Market Review as of 12/31/2014

The U.S. equity market (as represented by the S&P 500® Index1) advanced during the fourth quarter of 2014, bolstered by reports indicating growing strength in the U.S. economy. But the market became more volatile as well, with falling oil prices and global economic weakness raising concerns. U.S. real gross domestic product (GDP) in the third quarter expanded 5.0%, (according to the third estimate by the U.S Bureau of Economic Analysis), exceeding Wall Street expectations.2  Business investment and consumer spending, particularly on durable goods, were among the primary contributors. 

The Federal Reserve (the “Fed”) noted that U.S. economic activity expanded around the country, with most districts reporting gains in employment and advances in consumer spending. Manufacturing, construction, and real estate activity also expanded, while lower oil prices presented concerns in two districts.3

Elsewhere, the eurozone narrowly avoided slipping back into recession, and falling prices led to concerns about deflationary pressures.  In Japan, economic activity contracted, making it likely that this year’s planned tax hike will be delayed. In China, the economy appeared to decelerate to its slowest pace in nearly 25 years, prompting the central bank to cut its official interest rate for the first time in two years.

The S&P 500 Index rose 4.9% during the quarter, but remained below new highs set earlier in the quarter. Gains occurred in seven of 10 major sectors. The energy, materials, and telecom sectors underperformed the broader market. Value stocks (as represented by the Russell 3000® Value Index4) edged out growth stocks (as represented by the Russell 3000® Growth Index5). Large cap stocks (as represented by the Russell 1000® Index6) underperformed small caps (as represented by the Russell 2000® Index7). 

Fund Review as of 12/31/2014

The Fund returned 7.81%, reflecting the performance at the net asset value (NAV) of Class A shares with all distributions reinvested for the period ended December 31, 2014, outperforming the Russell 2500Index8, which returned 6.77% 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 December 31, 2014, are one year: 2.82%; three years: 15.38%; five years: 12.87%; and since inception (December 30, 2005): 10.87%. 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

In the fourth quarter, few events grabbed more headlines than oil’s dramatic price decline and the Ebola scare, both of which had positive and negative implications for the market. Early in the quarter the threat of Ebola caused trouble for the airline industry as travelers feared the possibility of infection. Meanwhile, health care stocks benefited, especially those directly related to containment and treatment of the virus. Leading into December and the busiest retail season of the year, consumer confidence was on the rise complemented by the decline in gas prices. However, due to the steep decline in the price of oil, energy was the only sector to have a negative return for the quarter.  Ultimately, small and mid cap stocks (as measured by the Russell 2500 Index8) finished the period in positive territory.

Though the energy sector was the worst performing sector for the period, stock selection within the sector was the largest contributor to the Fund’s outperformance relative to its benchmark.

In addition, significant contributors included information technology holding Sapient Corp. and materials holding Rock-Tenn Co. For Sapient, a marketing and technology services provider, shares rose dramatically in the middle of the period after it agreed to be purchased for a 44% premium to its share value at the time of the announcement. In the case of Rock-Tenn Co., a manufacturer of corrugated and consumer packaging, investors cheered a fiscal fourth quarter earnings beat that highlighted better-than-expected demand in its corrugated container segment.

Security selection within the industrials sector was a key detractor from the Fund’s performance. Joy Global, Inc., a manufacturer and servicer of mining equipment, was a top detractor within the sector. Shares of the company fell during the quarter, mainly due to continued weakness in global mining, which is expected to continue into next year. Airline company Spirit Airlines, Inc. was another detractor from the industrials sector. Spirit’s shares fell in line with the airline industry during the Ebola scare in October. At that time we eliminated the position from the portfolio which we had held for some time and felt had become fairly valued.

Another meaningful detractor from the Fund’s relative performance was financials holding Comerica Inc. Shares of the financial services company fell despite a positive third quarter earnings report. Analysts’ expectations are for slower loan growth, particularly in Texas where business is driven by energy, and for higher pension expenses in 2015, which led to lowered estimates.

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 U.S. economy maintains the most favorable economic outlook among developed countries. Furthermore, we expect the Fed to begin gradually raising interest rates at some point during 2015 provided that the economy continues to exhibit signs of strength. Conversely, Europe continues to struggle, as does Asia, which must contend with persistently contracting growth in China and stagnation in Japan.

The financials sector remains the Fund’s largest absolute weight.  The portfolio is well diversified with exposure to banks, capital markets, insurance, and REITs.  Within banks, the portfolio has invested in select regional banks that are showing strong loan growth or are experiencing growth through the strong management execution of strategic acquisitions. The portfolio continues to seek value in asset-light companies; however, we trimmed the Fund’s exposure to the industrials sector over the period as we eliminated positions in airlines, which we believe had become fairly valued. We increased the Fund’s exposure to information technology as we added a new position we feel may benefit from the Affordable Care Act and increased exposure to an existing position involved with web content and traffic.

Contact a Representative