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U.S. equity markets advanced during the fourth quarter of 2013 amid indications of an acceleration of economic growth. Investors appeared to be comfortable with the prospect that the U.S. Federal Reserve would begin to withdraw monetary accommodation via reduced monthly bond purchases. Indeed, the Fed announced on December 18 that it would start "tapering" at a modest pace during 2014. The outlook for other major global economies was decidedly mixed: the eurozone remained sluggish; Japan's growth rate decelerated despite an enormous stimulus program; and China's growth pace quickened amid government efforts to restructure the economy.
The Fed noted that "the economy continued to expand at a modest to moderate pace" between early October and mid-November, based on reports from the 12 Fed districts. The Fed said manufacturing activity expanded in most districts, with gains noted in the motor-vehicle and high-technology industries. Reports on retail spending were positive, though retailers reported being "hopeful, but cautious" ahead of the holiday season.1 The second estimate for the third quarter of 2013 showed that the economy grew by an annualized rate of 3.6%, above the previous estimate of 2.8%. Second-quarter 2013 growth was 2.5%.2
The S&P 500® Index3 rose 11% during the quarter, reaching an all-time closing high on December 31. Gains occurred in all of the 10 major sectors. The information technology and industrials 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). Large cap stocks (as represented by the Russell 1000® Index6) outperformed small caps (as represented by the Russell 2000® Index7).
The Fund returned 8.11%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the quarter ended December 31, 2013. The Fund underperformed its benchmark, the Russell Midcap® Growth Index,8 which returned 8.23% 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, 2013, are: one year: 29.18%; five years: 18.84%; and 10 years: 8.24%. Expense ratio, gross: 1.42%, and net: 1.40%
Performance data quoted represent past performance, which does not guarantee 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 1-888-522-2388 or visit us at www.lordabbett.com.
Equity markets began the quarter with a sharp sell-off, fueled by a 16-day shutdown of the U.S. government. In mid-October, however, Congress reached an agreement to raise the debt limit, reopening closed offices. This, in combination with positive economic data from China and continued accommodation by the U.S. Fed, sparked a market advance that continued through year-end. Equity prices in the United States ultimately reached all-time highs in December, bolstered by an improving macroeconomic picture. In December, the Fed began a well-telegraphed "taper" in its quantitative easing (QE) program. Market participants appear hopeful that central bankers will engineer a transition that can sustain the economy's slow, but positive, growth trajectory.
The Fund underperformed versus its benchmark, the Russell Midcap® Growth Index, during the fourth quarter. Security selection within the information technology sector was the most significant detractor from relative Fund performance. Shares of Citrix Systems, Inc., a provider of desktop virtualization and cloud-computing technologies, fell after company management lowered revenue guidance, citing a reduction in information technology spending by businesses. Shares of TIBCO Software, Inc., a global provider of software-based platforms used in a diverse group of industries, slumped following disappointing growth in the firm's data visualization segment.
Security selection within the consumer staples sector was also a detractor from relative Fund performance. Flowers Foods, a producer of packaged bakery goods that recently purchased the famed Hostess Brands, saw its shares decline following a third quarter earnings miss in November. The company's management cited higher operating costs as cause for weaker-than-expected margins. Green Mountain Coffee Roasters, Inc., a coffee company known for its popular Keurig single-cup brew machine, also detracted from relative Fund performance during the quarter. The company's shares dropped nearly 10% after Whole Foods Market announced it would launch its own brand of cup to be used in the Keurig coffee machine, rather than partnering with Green Mountain.
The most significant contributor to relative Fund performance came from security selection within the financials sector. Shares of IntercontinentalExchange Group, Inc., a network of regulated exchanges and clearing houses for financial and commodity markets, rose as the company benefited from increasing trading volume and the company's recent purchase of the New York Stock Exchange. Shares of asset manager Affiliated Managers Group, Inc., also advanced, as net asset flows continued to support strong revenue growth.
Security selection within the consumer discretionary sector was a leading contributor to relative Fund performance as well. Shares of the global apparel company V.F. Corporation, known for popular clothing brands such as The North Face, moved higher throughout the quarter, supported by the unusually frigid winter in the United States, lifting cold weather apparel sales. Shares of Wynn Resorts, Ltd., also contributed to relative Fund performance. The owner and operator of destination casino resorts has participated in a significant recovery since the 2008–09 financial crisis, and recently has benefited from the rapidly growing Macau region, which has garnered a large number of new customers from Mainland China.
Please refer to www.lordabbett.com under the "Portfolio" tab for a complete list of holdings of the Fund, including the securities discussed above.
U.S. equity markets soared to all-time highs throughout the quarter, fueled by an improving macroeconomic environment and the resolution of a U.S. government shutdown in October. Such improvement in the economy prompted the Fed to taper its quantitative easing program, as central bankers engineer a transition that should allow the economy to maintain its slow, but positive, growth trajectory. This move continues to support our long-held contention that any withdrawal of easing would be carefully paced to avoid disrupting the economic recovery. Meanwhile, central banks in Europe, Japan, and China have remained accommodative; such global measures should, in the larger scheme of things, help offset concerns over the domestic monetary and political situation. As such, we continue to believe the economy will continue its slow growth trajectory, and we remain balanced between cyclical and secular growth companies.
Performance data quoted is historical. Past performance is not indicative of future results. Current performance may be higher or lower than the performance 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 quarter-end, go to quarter ending performance on our Website or call Lord Abbett at (888) 522-2388.
1 The Fund’s dividend yield is shown without sales charges (at NAV) and with maximum sales charges (at MOP). The Fund’s dividend yield takes into account any fee waiver or expense limitation arrangements, if any. Without such fee waivers or expense limitation arrangements, the Fund’s dividend yield would have been lower. Information regarding any fee waivers or expense limitation arrangements applicable to the Fund is provided with the Fund’s expense ratio information.
2 The Fund’s unsubsidized dividend yield is shown without sales charges (at NAV) and with maximum sales charges (at MOP). The Fund’s unsubsidized dividend yield reflects what the yield would have been without the effect of fee waivers or expense limitation arrangements.