A Strategic Approach to Fixed Income Today

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The Opportunity Set Has Evolved

For anyone in the investment business for less than 20 years, it’s possible to incorrectly assume that the institutional model of allocating capital to risk assets to achieve return objectives and meet financial obligations has always been consistent. In fact, it was much simpler just 30 years ago; asset allocators simply needed to buy bonds to achieve their return and risk objectives. Figure 1 from Callan shows this starting point in the 1990s and the evolution over the decades to more forms of risk capital—a development driven primarily by the fall in bond yields, but also in the case of pensions, the temptation to underfund liabilities.

Figure 1.

Source: Callan Capital Market Assumptions (CMA). Annual data as of December 31, 2023. CMAs are developed by consultants and represent long-term, return expectations across asset classes. A complete, long-term CMA may also include expected volatility, or standard deviation of returns, as well as the expected return correlation and other projections. Treasuries are risk-free debt securities issued by the U.S. government and secured by its full faith and credit. Income from Treasury securities are exempt from state and local taxes. Past performance is not a reliable indicator or guarantee of future results. The historical data shown in the chart above are for illustrative purposes only and do not represent any specific portfolio managed by Lord Abbett.

With the need for excess returns and commensurate risk came another need: to balance the risk with an allocation to risk-reducing assets. The most common implementation became an allocation to U.S. Treasuries and investment-grade bonds. These risk-reducing allocations are often referred to as the “fixed-income anchor” because they diversify risk-asset volatility, preserve capital, and provide liquidity, especially during a risk-off environment.

Now, however, as income has returned to fixed income, institutional investors have an opportunity to reevaluate the paradigm of risk capital and fixed-income anchors. As Callan notes in the 2024 portion of Figure 1, it is possible to reduce portfolio volatility by adding assets to the fixed-income anchor. It also may be possible to reduce illiquidity, complexity, and fees. Therefore, we think it’s the perfect time to revisit the implementation question: how should a strategic allocation to fixed income be constructed today?

Cross-Asset Correlations Have Changed

There is a pressing reason for reevaluation of fixed income beyond the increased yield available: rate-based implementations are losing effectiveness as an all-weather diversifier (the anchor). Figure 2 details two-year rolling correlations between equities and Treasuries and shows a recent reversal of the negative correlation that gave Treasury bonds their diversification properties. Scanning the long-run history of this correlation, it’s clear that positive correlation between equities and Treasuries is common, especially in periods marked by elevated inflation.

Figure 2.

Rolling two-year stock and bond correlation, January 1, 1930-April 30, 2024

Source: Ibbotson, Bloomberg, and Lord Abbett. Data as of April 30, 2024. Stock-bond correlation represented by Ibbotson Associates SBBI Long-Term Government Bond Index and S&P 500® Index. Past performance is not a reliable indicator or guarantee of future results. The historical data shown in the chart above are for illustrative purposes only and do not represent any specific portfolio managed by Lord Abbett.

The reason for that dynamism in correlation is relatively clear as well. Keynesian monetary policy responds to a slowing of economic growth, which is generally accompanied by equity declines, by lowering interest rates, benefiting bonds. But when rising inflation is driving equity declines, the same countercyclical policy of lowering rates would compound the problem. Without that lever, stocks and bonds suffer and benefit together in inflationary environments.

We believe the current inflationary environment behind positive stock/bond correlation may well be a secular theme. The drivers are many:

A reconfiguring of supply chains around the world in response to weaknesses uncovered during COVID-19 and geopolitical risks.
A single-family housing shortage in developed economies around the world.
Continued spending on energy transition initiatives, as well as related limiting of current energy and commodity supplies.
Demographic shifts to older populations, limiting labor supply in services-based economies.
Persistent deficit spending by developed economies around the world.

Implications for the Fixed-Income Anchor

The elevated inflation we expect is likely to result in continued recoupling of stocks and bonds—a challenging situation for asset allocators relying on rate-oriented bonds as a key diversifier of risk assets. Rate volatility, which has been higher than equity volatility at times during the last several years, is also likely to remain elevated as the market expectations shift to this higher-for-longer environment.

As Treasuries price in higher inflation and, at the same time, lose their effectiveness as diversifiers, the market may demand more compensation for the risk of holding long-term bonds. Figure 3 shows that this “term premium” has been near zero or negative since the advent of quantitative easing. An increase to 1%–3% levels seen during and after other inflationary periods would be a difficult transition period for long Treasury Bond investors.

Figure 3.

Term premium and U.S. Consumer Price Index (CPI), January 1, 1961–April 30, 2024

Source: Bloomberg and the Federal Reserve Bank of New York, as represented by ACMTP10. Data as of April 30, 2024. For illustrative purposes only and does not represent any specific portfolio managed by Lord Abbett or any particular investment. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.

