HIGH YIELD MARKET UPDATE

Transcription

1 HIGH YIELD MARKET UPDATE Falling Oil Prices: Risks and Opportunities D E C E MBER 11, Copyright 2014 by Lord, Abbett & Co. LLC. All rights reserved. Lord Abbett mutual fund shares are distributed by Lord Abbett Distributor LLC. Lord, Abbett & Co. LLC Lord Abbett Distributor LLC 90 Hudson Street, Jersey City, NJ This presentation has been prepared exclusively for use by analysts, institutional investors and their consultants, registered investment advisors, broker-dealers, and sponsors of plans with a minimum of 100 participants. It is not intended for, and should not be used with, small plan sponsors, plan participants, or the public in written or oral form or for any other purpose.

2 FIRM PROFILE AT A GLANCE WHAT DRIVES US AS OF SEPTEMBER 30, 2014 Independent, privately held firm 64 partners Assets under management: Approximately $138 billion* $42 billion in equity strategies and $96 billion in fixed-income strategies 133 investment professionals with an average of 17 years of industry experience OUR FIRM A Singular Focus on the Management of Money Since 1929 OUR MISSION Lord Abbett is dedicated to delivering superior, long-term investment performance and a client experience that exceeds expectations. OUR APPROACH Investment-Led. Investor-Focused. 1 *Includes approximately $1.4 billion for which Lord Abbett provides investment models to managed account sponsors. OUR DIFFERENTIATORS Independent Perspective Commitment to Active Management Intelligent Product Design

3 INVESTMENT TEAM Experienced investment team led by: Robert A. Lee Partner & Director 23 Years Kewjin Yuoh Partner & Portfolio Manager Liquid & Securitized Products 20 Years Andrew H. O Brien, CFA Partner & Portfolio Manager Corporates 16 Years Steven Rocco, CFA Partner & Portfolio Manager High Yield 13 Years Leah G. Traub, Ph.D. Partner & Portfolio Manager Currencies & Emerging Markets 13 Years Jerald M. Lanzotti, CFA Partner & Portfolio Manager Emerging Markets 24 Years Jeffrey D. Lapin, J.D. Portfolio Manager Bank Loans 17 Years Alan R. Kurtz Portfolio Manager Convertibles 14 Years 2 Gregory S. Parker, CFA Portfolio Management Andrew M. Khatri Partner & Director of Credit Research 23 Years Specializing in the major sectors of the Fixed Income market Partner & Director of Trading 12 Years 17 Additional Research Analysts 15 Years Average 11 Additional Investment Professionals 9 Years Average 4 Additional Traders 8 Years Average Additional Resources: Walter H. Prahl, Ph.D. Brian Arsenault Thomas J. McDonald, III Partner & Director of Quantitative Research 29 Years Client Portfolio Manager 20 Years Client Portfolio Manager 39 Years 6 Additional Research Analysts 9 Years Average Years refers to years of industry experience, as of 01/01/2014.

4 RATES OF RETURN AS OF 11/30/ Expense Ratio: 0.95% Performance data quoted reflect past performance and are no guarantee 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. You can obtain performance data current to the most recent month end by calling Lord Abbett at (888) or referring to our website at lordabbett.com. *All results are calculated in accordance with the SEC mandated standard methodology, but do not reflect deduction of any front-end sales charges (which are waived for certain defined contribution plans and certain mutual fund advisory programs.) If those charges were deducted, the returns would be lower. All results are based on changes in net asset value and assume reinvestment of all distributions. Class A Shares purchased subject to a front-end sales charge have no contingent deferred sales charge (CDSC). However, certain purchases of Class A Shares made without a front-end sales charge may be subject to a CDSC of 1% if the shares are redeemed before the first day of the month in which the one-year anniversary of the purchase falls. The CDSC is not reflected in the Average Annual Total Returns. If the CDSC was included, performance would be lower. Please see the Prospectus for more information on redemptions that may be subject to a CDSC. Instances of high double-digit returns were achieved primarily during favorable market conditions and may not be sustainable over time. Net expense ratio takes into account a contractual management fee waiver/expense reimbursement agreement that currently is scheduled to remain in place through 03/31/2015. For periods when gross expenses exceeded the cap, the Fund benefited by not bearing certain expenses. Without such cap, performance would have been lower. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. **Source: BofA Merrill Lynch. ***Source: Lipper Analytical Services. Lipper Funds Averages are based on a universe of funds with similar investment objectives as the Fund. Peer group averages include the reinvested dividends and capital gains, if any, and exclude sales charges. Please see "Important Performance and Other Information."

