Market Review as of 03/31/2015

The U.S. equity market (as represented by the S&P 500® Index1) barely edged up during the first quarter of 2015, amid a moderating economy and the prospect of a hike in interest rates. Hindered by harsh weather, a strong dollar, and slow global growth, U.S. real gross domestic product (GDP) expanded by 2.2% in the fourth quarter (according to the third estimate by the U.S. Bureau of Economic Analysis), down from 5.0% in the previous quarter.2 Exports, spending by state and local governments, and personal consumption expenditures bolstered growth, though spending on durable goods weakened.  

The Federal Reserve (the “Fed”) noted that U.S. economic activity expanded around the country, with most districts reporting increased home sales and improvement in employment, though wage pressures remained moderate. Manufacturing, construction, and real estate activity was mixed, while banking conditions were mostly positive.3

Elsewhere, the eurozone showed improvement, primarily as a result of strengthening in Germany. In Japan, fourth-quarter 2014 economic activity bounced back from a contraction in the third quarter. In China, the economy continued to slow, prompting the People’s Bank of China to cut its official interest rate in February, the second reduction in three months.  

The S&P 500 rose 0.95% during the quarter, with gains occurring in six of 10 major sectors. The consumer staples, consumer discretionary, telecom services, and healthcare sectors outperformed the broader market. Growth stocks (as represented by the Russell 3000® Growth Index4) outperformed value stocks (as represented by the Russell 3000® Value Index5). Small caps (as represented by the Russell 2000® Index6) outperformed large cap stocks (as represented by the Russell 1000® Index7). 

Fund Review as of 03/31/2015

The Fund returned 4.09%, reflecting the performance at the net asset value (NAV) of Class A shares with all distributions reinvested for the period ended March 31, 2015, underperforming the Russell 2500Index8, which returned 5.17% for the same period.  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: 2.48%; three years: 13.63%; five years: 11.84%; and since inception (December 30, 2005): 11.05%. Expense ratio: 1.17%.

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

Security selection, particularly within the health care sector, was a key detractor from the portfolio’s performance relative to the benchmark. Shares of Team Health Holdings, Inc., a provider of outsourced physician staffing and administrative services, detracted from relative performance, as issues surrounding the Affordable Care Act have prevented the company’s shares from moving higher. In addition, shares of ExamWorks Group Inc., a provider of independent medical examinations and medical-related services, struggled, as currency headwinds have detracted from the company’s performance.

Another meaningful detractor from the portfolio’s relative performance was energy holding Helix Energy Solutions Group Inc. Shares of the international offshore energy company stumbled due to a weak offshore drilling market and delayed exploration and production contracts.

Stock selection within the consumer discretionary sector was the largest contributor to the portfolio’s relative performance. Within the sector, shares of Urban Outfitters, Inc., a lifestyle merchandising company, increased due to positive sales momentum in the company’s fourth quarter, as the health of the U.S. consumer has improved. The market has reacted positively, as visibility of the turnaround story has become clearer for the company. In addition, shares of Sonic Corp., an operator of drive-in restaurants in the United States, rose as earnings outpaced consensus expectations in the first and second quarters due to menu innovation, promotions, and a favorable macro environment.  Within the financials sector, shares of Federal Realty Investment Trust, a U.S.-based equity real estate investment trust, climbed, as the company’s best-in-class retail portfolio successfully pushed rents, while preserving multiple external growth drivers.

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. Furthermore, we expect the Federal Reserve to begin gradually raising interest rates at some point during 2015, provided that the economy continues to exhibit signs of strength and inflation remains at an acceptable level. We are increasingly confident in European stability, given the accommodative monetary measures taken by the European Central Bank.

The financials sector remains the portfolio’s largest absolute weight, despite a decreased exposure during the quarter. Our preference is to broadly diversify sector exposure across banks, capital markets, insurance, and REITs, given the uncertainty in interest-rate outlook. The portfolio’s exposure to the information technology sector was slightly trimmed, as we took profits on select holdings. We favor companies that benefit from increasing broadband usage resulting from strong consumer demand. We increased portfolio exposure to the industrials sector during the period by adding exposure to companies that are expected to realize benefits from lower energy prices.

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