The backdrop of curve steepening would be likely if the U.S. Federal Reserve (Fed) were to remain dovish despite persistent inflation. If the Fed were to turn more hawkish and keep rates elevated to bring inflation down more quickly and decisively, the outcome may be a persistently flat yield curve. There is precedence for this, as shown in Figure 4, during the 1994–2000 period, which was the last soft landing achieved by the Fed. Note that the two- to 10-year spread remained positive but under the historical average during nearly this entire period.

Figure 4.

10-year Treasury constant maturity yield minus 2-year Treasury constant maturity yield, February 1, 1977–April 30, 2024

Source: Bloomberg and the Federal Reserve Bank of St. Louis (FRED). Data as April 30, 2024. Series is calculated as the spread between 10-Year Treasury Constant Maturity and 2-Year Treasury Constant Maturity. Steep, flat, and inverted yield curve periods determined by a 2-year and 10-year U.S. Treasury yield spread of 91 basis points (bps) or higher, 0-90 bps, and under 0 bps, respectively. For illustrative purposes only and does not represent any specific portfolio managed by Lord Abbett or any particular investment. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. Past performance is not a reliable indicator or guarantee of future results.

How should allocators think about this new environment characterized by persistently flat or possibly steepening curves and increased rate volatility?

We have two long-term recommendations:

Limiting the rate exposure, which may compound equity movements, rather than diversifying those moves, as it did consistently in the 30 years prior.
Adding credit to fixed-income allocations to diversify rate risk.

Limiting Rate Exposure

Most aggregate-based fixed-income strategies are nearly entirely rate risk. With over 70% in Treasuries and agency mortgage-backed securities (MBS) and over six years of interest-rate duration, the modest credit risk from the investment-grade corporates in the Bloomberg Aggregate Bond Index is overwhelmed by the rate risk. To this point, Figure 5 shows the tracking error expected from the Bloomberg U.S. Aggregate Bond Index by driver of the volatility.

Figure 5.

Contributing factors (in percent) to expected tracking error volatility for the Bloomberg U.S. Aggregate Bond Index, as of March 31, 2024

Source: Bloomberg. Data as of March 31, 2024. Tracking error is the standard deviation of returns relative to a portfolio or benchmark. For illustrative purposes only and does not represent any specific portfolio managed by Lord Abbett or any particular investment. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. Past performance is not a reliable indicator or guarantee of future results.

This rate risk presents a challenge in an environment of curve steepening or in a flatter-for-longer environment that may accompany a soft landing. Figure 6 shows the returns of short-duration indexes relative to full-duration indexes in inverted, flat, and steep yield curve environments. Note that short duration outperforms long duration in every environment, except a steep one, and does so with a fraction of the volatility.

Figure 6.

Historical index returns during flat, steep, and inverted yield curves

Source: Bloomberg, ICE Data Indices LLC, and Lord Abbett. Data as of March 31, 2024. Steep, flat, and inverted yield curve periods determined by a 2-year and 10-year U.S. Treasury yield spread of 91 basis points (bps) or higher, 0-90 bps, and under 0 bps, respectively, between 06/30/1976 and 12/31/2023. Returns shown for each index are annualized. Returns shown for All Periods are an average of the annualized returns across all three yield curve environments. Indexes: Bloomberg U.S. Corporate Bond Index, ICE BofA U.S. Corporate 1-3 Year Index, Bloomberg U.S. Aggregate Bond Index, and Bloomberg 1-3 Year U.S. Government/Credit Index. For illustrative purposes only and does not represent any specific portfolio managed by Lord Abbett or any particular investment. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. Past performance is not a reliable indicator or guarantee of future results. Please see the annual performance table at the end of this material.

Adding Credit to Diversify the Fixed-Income Anchor

In addition to reducing a poorly priced risk by shortening duration, asset allocators may also be seeking to diversify that risk within the fixed-income anchor and across the portfolio. At first glance, credit does not fit the bill of a diversifier well. Over the last several decades and over the life of the high yield market, credit has been highly correlated to equities. However, the onset of higher-for-longer inflation prompts a reevaluation of credit’s relationship to equities and rates.

Intuitively, credit should perform well in a modestly high inflation environment, as the nominal debt of indebted companies stays fixed while earnings power can expand, leading to less real value of debt each year. Evidence of this intuition exists in recent performance of credit through a high inflation environment, including the historical evidence that higher inflation is associated with fewer defaults, and the negative correlation of investment-grade bonds to rate-sensitive Treasuries, both covered in these recent analyses, The Case for Credit, Part 1: The Resilience of High Yield Bonds and The Case for Credit, Part 2: The Asset Class as a Diversifier of Return Volatility.