5 A RENAISSANCE IN U.S. ENERGY PRODUCTION U.S. CRUDE OIL FIELD PRODUCTION 4 Source: EIA, DB Global Markets Research. Data from

6 U.S. OIL IMPORTS LOWER NOW THAN IN LAST TWO RECESSIONS SHARE OF OPEC COUNTRIES IN TOTAL U.S. CRUDE OIL IMPORTS % 65 % Source: EIA, DB Global Markets Research. Data from 01/01/ /01/2014.

7 Barrels of Oil Per Day Excess (Deficiency) Per Day OIL SUPPLY AND DEMAND BALANCED OR LACK THEREOF CURRENT MARKET SCENARIO: NO OPEC CUT, NO MATERIAL EVIDENCE OF US RIG CUT YET Global Oil Supply Demand - OPEC at 30.7MM, No US Production Cut Year -2.0 Excess (Deficiency) Demand Supply Source: UBS, IMP, BP

8 BRENT CRUDE DOWN OVER 40% SINCE MID-JUNE $160 $140 $120 $100 $80 7 $60 $40 $20 $- Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Brent Crude Source: Bloomberg. Data from 11/30/ /28/2014.

9 YTD Cable/Satellite 11% Cable/Satellite 11% Cable/Satellite 10% Cable/Satellite 13% Telecom 13% Cable/Satellite 10% Gaming/Leisure 12% Energy 11% Energy 10% Telecom 9% Energy 9% Telecom 9% Energy 12% Healthcare 9% Technology 11% Energy 9% Energy 12% Energy 12% Telecom 12% Healthcare 9% Telecom 18% Telecom 17% Cable/Satellite 19% Utility 15% Energy 13% Healthcare 11% Financial 11% Telecom 10% Healthcare 9% % of Total U.S. High Yield Issuance Energy 15% Energy 17% Energy 14% Energy 19% Energy 18% Telecom 23% Telecom 28% Cable/Satellite 28% Telecom 37% ENERGY BOOM LEADING HIGH YIELD ISSUANCE Energy has been the largest sector in high yield issuance for the last 5 years Over $281 billion in high yield energy bonds have been issued since the beginning of % 35% 30% 25% 8 20% 15% 10% 5% 0% Largest industry 2nd largest industry Source: JP Morgan.

10 LEADING TO LARGEST INDEX WEIGHTING Causes us to reflect on the issuance boom in telecomm in the late 90 s HY ETF buyers beware. By design your largest exposure will simply be to the sectors that have issued the most debt. That was not a winning strategy in 2000 through Source: JP Morgan.

11 IMPACT OF ENERGY/CYCLICAL WEAKNESS ON HIGH YIELD MARKET 10 Source: JP Morgan. Data shown for JP Morgan US High Yield Index, JP Morgan US High Yield Index ex. Energy, and JP Morgan US High Yield Index ex Energy & Metals/Mining. Data from 12/31/ /01/2014. Financial market trends are based on current market conditions, which will fluctuate. There is no guarantee that markets will perform in a similar manner under similar conditions in the future. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.

12 DRILLING DOWN - ENERGY SUBSECTOR WEIGHTINGS & POSITIONING Industry YTD Index* Performance % of Index* % of Lord Abbett High Yield Fund** Difference Exploration & Production -4.43% 8.11% 6.99% -1.12% Gas Distribution 8.66% 4.49% 4.57% 0.08% Oil Field Equipment & Services % 1.87% 0.79% -1.08% 11 Oil Refining & Marketing 4.66% 0.53% 0.48% -0.05% Total Energy -1.27% 15.08% 12.84% -2.24% Total Index 4.04% - - Data as of 11/30/2014 unless otherwise specified. *BofA Merrill Lynch U.S. High Yield Master II Constrained Index. Source: BofA Merrill Lynch. As of 11/28/2014. **Source: Lord Abbett. Past performance is no guarantee of future results. The Fund's portfolio is actively managed and portfolio characteristics, such as sector weightings may change significantly over time. The portfolio data is for information only. It does not constitute a recommendation or an offer for a particular security or fund, nor should it be taken as a solicitation or recommendation to buy or sell securities or other investments. Index is unmanaged, does not reflect the deduction of fees or expenses, and is not available for direct investment.

