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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.
INVESTING IN INNOVATION:
THE NEW CORE EQUITY ASSET CLASS
March 2020
Brian Foerster, CFA
Investment Strategist
1
OUR FIRM
Data as of 12/31/2019 *Includes approximately $1.2 billion for which Lord Abbett provides investment models to managed account sponsors.
Independent, privately held firm
46 partners
Assets under management: $205.2B*
164 investment professionals with an average of 17 years of industry experience
Our Firm
A singular focus on the
management of money
since 1929
INVESTMENT-LED. INVESTOR-FOCUSED.
Our Differentiators
Independent Perspective
Commitment to Active Management
Intelligent Product Design
Our Mission
Delivering superior
long-term investment
performance and a client
experience that exceeds
expectations
AT A GLANCE
JERSEY CITY LONDON DUBLIN PARIS MONTEVIDEO TOKYO
2
THIS PRESENTATION
3
The Innovation Premium
Myopic Investor behavior since the Financial Crisis
Innovation and Underappreciated Growth
Investing in Innovation
OPTIMISM IN INVESTING: RE-FRAMING OUR PERSPECTIVE
4
“A pessimist sees the difficulty in every opportunity,
an optimist sees the opportunity in every difficulty”
Winston Churchill
“I have observed that not the man who hopes when
others despair, but the man who despairs when others hope,
is admired by a large class of persons as a sage”
John Stuart Mill
“Our country’s dynamism and resiliency have
repeatedly made fools of naysayers”
Warren Buffett, 2003
THE RELATIONSHIP BETWEEN VALUE AND INNOVATION
A More Complete View of Equity Investing
5
1960 – 1990 Golden Age of
Value Investing
The Value Premium
Revolution of the
Brain: Asset-light
businesses, Mis-
priced R&D,
Darwinian
competition
LOOKING THROUGH THE LENS OF GROWTH RATHER THAN VALUATION
At the start of those three-year time periods, the stocks of these top 10%
revenue growers had 2.2x the P/E ratios of the bottom 90% on average, yet
they returned over 21% more on average.
Source: FactSet, Lord Abbett research. Most recent data available. *Universe includes all U.S. domiciled companies with a market capitalization of greater than $10 billion as of 12/31/2019. The historical data are for illustrative purposes only, do not represent the performance of any specific portfolio managed by Lord Abbett or any particular investment, and are not intended to predict or depict future results. Due to market volatility, the market may not perform in a similar manner in the future.
REVENUE GROWTH COMPARISION: TOP 10% OF COMPANIES VS. THE BOTTOM 90%* (AS OF 12/31/2019)
Trailing 3-Year
Earnings Growth
P/E Ratios
Three Years Ago
Trailing 3-Year
Cumulative Returns
Top 10% Bottom 90% Top 10% Bottom 90% Top 10% Bottom 90%
2005 89% 20% 40.4 21.9 278% 70%
2006 58% 20% 27.9 20.5 178% 55%
2007 73% 15% 19.9 18.6 284% 60%
2008 25% 8% 25.4 16.5 18% 3%
2009 23% 2% 25.1 17.1 57% 3%
2010 22% 3% 30.9 18.0 33% 2%
2011 32% 9% 18.3 12.0 238% 65%
2012 40% 15% 29.5 17.7 110% 47%
2013 19% 10% 26.8 14.9 106% 72%
2014 30% 3% 29.1 13.5 195% 94%
2015 55% 4% 39.6 16.3 217% 70%
2016 38% 1% 48.1 17.5 69% 39%
2017 67% 4% 71.1 19.7 186% 47%
2018 58% 8% 77.0 21.2 97% 45%
2019 24% 3% 68.8 21.3 141% 77%
Average 13% 3% 38.5 17.8 35% 14%
Since 2005, the top 10% of revenue growers averaged 4
times higher earnings growth on a trailing three-year basis
when compared to the bottom 90% of revenue growers.
4x Higher
Earnings Growth 2x Starting P/E Ratio 2.5x Return
6
GROWTH INDEXES FAIL TO REPRESENT GROWTH AND INNOVATION
MANY COMPANIES IN THE TOP 20 ARE SLOW-GROWTH AND HIGH-YIELDING (AS OF 12/31/2019)
Source: FactSet. Top 20 companies in the Russell 1000 Growth Index, by market capitalization. *Historical 3-Year Sales Growth data as of 12/31/2019. **Alphabet, Inc. Class A and Class C share holdings have been combined. Price to earnings FY1 ratio shown is an average of the two share classes.