Short-duration bonds also benefit from a long-standing behavioral anomaly in which credit-focused managers tend to spend more time and effort on longer-duration bonds, leaving the short-duration equivalents to outperform on a risk-adjusted basis because they are overlooked. A 25-year study of the Sharpe ratios of long-dated versus short-dated bonds is shown in Figure 7. This classic “low-risk” phenomenon has a well-known parallel in the equity market, whereby low-beta stocks have for decades outperformed high-beta stocks on a risk-adjusted basis.

Figure 7.

Sharpe ratios for indicated maturity and rating categories, January 1998–March 2023

Source: Bloomberg and Lord Abbett. Based on the Bloomberg U.S. Aggregate Bond Index. Past performance is not a reliable indicator or guarantee of future results. For illustrative purposes only and does not represent any specific portfolio managed by Lord Abbett or any particular investment. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.

Finally, credit’s role as a diversifier is bolstered by its dimensionality—meaning there are many facets to it such as consumer credit, corporate credit, real estate, asset backed—which allows for a credit-focused, active manager to achieve better diversification in credit than in a monolithic factor, such as interest rates.

Bringing the Recommendations Together: Short-Duration Credit in Fixed-Income Allocations

By combining the limited duration exposure with the diversification properties of credit, short-duration credit allocations can help anchor a fixed-income portfolio as the higher-for-longer regime shifts into focus for allocators. Figure 8 shows the risk and return properties of a blended, active solution over the last 15 years.

Figure 8.

Lord Abbett Short Duration Income Institutional Composite, Lord Abbett Core Fixed Income Institutional Composite, and the Bloomberg Global Aggregate Index, March 31, 2009–April 30, 2024

Source: Morningstar, Bloomberg, and Lord Abbett. Past performance is not a reliable indicator or guarantee of future results. Returns are annualized. Net-of-fees performance of the Lord Abbett Short Duration Income Institutional Composite, the Lord Abbett Core Fixed Income Institutional Composite, and the hypothetical blend reflect the deduction of the highest applicable management fee (“Model Net Fee”) that would be charged based on the fee schedule appropriate to a typical institutional separate account investor for the Short Duration Income strategy and the Core Fixed Income strategy, without the benefit of breakpoints. Please be advised that the composite may include other investment products that are subject to management fees that are inapplicable to a typical institutional separate account investor but are in excess of the Model Net Fee. Therefore, the actual performance of all the portfolios in the composite on a net-of-fees basis will be different, and may be lower, than the Model Net Fee performance. However, such Model Net Fee performance is intended to provide the most appropriate example of the impact management fees would have by applying management fees relevant to a typical institutional separate account investor to the gross performance of the composite and hypothetical blend. Please refer to the GIPS Report in the disclosure for additional performance information. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. The hypothetical blend was calculated by applying the percentages stated above to monthly returns. The hypothetical performance does not represent actual performance, was not achieved by any investor, and actual results may vary substantially. Return data is based on U.S. dollar-denominated index and composite data. Performance of the composites and the indices may be affected by changes in the exchange rates between the currency denomination of the composites and indices and any non-U.S. dollar denomination.

The current flatness of both the yield and credit curves makes a strong case for a short-duration bias in tactical allocations. The potential for an extra approximately 100 basis points (bps) of yield in a short-duration credit mandate versus an Aggregate-based mandate, could mean up to 40 bps annually in expected return advantage in a portfolio allocated 40% to fixed income.

The prospect of an extended inflationary trend as well as the historical record of outperformance and diversification by short-duration credit mean the inclusion of short duration in fixed-income allocations should be a long-term, strategic imperative as well. If the yield curve were to steepen by 100 bps between the 2-year Treasury and the 10-year Treasury, it would still not be at historical levels of steepness. With six years of duration, that steepening could shave another 600 bps from forward returns on an Aggregate-based fixed-income solution compared to a short-duration solution. We believe the higher carry and the limited exposure to this risk of rising long-term rates makes short duration a compelling addition to strategic fixed income allocations.

Past Performance of Selected Indices (Calendar Year):

NOTE: Past performance is no indication or guarantee of future results.

Source: Bloomberg, S&P Dow Jones Indices, ICE BofA Indices LLC., and Lord Abbett. Net-of-fee performance of the Lord Abbett Short Duration Income Institutional Composite and the Lord Abbett Core Fixed Income Institutional Composite reflect the deduction of the highest applicable management fee (“Model Net Fee”) that would be charged based on the fee schedule appropriate to a typical institutional separate account investor for the Short Duration Income strategy and the Core Fixed Income strategy, without the benefit of breakpoints. Performance of the composites and the indices may be affected by changes in the exchange rates between the currency denomination of the composites and indices and any non-U.S. dollar denomination.

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Short Duration Income Fund

Strategically designed to take advantage of persistent anomalies in short maturity bonds. The Fund seeks to provide higher yield than a traditional short duration strategy and lower duration than a traditional core bond strategy.