13 Breakeven WTI OIL REGION BREAKEVEN ECONOMICS FOR 10% ROR Least Economic $100 $90 $80 $70 $60 $50 $40 12 $30 $20 Most At Risk Regions for Rig Cuts $10 $0 Source: TPH, UBS, IMF, BP

14 E & P INVESTING THEMES Companies with high quality assets and healthy balance sheets will weather the storm best Capex / rig reductions will be universal Borrowing bases to become at risk in spring Source: Lord Abbett. Market forecasts and projections are based on current market conditions and are subject to change without notice.

15 SECTOR THEMES AND CURRENT POSITIONING Top 3 Industry Overweights % of Lord Abbett High Yield Fund % of BofA Merrill Lynch U.S. High Yield Master II Constrained Index Difference Consumer Goods 6.65% 3.13% 3.52% Retail 6.79% 4.40% 2.39% Leisure 5.99% 3.94% 2.05% 14 Top 3 Industry Underweights % of Lord Abbett High Yield Fund % of BofA Merrill Lynch U.S. High Yield Master II Constrained Index Difference Telecommunications 5.67% 9.52% -3.85% Financial Services 3.83% 6.28% -2.45% Energy 12.84% 15.08% -2.24% Data as of 11/30/2014. Source: Lord Abbett. Past performance is no guarantee of future results. The Fund's portfolio is actively managed and portfolio characteristics, such as sector weightings may change significantly over time. The portfolio data is for information only. It does not constitute a recommendation or an offer for a particular security or fund, nor should it be taken as a solicitation or recommendation to buy or sell securities or other investments. Index is unmanaged, does not reflect the deduction of fees or expenses, and is not available for direct investment.

16 CREDIT QUALITY DISTRIBUTION AS OF 11/30/ The Fund's portfolio is actively managed and credit quality distribution may change significantly over time. Totals may not equal 100% due to rounding. Ratings provided by Standard & Poor's and Moody's. Where S&P and Moody's rate a security differently, Lord Abbett uses the higher credit rating. The credit quality distribution breakdown is not an S&P credit rating or an opinion of S&P as to the creditworthiness of such portfolio. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. *Source: BofA Merrill Lynch. Please see "Important Performance and Other Information."

17 Spread to Worst (basis points) U.S. HIGH-YIELD CORPORATE BOND SPREADS U.S. HIGH-YIELD CORPORATE BOND SPREADS (AS OF 11/30/2014) Median Spread = 524 bps bps Nov-86 Nov-90 Nov-94 Nov-98 Nov-02 Nov-06 Nov-10 Nov-14 Source: Credit Suisse. Yield spreads represented by the Credit Suisse High Yield Index. The spread to worst measures the difference from the worst performing security to the best, and can be seen as a measure of dispersion of returns within a given market or between markets. Past performance is no guarantee of future results. It is important to note that the high-yield market may not perform in a similar manner under similar conditions in the future. The historical data shown in the chart above are for illustrative purposes only and do not represent any specific Lord Abbett mutual fund or any particular investment. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.

18 QUESTIONS?

19 THANK YOU Let s continue the conversation. CALL US WITH QUESTIONS: VISIT OUR WEBSITE: lordabbett.com 18 JOIN THE CONVERSATION: blog.lordabbett.com DOWNLOAD OUR APP: lordabbett.com/appstore FOLLOW US: Twitter LinkedIn YouTube