The historical data are for illustrative purposes only, do not represent the performance of any specific portfolio managed by Lord Abbett or any particular investment, and are not intended to predict or depict future results. The securities and data are for information only. It does not constitute a recommendation or an offer for a particular security, nor should it be taken as a solicitation or recommendation to buy or sell securities or other investments, and should not be used as the basis for any investment decision. Due to market volatility, the market may not perform in a similar manner in the future.
Company Dividend Yield (%)
Historical 3-Year Sales
Growth (%)* Price to Earnings FY1
Apple, Inc. 1.0 7.6 22.6
Microsoft Corporation 1.2 14.9 29.3
Alphabet, Inc. Class A & C** -- 19.9 28.8
Amazon.com, Inc. -- 25.0 89.4
Facebook, Inc. Class A -- 34.0 32.2
Visa, Inc. Class A 0.6 14.8 30.3
UnitedHealth Group Incorporated 1.4 9.4 19.6
MasterCard Incorporated Class A 0.4 15.7 38.8
Merck & Co., Inc. 2.5 2.9 17.6
Cisco Systems, Inc. 2.9 2.1 14.8
Boeing Company 2.5 1.4 1,221.0
PepsiCo, Inc. 2.8 0.9 24.8
Adobe, Inc. -- 24.1 33.6
Coca-Cola Company 2.9 -10.7 26.3
NVIDIA Corporation 0.3 17.7 42.2
Home Depot, Inc. 2.5 5.9 21.7
Netflix, Inc. -- 28.8 96.2
Salesforce.com, Inc. -- 26.1 56.1
Accenture Plc Class A 1.1 7.6 26.8
Amgen, Inc. 2.4 3.3 16.5
7
8
Myopia:
Investor Behavior Since
the Great Recession
MUTUAL FUND INVESTORS HAVE FLED GROWTH SINCE 2007
Source: Simfunds, Factset
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. For illustrative purposes only and does not represent any specific portfolio managed by Lord Abbett or any particular investment.
9
-$50,000
$0
$50,000
$100,000
$150,000
$200,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
All Growth Funds Net Flows ($mm) U.S. Equity Fund Flows All ($mm)
-$150,000
-$100,000
-$50,000
$0
$50,000
$100,000
$150,000
$200,000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Year All Growth Funds Net
Flows ($mm)
U.S. Equity Fund Flows
All ($mm)
2000-2008 $231,005 $908,140
2009-2019 $ (493,088) $86,238
EVEN MORE EQUITY OUTFLOWS FROM INSTITUTIONAL PLANS
10
Institutional Assets Totals 2005-2007 Totals 2008-2019
U.S. Equity Value Active ($73,677) ($307,018)
U.S. Equity Value Passive ($214) ($6,384)
U.S. Equity Growth Active ($47,961) ($334,627)
U.S. Equity Growth Passive $680 ($9,592)
U.S. Equity Blend Active ($38,534) ($237,978)
U.S. Equity Blend Passive ($36,133) ($129,068)
U.S. Equity Passive ($41,985) ($189,446)
U.S. Equity Active ($142,740) ($1,102,241)
U.S. Equity All ($184,725) ($1,291,687)
Source: eVestment, Lord Abbett. Data through December 31, 2019; data includes all reported net flows from defined benefit plans (corporate and public). For illustrative purposes only and does not represent any specific portfolio managed by Lord Abbett or any particular investment.
(200,000)
(150,000)
(100,000)
(50,000)
0
50,000
100,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
U.S. Equity Annual Flows - Active vs. Passive ($M)
Active Passive
NARRATIVES THAT DRIVE TODAY’S PESSIMISM
This longest
bull market
ever will end
badly, as in
2000 and
2008
Equities are
overvalued,
especially
tech…this is
looking like
1999 all over
again!
Dysfunctional
global politics
and
economic
uncertainties
make risk
assets
unattractive
Bonds and
Low-Vol
investments
are much
safer places
to invest
11
INVESTORS HAVE DEMONSTRATED A BIAS FOR SAFETY?