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About the Contributors

Joseph M. Graham, CFA

Senior Managing Director, Investment Strategist

Kristen Doyle, CFA

Head of U.S. Institutional Market Strategy

Important Information

This material has been prepared for use with “institutional investors” (as such term is defined in various jurisdictions) and their consultants, analysts, broker-dealers and financial advisors only and is not intended for, or to be relied upon by, private individuals or retail investors. In no way does this material constitute investment advice or an offer of securities. This document has not been filed with, or approved by, any regulatory authority in any jurisdiction.

Unless otherwise noted, all discussions are based on U.S. markets, U.S. monetary and fiscal policies, and U.S. dollar-denominated index and return data.

Asset allocation or diversification does not guarantee a profit or protect against loss in declining markets.

No investing strategy can overcome all market volatility or guarantee future results.

The value of investments and any income from them is not guaranteed and may fall as well as rise, and an investor may not get back the amount originally invested. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon, and risk tolerance.

Market forecasts and projections are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee.

Equity Investing Risks

The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of companies and/or sectors in the economy. 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. Smaller companies tend to be more volatile and less liquid than larger companies. Small cap companies may also have more limited product lines, markets, or financial resources and typically experience a higher risk of failure than large cap companies.

Fixed-Income Investing Risks

The value of investments in fixed-income securities will change as interest rates fluctuate and in response to market movements. Generally, when interest rates rise, the prices of debt securities fall, and when interest rates fall, prices generally rise. High yield securities, sometimes called junk bonds, carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal. Bonds may also be subject to other types of risk, such as call, credit, liquidity, and general market risks. Longer-term debt securities are usually more sensitive to interest-rate changes; the longer the maturity of a security, the greater the effect a change in interest rates is likely to have on its price.

The credit quality of fixed-income 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.

This material may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.

The views and opinions expressed are as of the date of publication, and do not necessarily represent the views of the firm as a whole. Any such views are subject to change at any time based upon market or other conditions and Lord Abbett disclaims any responsibility to update such views. Lord Abbett cannot be responsible for any direct or incidental loss incurred by applying any of the information offered.

This material is provided for general and educational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, or any Lord Abbett product or strategy. References to specific asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations or investment advice.

Certain information contained herein has been obtained from third party sources and such information has not been independently verified by Lord Abbett. No representation, warranty, or undertaking, expressed or implied, is given to the accuracy or completeness of such information by Lord Abbett or any other person. While such sources are believed to be reliable, Lord Abbett does not assume any responsibility for the accuracy or completeness of such information. Lord Abbett does not undertake any obligation to update the information contained herein as of any future date.

Please consult your investment professional for additional information concerning your specific situation.

GIPS Report

The Global Investment Performance Standards (GIPS®) compliant performance results shown represent the investment performance record for the Lord, Abbett & Co. LLC (Lord Abbett) Core Fixed Income Institutional Composite. This composite is comprised of all fully discretionary portfolios managed on behalf of institutional investors investing primarily in various types of fixed-income securities, including securities issued by the U.S. government, its agencies and instrumentalities, mortgage-backed and other asset-backed securities, investment grade corporate debt, U.S.-dollar denominated investment-grade debt of non-U.S. issuers, senior loans and derivatives. Effective November 2017, only accounts with a value of $40 million or more are included in the composite. Effective July 2014, only accounts with an initial value of $50 million or more are included in the composite. Effective March 2012, only accounts with an initial value of $40 million or more are included in the composite. Effective July 21, 2009, only accounts with an initial value of $20 million or more are included in the composite. Effective January 2018, accounts funded on or before the 15th of the month will be included in the Composite effective the first day of the first following month. Accounts funded after the 15th of the month will be included effective on the first day of the second following month. Prior to January 2018, other than registered investment companies sponsored by Lord Abbett, accounts opened/funded on or before the 15th day of the month were included in the Composite effective the first day of the second following month and accounts opened/funded after 15th of the month were included effective on the first day of the third following month. Registered investment companies sponsored by Lord Abbett are included in the Composite in the first full month of management. Closed accounts are removed from the Composite after the last full month in which they were managed in accordance with applicable objectives, guidelines, and restrictions. Performance results are expressed in U.S. dollars and reflect reinvestment of any dividends and distributions. The Composite was created in 1999 and incepted in 1998. A list of all composite and pooled fund investment strategies oﬀered by the ﬁrm, with a description of each strategy, is available upon request. The type of portfolios in which each strategy is available (segregated account, limited distribution pooled fund, or broad distribution pooled fund) is indicated in the description of each strategy. Policies for valuing investments, calculating performance, and preparing GIPS Report are available upon request.

