INTERNATIONAL SMALL CAP STOCK INVESTING

Transcription

1 INTERNATIONAL SMALL CAP STOCK INVESTING J U N E 3 0, 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 JUNE 30, 2014 Independent, privately held firm 65 partners Assets under management: Approximately $143 billion* $47 billion in equity strategies and $96 billion in fixed-income strategies 132 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. 2 *Includes approximately $1.5 billion for which Lord Abbett provides investment models to managed account sponsors. OUR DIFFERENTIATORS Independent Perspective Commitment to Active Management Intelligent Product Design

3 Cumulative Net Flows ($B) Cumulative Net Flows ($B) INTERNATIONAL SMALL CAPS HAVE BEEN OVERLOOKED BY INVESTORS U.S. STOCKS CUMULATIVE NEW FLOWS 1, U.S Large Cap U.S Small Cap In the U.S., small cap stocks are a significant portion of cumulative net flows INTERNATIONAL STOCKS CUMULATIVE NEW FLOWS 1, International Large Cap Emerging Markets International Small/Mid Cap Emerging market (EM) stocks attracted significant flows in recent years International small cap stocks have received relatively little investment Source: Simfund, grouped by Morningstar classification. Open-ended mutual fund only. Data as of 05/31/2014.

4 Percentage of Fundings AN INCREASING INTEREST FROM INSTITUTIONAL INVESTORS INTERNATIONAL SMALL CAP MANDATES HAVE EXCEEDED LARGE CAP (AS OF 12/31/2013) Large Cap All Cap Small Cap 100% $1.9 $5.2 $2.4 $3.2 $1.9 $1.9 $4.4 $3.2 $4.4 $4.5 80% 60% $21.6 $15.8 $13.0 $14.0 $16.0 $5.7 $16.0 $12.0 $ $ % 20% $28.3 $29.2 $16.9 $17.6 $12.8 $7.9 $8.4 $9.7 $7.6 $4.4 0% Source: InterSec. Data most recent available.

5 ATTRACTIVE RISK-RETURN PROFILE OVER THE LAST 20 YEARS INTERNATIONAL SMALL CAPS HAVE HAD LONG-TERM OUTPERFORMANCE GROWTH OF $100 (06/30/ /30/2014) $450 $400 $350 $300 $250 International Small Cap¹ International Large Cap² Emerging Markets³ $200 $150 $100 5 $50 $ S&P Developed Ex-U.S. Small Cap Index 2 MSCI EAFE Index 3 MSCI Emerging Markets Index HISTORICALLY, HIGHER RETURN THAN LARGE CAPS & LOWER RISK THAN EM RISK/RETURN COMPARISON Index Risk-Return Stats (20-Year)* Risk-Return Stats (01/01/ /30/2014) Return Cumulative Return Std. Dev. Sharpe Ratio Return Std. Dev. Sharpe Ratio S&P Developed Ex-U.S. SmallCap 7.26% % % MSCI EAFE Small Cap % MSCI EAFE 5.89% % % MSCI EM 6.61% % % Source: Zephyr StyleADVISOR. Past performance is not a reliable indicator or guarantee of future results. The information shown does not represent any Lord Abbett mutual fund or particular investment. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. *Data range 06/30/ /30/2014. MSCI EAFE Small Cap inception 01/01/2001.

6 HISTORICAL ADVANTAGE OVER INTERNATIONAL LARGE CAP INT L SMALL CAPS HAVE HAD CONSISTENTLY HIGHER RISK-ADJUSTED RETURNS SHARPE RATIOS OVER VARIOUS TIME PERIODS, (AS OF 06/30/2014) Across multiple time frames Across value, core, and growth INTERNATIONAL EQUITY RISK-ADJUSTED RETURNS 3 YEAR SHARPE RATIOS 5 YEAR SHARPE RATIOS 10 YEAR SHARPE RATIOS 6 Value Core Growth Value Core Growth Value Core Growth Large Cap Large Cap Large Cap Small Cap Small Cap Small Cap Source: Zephyr StyleADVISOR. Data as of 06/30/2014. Past performance is not a reliable indicator or guarantee of future results. For illustrative purposes only and does not represent any Lord Abbett mutual fund or any particular investment.