20 MUTUAL FUND PEER GROUP COMPARISON AS OF 09/30/2014 YTD 1 Year 3 Years 5 Years 10 Years/ Inception Expense Ratios High Yield Fund (A Shares) 4.45% 8.61% 12.16% 10.78% 8.05% 0.95% High Yield Fund (F Shares) (1) 0.85 BofA ML HY Master II Constrained Index* Lipper High Yield Funds Average** Percentile Ranking (A Shares) Arithmetic Ranking (A Shares) 32/624 27/602 36/474 46/415 27/278 Morningstar High Yield Bond Funds Average*** Percentile Ranking (A Shares) Arithmetic Ranking (A Shares) 35/733 34/710 47/566 56/499 30/ Performance data shown is historical. Past Performance is not indicative of future results. Current performance may be higher or lower than the performance data shown. 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. You can obtain performance data current to the most recent month end by calling Lord Abbett at (888) or referring to our website at lordabbett.com. All results are calculated in accordance with the SEC mandated standard methodology, but do not reflect deduction of any front-end sales charges (which are waived for certain defined contribution plans and certain mutual fund advisory programs.) If those charges were deducted, the returns would be lower. All results are based on changes in net asset value and assume reinvestment of all distributions. Class A Shares purchased subject to a front-end sales charge have no contingent deferred sales charge (CDSC). However, certain purchases of Class A Shares made without a front-end sales charge may be subject to a CDSC of 1% if the shares are redeemed before the first day of the month in which the one-year anniversary of the purchase falls. The CDSC is not reflected in the Average Annual Total Returns. If the CDSC was included, performance would be lower. Please see the Prospectus for more information on redemptions that may be subject to a CDSC. There are no sales charges for Class F Shares. Instances of high double-digit returns were achieved primarily during favorable market conditions and may not be sustainable over time. Net expense ratio takes into account a contractual management fee waiver/expense reimbursement agreement that currently is scheduled to remain in place through 03/31/2015. For periods when gross expenses exceeded the cap, the Fund benefited by not bearing certain expenses. Without such cap, performance would have been lower. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. *Source: BofA Merrill Lynch. **Source: Lipper Analytical Services. Lipper Funds Averages are based on a universe of funds with similar investment objectives as the Fund. Peer group averages include the reinvested dividends and capital gains, if any, and exclude sales charges. ***Source: Morningstar, Inc. Rankings in the Morningstar Funds Category Averages are based on total returns at net asset value and include the reinvestment of all distributions. (1) Inception date Class F: 09/28/2007. Please see "Important Performance and Other Information."

21 MUTUAL FUND PEER GROUP COMPARISON AS OF 11/30/2014 YTD 1 Year 3 Years 5 Years 10 Years/ Inception Expense Ratios High Yield Fund (A Shares) 5.13% 6.06% 11.23% 10.32% 7.77% 0.95% High Yield Fund (F Shares) (1) 0.85 BofA ML HY Master II Constrained Index* Lipper High Yield Funds Average** Percentile Ranking (A Shares) Arithmetic Ranking (A Shares) 27/623 16/618 27/479 40/418 28/281 Morningstar High Yield Bond Funds Average*** Percentile Ranking (A Shares) Arithmetic Ranking (A Shares) 36/737 23/737 35/576 42/504 32/ Performance data shown is historical. Past Performance is not indicative of future results. Current performance may be higher or lower than the performance data shown. 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. You can obtain performance data current to the most recent month end by calling Lord Abbett at (888) or referring to our website at lordabbett.com. All results are calculated in accordance with the SEC mandated standard methodology, but do not reflect deduction of any front-end sales charges (which are waived for certain defined contribution plans and certain mutual fund advisory programs.) If those charges were deducted, the returns would be lower. All results are based on changes in net asset value and assume reinvestment of all distributions. Class A Shares purchased subject to a front-end sales charge have no contingent deferred sales charge (CDSC). However, certain purchases of Class A Shares made without a front-end sales charge may be subject to a CDSC of 1% if the shares are redeemed before the first day of the month in which the one-year anniversary of the purchase falls. The CDSC is not reflected in the Average Annual Total Returns. If the CDSC was included, performance would be lower. Please see the Prospectus for more information on redemptions that may be subject to a CDSC. There are no sales charges for Class F Shares. Instances of high double-digit returns were achieved primarily during favorable market conditions and may not be sustainable over time. Net expense ratio takes into account a contractual management fee waiver/expense reimbursement agreement that currently is scheduled to remain in place through 03/31/2015. For periods when gross expenses exceeded the cap, the Fund benefited by not bearing certain expenses. Without such cap, performance would have been lower. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. *Source: BofA Merrill Lynch. **Source: Lipper Analytical Services. Lipper Funds Averages are based on a universe of funds with similar investment objectives as the Fund. Peer group averages include the reinvested dividends and capital gains, if any, and exclude sales charges. ***Source: Morningstar, Inc. Rankings in the Morningstar Funds Category Averages are based on total returns at net asset value and include the reinvestment of all distributions. (1) Inception date Class F: 09/28/2007. Please see "Important Performance and Other Information."