For GIPS® purposes, the firm is defined as Lord, Abbett & Co. LLC (“Lord Abbett”). Total Firm Assets are the aggregate fair value of all discretionary and non-discretionary assets for which the Firm has investment management responsibility. Accordingly, Total Firm Assets include, but are not limited to, mutual funds (all classes of shares), privately placed investment funds, non-U.S. domiciled investment funds, separate/institutional portfolios, individual portfolios and separately managed accounts (“Wrap Fee/SMA Portfolios”) managed by Lord Abbett. Total Firm Assets also include any collateralized, structured investment vehicle, such as a collateralized debt obligation or collateralized loan obligation, for which Lord Abbett has been appointed as the collateral manager. For the period prior to January 1, 2000, the definition of the Firm does not include any hedge fund or SMA program accounts where Lord, Abbett & Co. LLC did not have the records so long as it is impossible for Lord, Abbett & Co. LLC to have the records (within the meaning of relevant GIPS® standards interpretations). Total Firm Assets also exclude separately managed program accounts that involve model delivery.

The number of portfolios and total assets in the Composite, and the percentage of total “firm” assets represented by the Composite at the end of each calendar year for which performance information is provided are as follows:

Dispersion is represented by the asset-weighted standard deviation, a measure that explains deviations of gross portfolio rates of return from the asset-weighted composite return. Only portfolios that have been managed within the Composite style for a full year are included in the asset-weighted standard deviation calculation. The measure may not be meaningful (N/A) for composites consisting of five or fewer portfolios or for periods of less than a full year.

The performance of the Composite is shown net and gross of advisory fees and reflects the deduction of transaction costs. The deduction of advisory fees and expenses (and the compounding effect thereof over time) will reduce the performance results and, correspondingly, the return to an investor. Net performance of the Composite as presented in the table on the previous page reflects the deduction of a “model” advisory fee, calculated as the highest advisory fee, borne by any account (without giving effect to any performance fee that may be applicable) in the Composite (an annual rate of 0.28% of assets) and other expenses (including trade execution expenses). For example, if $10 million were invested and experienced a 10% compounded annual return for 10 years, its ending dollar value, without giving effect to the deduction of the advisory fee, would be $25,937,425. If an advisory fee of 0.28% of average net assets per year for the 10-year period were deducted, the annual total return would be 9.69% and the ending dollar value would be $25,284,711. The separate account management fee schedule is as follows: 0.28% on the first $50 million, 0.20% on the next $100 million, 0.16% on the next $350 million, and 0.14% on all assets over $500 million. The Pooled Fund management fee schedule is as follows: 0.19% on the first $50 million, 0.17% on the next $50 million, 0.15% on the next $100 million, 0.13% on the next $250 million, 0.11% on the next $500 million, and 0.09% on all assets over $1 billion. The Pooled Fund expense ratio is 0.27%. Net-of-fee performance reflects the deduction of the highest applicable institutional advisory fee that would be charged to a new institutional client account based on the current fee schedule for this strategy. The composite includes one or more registered investment companies sponsored by Lord Abbett (“Lord Abbett Funds”) that are subject to fees and expenses that would be inapplicable to an institutional client account. Therefore, the actual performance of Lord Abbett Fund accounts included in the composite may be lower than the net-of-fee composite performance presented. Fees and expenses applicable to the Lord Abbett Funds are disclosed in each Fund’s Prospectus, which is available upon request. Past performance does not guarantee future results. Certain securities held in portfolios contained in this composite may have valuations determined using both subjective observable and subjective unobservable inputs. The Firm’s valuation hierarchy does not materially differ from the hierarchy in the GIPS Valuation Principles. Portfolios in this composite may have sector weights that vary significantly from the Index. Any portfolio with a market value of less than $200 million will be excluded from the composite if the portfolio has an aggregate monthly inflow/outflow equal to or above 15% of the portfolio’s beginning monthly balance. Portfolios removed from composites will be treated as new accounts and will adhere to the standard composite inclusion policy before being re-introduced to the composite.

*Supplemental information includes accounts managed in Lord Abbett’s Core Fixed Income Style by not included in the Composite due to the existence of certain investment restrictions that have a material effect on implementation of Lord Abbett’s investment strategies.

Lord Abbett claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Lord Abbett has been independently verified for the periods 1993-2022. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm's policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. The Core Fixed Income Institutional composite has had a performance examination for the periods 1998-2021. The verification and performance examination reports are available upon request.

The Bloomberg U.S. Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade, fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.

Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg owns all proprietary rights in the Bloomberg Indices. Bloomberg does not approve or endorse this material or guarantee the accuracy or completeness of any information herein, or make any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, shall not have any liability or responsibility for injury or damages arising in connection therewith.

Past performance is not a reliable indicator or a guarantee of future results. Differences in account size, timing of transactions, and market conditions prevailing at the time of investment may lead to different results among accounts. Differences in the methodology used to calculate performance also might lead to different performance results than those shown. Composite performance is compared to that of an unmanaged index, which does not incur management fees, transaction costs, or other expenses associated with a managed account.