7 HISTORICALLY NOTABLE DIVERSIFICATION BENEFITS INT L SMALL CAPS: CORRELATION WITH OTHER ASSET CLASSES CORRELATION (01/01/ /30/2014) International Small Cap 1 International Large Cap 2.90 U.S. Large Cap 3.70 Emerging Markets 4.80 MOVEMENTS FROM MACRO INFLUENCES SIMILAR TO DEVELOPED MARKETS PERFORMANCE THE FIRST 3 MONTHS AFTER U.S. FEDERAL RESERVE FIRST MENTIONED TAPER International Small Cap¹ 85 International Large Cap² U.S. Large Cap³ Emerging Markets⁴ 80 May 21, 2013 Jun 10, 2013 Jun 30, 2013 Jul 20, 2013 Aug 09, 2013 Aug 30, 29, MSCI EAFE Small Cap Index 2 MSCI EAFE Index 3 S&P 500 Index 4 MSCI Emerging Markets Index Source: Bloomberg. Past performance is not a reliable indicator or guarantee of future results. The information shown does not represent any 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.

8 CONSISTENTLY OUTPERFORMED LARGE CAPS OVER TIME WORLD SMALL CAP OUTPERFORMANCE AS A PERCENTAGE OF TIME (06/30/ /30/2014) 100% 98% 100% 80% 60% 61% 68% 8 40% 20% 0% 1 Yr 3 Yr 5 Yr 10 Yr Over rolling one year periods, small caps have outperformed large caps over 60% of the time Over longer periods, they have outperformed by increasingly greater amounts Regardless of entry point, the longer the investment horizon, the higher the percentage of time international small caps have outperformed large caps Source: FactSet. Large Cap represented by S&P Global LargeCap (SBLRGL) and World Small Cap represented by S&P Global SmallCap (SBERGL). Past performance is not a reliable indicator or guarantee of future results. The information shown does not represent any 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.

9 POSITIONED IN OUR MOST FAVORED GROWTH INDUSTRIES INTERNATIONAL SMALL CAPS HAVE OFFERED STRATEGIC EXPOSURE INTERNATIONAL STOCK INDEX BREAKDOWNS BY SECTOR (AS OF 06/30/2014) MORE EXPOSED TO SECTORS THAT GENERATE GROWTH 70 International Small Cap¹ 60 International Large Cap² Emerging Markets³ 50 LESS EXPSOSE TO LOW GROWTH / HIGH CAPEX, REGULATED SECTORS International Small Cap¹ International Large Cap² Emerging Markets³ Industrials Consumer Discretionary Info Tech Telecom Healthcare Total - 'Rivers of Growth' 0 Utilities Energy Staples Materials Total 1 MSCI EAFE Small Cap Index 2 MSCI EAFE Index 3 MSCI Emerging Markets Index These three indexes have the following weightings in the Financials sector: MSCI EAFE Small Cap Index: 21.38%; MSCI EAFE Index: 25.29%; and MSCI Emerging Markets Index: 26.96%. Source: MSCI and FactSet. The information shown does not represent any 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.

10 Global Small Cap Index (basis points) A STRATEGY FOR AN ONGOING ECONOMIC RECOVERY INTERNATIONAL SMALL CAPS OUTPERFORMED OUT OF MARKET LOWS INTERNATIONAL SMALL CAP RELATIVE PERFORMANCE TO LARGE CAP AROUND BEAR MARKET LOWS* Months from Bear-Market Low Looking at last four bear-market lows, international small cap stocks have progressively outperformed international large cap stocks during recovery periods. Source: UBS, Thomson Datastream. International Small Caps represented by MSCI Global Small Cap Index and Large Caps represented by MSCI Global Large Cap Index. *Bear market lows of 09/2001, 03/2003, 03/2009, 09/2011. Past performance is not a reliable indicator or guarantee of future results. The information shown does not represent any 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.

11 Number of Analysts Percent of Companies (%) AN INEFFICIENT MARKET RIPE FOR STOCK PICKING THE MAJORITY OF INT L SMALL CAPS ARE NOT COVERED BY MULTIPLE ANALYSTS AVERAGE NUMBER OF ANALYSTS COVERING STOCKS IN MARKET CAP RANGES PERCENT OF COMPANIES WITH < 2 ANALYSTS > $10 bil $10 - $5 bil $5 - $2 bil $2 - $1 bil < $1 bil 0 > $10 bil $10 - $5 bil $5 - $2 bil $2 - $1 bil < $1 bil Large Small Large Small We believe overlooked and inefficient markets drive investment opportunity. Source: Bloomberg. Screen as of 06/30/2014.