22 CALENDAR YEAR RETURNS High Yield Fund (Class A Shares)* BofA Merrill Lynch U.S. High Yield Master II Constrained Index** % 7.41% % 15.55% % 4.37% % 15.07% % 58.10% % % % 2.53% % 10.76% % 2.78% % 10.87% 21 Performance data quoted reflect past performance and are no guarantee 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. You can obtain performance data current to the most recent month end by calling Lord Abbett at (888) or referring to our website at lordabbett.com. *All results are calculated in accordance with the SEC mandated standard methodology, but do not reflect deduction of any front-end sales charges (which are waived for certain defined contribution plans and certain mutual fund advisory programs.) If those charges were deducted, the returns would be lower. All results are based on changes in net asset value and assume reinvestment of all distributions. Class A Shares purchased subject to a front-end sales charge have no contingent deferred sales charge (CDSC). However, certain purchases of Class A Shares made without a front-end sales charge may be subject to a CDSC of 1% if the shares are redeemed before the first day of the month in which the one-year anniversary of the purchase falls. The CDSC is not reflected in the Average Annual Total Returns. If the CDSC was included, performance would be lower. Please see the Prospectus for more information on redemptions that may be subject to a CDSC. Instances of high double-digit returns were achieved primarily during favorable market conditions and may not be sustainable over time. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. **Source: BofA Merrill Lynch. Please see "Important Performance and Other Information."

23 IMPORTANT PERFORMANCE AND OTHER INFORMATION A Note about Risk: The High Yield Fund is subject to the general risks associated with investing in debt securities, including market, credit, liquidity, and interest rate risk. The Fund invests primarily in high-yield, lower-rated securities, sometimes called junk bonds. These securities carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal. The Fund may invest in foreign or emerging market securities, which may be adversely affected by economic, political, or regulatory factors and subject to currency volatility and greater liquidity risk. The Fund may invest in derivatives, which are subject to greater liquidity, leverage, and counterparty risk. These factors can affect Fund performance. The BofA Merrill Lynch U.S. High Yield Master II Constrained Index is a capitalization-weighted index of all US dollar denominated below investment grade corporate debt publicly issued in the US domestic market. Qualifying securities must have a below investment grade rating (based on an average of Moody s, S&P and Fitch), at least 18 months to final maturity at the time of issuance, at least one year remaining term to final maturity as of the rebalancing date, a fixed coupon schedule and a minimum amount outstanding of $100 million. The index caps individual issuer at 2%. Index constituents are capitalization-weighted, based on their current amount outstanding, provided the total allocation to an individual issuer does not exceed 2%. Issuers that exceed the limit are reduced to 2% and the face value of each of their bonds is adjusted on a pro-rata basis. The face values of bonds of all other issuers that fall below the 2% cap are increased on a pro-rata basis. In the event there are fewer than 50 issuers in the Index, each is equally weighted and the face values of their respective bonds are increased or decreased on a pro-rata basis. The credit quality of the securities in a portfolio is assigned by a nationally recognized statistical rating organization (NRSRO) such as Standard & Poor s, Moody s or Fitch, as an indication of an issuer s creditworthiness. Ratings range from AAA (highest) to D (lowest). Bonds rated BBB or above are considered investment grade. Credit ratings BB and below are lower-rated securities (junk bonds). High-yielding, non-investment grade bonds (junk bonds) involve higher risks than investment grade bonds. Adverse conditions may affect the issuer s ability to pay interest and principal on these securities. 22 Investors should carefully consider the investment objectives, risks, charges, and expenses of the Lord Abbett Funds. This and other important information is contained in the Fund's summary prospectus and/or prospectus. To obtain a prospectus or summary prospectus on any Lord Abbett mutual fund, contact your investment professional, Lord Abbett Distributor LLC at or visit us at lordabbett.com. Read the prospectus carefully before you invest.