GIPS is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein.

GIPS Report

The Global Investment Performance Standards (GIPS®) compliant performance results shown represent the investment performance record for the Lord, Abbett & Co. LLC (Lord Abbett) Short Duration Income Institutional Composite. This composite is comprised of all fully discretionary portfolios managed on behalf of institutional investors investing primarily in taxable short duration investment grade debt securities of various types. The portfolios may also invest in lower-rated debt securities, including non-U.S. debt securities denominated in foreign currencies and floating or adjustable-rate senior loans. Effective July 1, 2022, only accounts that may invest in treasury futures may be in included in the composite. Effective November 2017, only accounts with a value of $40 million or more are included in the composite. Effective July 2014, only accounts with an initial value of $100 million or more are included in the composite. Prior to February 2022, the composite was named the Short Duration Credit Institutional Composite. Effective January 2018, accounts funded on or before the 15th of the month will be included in the Composite effective the first day of the first following month. Accounts funded after the 15th of the month will be included effective on the first day of the second following month. Prior to January 2018, other than registered investment companies sponsored by Lord Abbett, accounts opened/funded on or before the 15th day of the month were included in the Composite effective the first day of the second following month and accounts opened/funded after 15th of the month were included effective on the first day of the third following month. Registered investment companies sponsored by Lord Abbett are included in the Composite in the first full month of management. Closed accounts are removed from the Composite after the last full month in which they were managed in accordance with applicable objectives, guidelines, and restrictions. Performance results are expressed in U.S. dollars and reflect reinvestment of any dividends and distributions. The Composite was created and incepted in 2008. A list of all composite and pooled fund investment strategies oﬀered by the ﬁrm, with a description of each strategy, is available upon request. The type of portfolios in which each strategy is available (segregated account, limited distribution pooled fund, or broad distribution pooled fund) is indicated in the description of each strategy. Policies for valuing investments, calculating performance, and preparing GIPS Report are available upon request.

The performance of the Composite is shown net and gross of advisory fees and reflects the deduction of transaction costs. The deduction of advisory fees and expenses (and the compounding effect thereof over time) will reduce the performance results and, correspondingly, the return to an investor. Net performance of the Composite as presented in the table on the previous page reflects the deduction of a “model” advisory fee, calculated as the highest advisory fee, borne by any account (without giving effect to any performance fee that may be applicable) in the Composite (an annual rate of 0.20% of assets from April 1, 2017 forward, prior to April 1, 2017 an annual rate of 0.24% of assets) and other expenses (including trade execution expenses). For example, if $10 million were invested and experienced a 10% compounded annual return for 10 years, its ending dollar value, without giving effect to the deduction of the advisory fee, would be $25,937,425. If an advisory fee of 0.20% of average net assets per year for the 10-year period were deducted, the annual total return would be 9.78% and the ending dollar value would be $25,469,675. The separate account management fee schedule is as follows: 0.20% on the first $50 million, 0.17% on the next $100 million, 0.15% on the next $100 million, and 0.13% on all assets over $250 million. The Lord Abbett Short Duration Credit Trust II management fee schedule is as follows: 0.19% on the first $50 million, 0.18% on the next $100 million, 0.15% on the next $100 million, 0.14% on the next $1250million, 0.12% on the next $500 million, and 0.10% on all assets over $1 billion. The Lord Abbett Short Duration Credit Trust II total expense ratio is 0.27%. Net-of-fee performance reflects the deduction of the highest applicable institutional advisory fee that would be charged to a new institutional client account based on the current fee schedule for this strategy. The composite includes one or more registered investment companies sponsored by Lord Abbett (“Lord Abbett Funds”) that are subject to fees and expenses that would be inapplicable to an institutional client account. Therefore, the actual performance of Lord Abbett Fund accounts included in the composite may be lower than the net-of-fee composite performance presented. Fees and expenses applicable to the Lord Abbett Funds are disclosed in each Fund’s Prospectus, which is available upon request. Past performance does not guarantee future results. Certain securities held in portfolios contained in this composite may have valuations determined using both subjective observable and subjective unobservable inputs. The Firm’s valuation hierarchy does not materially differ from the hierarchy in the GIPS Valuation Principles. Portfolios in this composite may be managed against an internal index that is constructed utilizing sectors and sub-sectors of publicly available indices. The weights of the sectors and sub-sectors of the internal index may vary over time and differ materially from the sectors and weightings of the benchmark Index.

Lord Abbett claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Lord Abbett has been independently verified for the periods 1993-2022. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm's policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. The Short Duration Income Institutional composite has had a performance examination for the periods 2008-2021. The verification and performance examination reports are available upon request.