12 10-Year EPS Growth DISPLAYED BETTER LONG-TERM GROWTH AND ACQUISITION SUPPORT INT L SMALL CAPS OFFERED OPPORTUNITY WHEN GROWTH WAS SCARCE (12/31/ /31/2013) HIGHER LONG-TERM SALES AND EARNINGS GROWTH 24.0 Small Caps OUTPERFORMANCE DURING PERIODS OF INCREASING M&A ACTIVITY 100% Large Cap¹ 85.1% Mid Cap² 77.8% 75% Small Cap³ Mid Caps 2 50% 56.1% Large Caps 1 25% 21.9% 20.6% 20.7% 24.0% 20.2% 17.1% Year Sales Growth 0% Jul-99 to Sep-00 Jul-04 to Oct-07 Jul-10 to Dec-12 Periods of High M&A Activity 1 Stoxx Large-cap Index 2 Stoxx Mid-cap Index 3 Stoxx Small-cap Index Source: UBS, Bloomberg. Past performance is not a reliable indicator or guarantee of future results. The information shown does not represent any 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.

13 Compound Annual Return Above Benchmark CONSISTENTLY ALLOWED MANAGERS TO GENERATE HIGHER ALPHA LARGE INEFFICIENT OPPORTUNITY SET SUPPORTS AN ACTIVE APPROACH AVERAGE INTERNATIONAL SMALL CAP ACTIVE MANAGER EXCESS RETURN Years 5 Years 10 Years Low stock correlations and idiosyncratic business models have allowed managers to achieve high and consistent excess returns. Source: evestment and MSCI. As of 06/30/2014. Past performance is not a reliable indicator or guarantee of future results. The information shown does not represent any Lord Abbett mutual fund or any particular investment.

14 VALUATIONS ATTRACTIVE VERSUS U.S. SMALL CAPS LOWER PRICE/EARNINGS RATIO BEST ESTIMATE 60 Int'l Small Cap¹ U.S. Small Cap² Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 LOWER PRICE/BOOK VALUE RATIO BEST ESTIMATE Int'l Small Cap¹ U.S. Small Cap² 0.5 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 HIGHER DIVIDEND YIELD BEST ESTIMATE Int'l Small Cap¹ U.S. Small Cap² 0.00 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 1 MSCI EAFE Small Cap Index 2 Russell 2000 Index Source: MSCI, Russell, Bloomberg. Data as of 06/30/2014. Past performance is not a reliable indicator or guarantee of future results. The information shown does not represent any 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.

15 IMPORTANT INFORMATION Many of the slides in this presentation are only for illustrative purposes and are intended to provide general investment education and are not intended to provide legal, tax or investment advice. It is not intended to be relied upon as a forecast or research regarding a particular investment or the markets in general, nor intended to predict or depict performance of any investment or serve as a recommendation or offer to buy or sell securities. The forecasts and projections in this presentation are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee. Although the data provided in the presentation comes from reliable sources Lord Abbett cannot guarantee the accuracy or completeness of any statements or data contained herein. Risks to Consider: The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy. Investments in small-sized companies involve greater risks not associated with investing in more established companies, such as business risk, significant stock price fluctuations and illiquidity. Investing in international securities generally poses greater risk than investing in domestic securities, including greater price fluctuations and higher transaction costs. Special risks are inherent to international investing, including those related to currency fluctuations and foreign, political, and economic events. The securities markets of emerging countries tend to be less liquid, especially subject to greater price volatility, have a smaller market capitalization, have less government regulation and may not be subject to as extensive and frequent accounting, financial and other reporting requirements as securities issued in more developed countries. Further, investing in the securities of issuers located in certain emerging countries may present a greater risk of loss resulting from problems in security registration and custody or substantial economic or political disruptions. While growth stocks are subject to the daily ups and downs of the stock market, their long-term potential as well as their volatility can be substantial. Value investing involves the risk that the market may not recognize that securities are undervalued, and they may not appreciate as anticipated. No investing strategy can overcome all market volatility or guarantee future results. 15