters.

The third uncertainty is the timing of an increase in U.S. interest rates. As investors attempt to predict when and how quickly the Federal Reserve will hike rates, markets continue to closely scrutinize officials’ statements and sentiments, in conjunction with each and every data point available.

Despite these uncertainties, the economies of Japan and the eurozone are showing clear signs of recovery.  Both the European Central Bank and Bank of Japan have been very supportive, with broad money and credit growth rates improving.  In addition, the euro and the yen have been weak over the past year, increasing the competitiveness of export industries. 

China’s slowing economy, falling commodity prices, a stronger U.S. dollar, and fears of higher U.S. interest rates have combined to pressure most emerging market equities; this confluence of events looks as though it could continue in the second half of the year.

From a portfolio perspective, we balance these shorter-term risks with medium-term opportunities. We favor industrials and consumer discretionary versus information technology and health care.  We remain underweight materials, and added to our energy holdings over the quarter.

With regards to country-specific market drivers, we are attracted by the combination of attractive valuations, decent growth, and increased political stability in the United Kingdom, while the structurally high dividend-yielding Europe ex-United Kingdom market complements this investment strategy.

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