The ICE BofA 1–3-year U.S. Corporate Index is an unmanaged index comprised of U.S. dollar-denominated, investment-grade, corporate debt securities publicly issued in the U.S. domestic market with between one and three years remaining to final maturity. Prior to May 2013, the benchmark for the composite was the Bloomberg Barclays Capital 1-3 Year Government/Credit Bond Index. Lord Abbett believes the ICE BofA 1–3-year U.S. Corporate Index is more representative of the investment strategy based on the strategy’s higher allocation to corporate credit and reduced exposure to U.S. Government securities.

Source ICE Data Indices, LLC (“ICE”), used with permission. ICE PERMITS USE OF THE ICE BofA INDICES AND RELATED DATA ON AN "AS IS" BASIS, MAKES NO WARRANTIES REGARDING SAME, DOES NOT GUARANTEE THE SUITABILITY, QUALITY, ACCURACY, TIMELINESS, AND/OR COMPLETENESS OF THE ICE BofA INDICES OR ANY DATA INCLUDED IN, RELATED TO, OR DERIVED THEREFROM, ASSUMES NO LIABILITY IN CONNECTION WITH THE USE OF THE FOREGOING, AND DOES NOT SPONSOR, ENDORSE, OR RECOMMEND LORD ABBETT, OR ANY OF ITS PRODUCTS OR SERVICES.

Past performance is not a reliable indicator or a guarantee of future results. Differences in account size, timing of transactions, and market conditions prevailing at the time of investment may lead to different results among accounts. Differences in the methodology used to calculate performance also might lead to different performance results than those shown. Composite performance is compared to that of an unmanaged index, which does not incur management fees, transaction costs, or other expenses associated with a managed account.

GIPS is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein.

Bloomberg Index Information

Glossary & Index Definitions

Bloomberg U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade, fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis.

Bloomberg U.S. Corporate Index covers publicly issued, investment-grade, U.S. corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity, and quality requirements. To qualify, bonds must be SEC-registered.

Bloomberg 1-3 Year Government/Credit Index is the 1-3-year maturity subset of the Bloomberg Government/Credit Index, which includes securities in the Government and Credit Indices. The Government Index includes treasuries (i.e., public obligations of the U.S. Treasury that have remaining maturities of more than one year) and agencies (i.e., publicly issued debt of U.S. Government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the U.S. Government). The Credit Index includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements.

ICE BofA 1-3 Year U.S. Corporate Bond Index is the 1–3-year maturity subset of the ICE BofA U.S. Corporate Bond Index. The ICE BofA US Corporate Index tracks the performance of US dollar denominated investment grade corporate debt publicly issued and settled in the US domestic market. Qualifying securities must have an 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 $250 million. Original issue zero coupon bonds, 144a securities (with and without registration rights), and pay-in-kind securities (including toggle notes) are included in the index.

Quantitative easing refers to a monetary policy action where a central bank purchases predetermined amounts of government bonds or other financial securities/assets in order to stimulate economic activity.

Hawkish monetary policy focuses on low inflation and may involve raising interest rates, while dovish policy prioritizes low unemployment and may involve lowering rates.

Treasuries are debt securities issued by the U.S. government and secured by its full faith and credit. Income from Treasury securities is exempt from state and local taxes. Although U.S. government securities are guaranteed as to payments of interest and principal, their market prices are not guaranteed and will fluctuate in response to market movements.

Excess returns are the return achieved by a security (or portfolio of securities) above the return of a benchmark. The risk-free rate (i.e., Treasuries) and benchmarks with similar levels of risk to the investment being analyzed are commonly used in calculating excess returns.

Real yield is the stated yield on a fixed-income investment minus the impact from inflation.

Information Ratio measures and compares the active return of an investment compared to a benchmark index relative to the volatility of the active return.

Spread is the percentage difference in current yields of various classes of fixed-income securities versus Treasury bonds or another benchmark bond measure. A bond spread is often expressed as a difference in percentage points or basis points (which equal one-one hundredth of a percentage point). The option-adjusted spread (OAS) is the measurement of the spread of a fixed-income security rate and the risk-free rate of return, which is adjusted to take into account an embedded option. Typically, an analyst uses the Treasury securities yield for the risk-free rate.

A basis point is one one-hundredth of a percentage point.

The Federal Reserve (Fed) is the central bank of the United States. The federal funds (fed funds) rate is the target interest rate set by the Fed at which commercial banks borrow and lend their excess reserves to each other overnight.

Yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth.

Term premium is defined as the compensation that investors require for bearing the risk that interest rates may change over the life of a bond.

Bloomberg Index Information

Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.

Important Information for U.S. Investors

Lord Abbett mutual funds are distributed by Lord Abbett Distributor LLC.

