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 Fund returned 1.15%, reflecting the performance at the net asset value (NAV) of Class A shares with all distributions reinvested for the period ended March 31, 2016, outperforming its benchmark the Russell 2000® Index,8 which returned -1.52% for the same period.  Average annual total returns, which reflects 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: -9.97%; three years: 4.14%; five years: 4.40%; and 10 years: 5.81%. Expense ratio: 1.21%.

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 health care sector contributed to relative performance. Shares of Exam Works Group, Inc., an independent medical examinations and management services company, increased following a strong fourth quarter earnings report in which sales increased year-over-year, topping consensus estimates. In addition, shares of HealthSouth Corporation, an owner and operator of inpatient rehabilitation hospitals, rose, as performance was driven by better-than-expected hospital admission in its fourth quarter earnings report.

Within the energy sector, shares of Parsley Energy, Inc., an independent oil and natural gas company, benefited from continued growth in a difficult environment and decreasing well costs.

Security selection within the materials sector detracted from the Fund’s relative performance during the quarter. Shares of KapStone Paper and Packaging Corporation, a manufacturer and distributor of containerboard and corrugated products, stumbled following a weak fourth quarter earnings report that stated operating income had fallen below estimates.  In addition, shares of Multi Packaging Solutions International Limited, a global provider of value-added specialty packaging solutions, slid, as its consumer segment was weaker than expected in North America and Europe.

Security selection within the financials sector detracted from the Fund’s relative performance during the quarter. Shares of South State Corporation, a bank holding company, fell due to slower growth comparisons and sector valuation pressure as a whole due to the weaker macroeconomic environment. 

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


We believe that the economic outlook for the United States remains favorable among developed countries. We remain cautious toward stocks with significant international exposure, given the continued volatility and uncertainty globally. We trimmed the Fund’s exposure to the consumer discretionary sector, and remain underweight the benchmark. We are cautious about the sector, given lofty valuations.  We increased the Fund’s weight and still remain overweight in the energy sector. 

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