FOR MORE INFORMATION ON ANY LORD ABBETT FUNDS, CONTACT YOUR INVESTMENT PROFESSIONAL OR LORD ABBETT DISTRIBUTOR LLC AT 888-522-2388, OR VISIT US AT LORDABBETT.COM FOR A PROSPECTUS, WHICH CONTAINS IMPORTANT INFORMATION ABOUT A FUND'S INVESTMENT GOALS, SALES CHARGES, EXPENSES AND RISKS THAT AN INVESTOR SHOULD CONSIDER AND READ CAREFULLY BEFORE INVESTING.

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett’s products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product, or service may be appropriate for your circumstances.

Important Information for non-U.S. Investors

Note to Switzerland Investors: In Switzerland, the Representative is ACOLIN Fund Services AG, Leutschenbachstrasse 50, CH-8050 Zurich, whilst the Paying Agent is Bank Vontobel Ltd., Gotthardstrasse 43, CH- 8022 Zurich. The prospectus, the key information documents or the key investor information documents, the instrument of incorporation, as well as the annual and semi-annual reports may be obtained free of charge from the representative. In respect of the units offered in Switzerland, the place of performance is at the registered office of the representative. The place of jurisdiction shall be at the registered office of the representative or at the registered office or domicile of the investor.

Note to European Investors: This communication is issued in the United Kingdom and distributed throughout the European Union by Lord Abbett (Ireland) Limited, UK Branch and throughout the United Kingdom by Lord Abbett (UK) Ltd. Both Lord Abbett (Ireland) Limited, UK Branch and Lord Abbett (UK) Ltd are authorized and regulated by the Financial Conduct Authority.

A decision may be taken at any time to terminate the arrangements made for the marketing of the Fund in any EEA Member State in which it is currently marketed. In such circumstances, Shareholders in the affected EEA Member State will be notified of this decision and will be provided with the opportunity to redeem their shareholding in the Fund free of any charges or deductions for at least 30 working days from the date of such notification.

Lord Abbett (Middle East) Limited is authorised and regulated by the Dubai Financial Services Authority (“DFSA”). The entire content of this document is subject to copyright with all rights reserved. This research and the information contained herein may not be reproduced, distributed or transmitted in any jurisdiction or to any other person or incorporated in any way into another document or other material without our prior written consent. This document is directed at Professional Clients and not Retail Clients. Any other persons in receipt of this document must not rely upon or otherwise act upon it. This document is provided for informational purposes only. Nothing in this document should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction. Nothing contained in this document constitutes an investment, an offer to invest, legal, tax or other advice or guidance and should be disregarded when considering or making investment decisions.

Note to Singapore Investors: Lord Abbett Global Funds I plc (the “Company”) and the offer of shares of each sub-fund of the Company do not relate to a collective investment scheme which is authorized under Section 286 of the Securities and Futures Act, Ch. 289 of Singapore (“SFA”) or recognized under Section 287 of the SFA, and shares in each sub-fund of the Company are not allowed to be offered to the retail public. Pursuant to Section 305 of the SFA, read in conjunction with Regulation 32 of and the Sixth Schedule to the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations 2005 (the “Regulations”), the Lord Abbett Global Multi-Sector Bond Fund, the Lord Abbett High Yield Fund, the Lord Abbett Short Duration Income Fund, the Lord Abbett Ultra Short Bond Fund, the Lord Abbett Climate Focused Bond Fund, the Lord Abbett Emerging Markets Corporate Debt Fund and the Lord Abbett Multi Sector Income Fund have been entered into the list of restricted schemes maintained by the Monetary Authority of Singapore for the purposes of the offer of shares in such sub-funds made or intended to be made to relevant persons (as defined in section 305(5) of the SFA), or, the offer of shares in such sub-funds made or intended to be made in accordance with the conditions of section 305(2) of the SFA. These materials do not constitute an offer or solicitation by anyone in Singapore or any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.

Note to Hong Kong Investors: The contents of this material have not been reviewed nor endorsed by any regulatory authority in Hong Kong. An investment in the Fund may not be suitable for everyone. If you are in any doubt about the contents of this material, you should consult your stockbroker, bank manager, solicitor, accountant or other financial adviser for independent professional advice. The Fund is not authorised by the Securities and Futures Commission ("SFC") in Hong Kong pursuant to Section 104 of the Securities and Futures Ordinance (Cap 571, Laws of Hong Kong) ("SFO"). This material has not been approved by the SFC in Hong Kong, nor has a copy of it been registered with the Registrar of Companies in Hong Kong and, must not, therefore, be issued, or possessed for the purpose of issue, to persons in Hong Kong other than (1) professional investors within the meaning of the SFO (including professional investors as defined by the Securities and Futures (Professional Investors) Rules); or (2) in circumstances which do not constitute an offer to the public for the purposes of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32, Laws of Hong Kong) or the SFO. This material is distributed on a confidential basis and may not be reproduced in any form or transmitted to any person other than the person to whom it is addressed.