12
Many traditionally high dividend yield sectors are relatively expensive
Source: FactSet. Data as of 12/31/2019. The price/earnings to growth ratio (PEG ratio) is a stock's price-to-earnings (P/E) ratio divided by the growth rate of its earnings for a specified time period.
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.
1.21
1.23
1.25
1.58
1.77
1.77
1.90
2.65
2.94
3.00
3.75
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Information Technology
Consumer Discretionary
Communication Services
Health Care
Materials
Industrials
Financials
Consumer Staples
Real Estate
Utilities
Energy
LAST 12 MONTH S&P 500 DIVIDEND YIELD BY SECTOR PEG RATIO BY
SECTOR
3.19
3.35
2.24
3.20
1.49
1.84
1.71
1.67
1.36
1.52
1.45
Investing in Innovation
13
GROWTH INVESTING IN THE AGE OF INNOVATION
The Technology
Revolution
The Processing
Machines
Software
Artificial Intelligence
The Genomics
Revolution
Biotechnology
Medical devices
Diagnostics
U.S. Mass
Consumerism
eCommerce
Social Networks
Hierarchy Enhancers
5
4
3
2
1
Maslow’s Hierarchy of Needs
Self-actualization
Self-esteem
Love and belonging
Safety and security
Physiological needs
14
CHARACTERISTICS OF SUCCESSFUL INNOVATORS
15
A search for disruptors
Target new markets that offer open-ended growth opportunities
Grab and maintain competitive advantage through aggressive investment
Singular focus that enables scalability
Management has maniacal drive
Most prevalent in consumer discretionary, healthcare and technology
Many fail and all eventually cease to grow
Disruptor
Characteristics
The information provided is based on Lord Abbett's belief of characteristics commonly associated with successful innovative companies. Not all companies that exhibit these characteristics will be successful.
DIGITIZATION OF SOCIETY: THE TECHNOLOGY REVOLUTION
16
The Kurzweil Curve Moore’s Law is just the beginning: The power of technology will keep growing exponentially, says Kurzweil. By 2050,
you’ll be able to buy a device with the computational capacity of all mankind for the price of a nice refrigerator today
Source: Data from Ray Kurzweil. For illustrative purposes only. Based on theoretical growth rates up until 2075.
1900 1925 1950 1975 2001 ‘10 ‘23 2050 2075 10-10
1
1010
1020
1030
1040
Hollerith Tabulator
Bell Calculator Model I
Univac I
Apple Mac II
Kurzweil’s
projected
Trend line
Years by which, according to Kurzweil, $1,000 of
computation will equal (or has already equaled)
the intelligence of…
Computer performance Plotted by number of calculations per second per $1,000
…one insect brain
…one mouse brain
…one human brain
…all human brains
Computer Type
INNOVATION IN TECHNOLOGY: GROWTH IN CLOUD SOFTWARE & AI
17
WORLDWIDE SPENDING ON PUBLIC CLOUD
COMPUTING, 2015-2020 ($B)
WORLDWIDE SPENDING ON ARTIFICIAL
INTELLIGENCE, 2015-2020 ($B)
Source: Cloud software spending: IDC, 2016; data past 2016 represents projections. Worldwide Spending on Artificial Intelligence: BofA Merrill Lynch Research Estimates, 2017; data past 2017 represents projections.For illustrative purposes only.
$67
$82
$99
$117
$138
$162
2015 2016 2017 2018 2019 2020 0
20
40
60
80
100
120
140
2015 2020 2025
Artificial Intelligence Software
Articial Intelligence Hardware
Artificial Intelligence Services
$2 Billion
$36 Billion
$127 Billion
Cloud software annualized spending: 19%
IT Spending overall annualized: 3%
Actual 2019: $228
Billion
TECHNOLOGY INNOVATORS
The information shown is for illustrative purposes only and does not constitute a recommendation or an offer for a particular security, nor should it be taken as a solicitation or recommendation to buy or sell securities or other investments, and should not be used as the basis for any investment decision. The securities of the referenced issuers may or may not be held in portfolios managed by Lord Abbett and, if such securities are held, no representation is being made that such securities will continue to be held. It should not be assumed that an investment in the securities of any of the issuers shown were or will be profitable.
Company
Twilio
Microsoft
Nvidia
RingCentral
Shopify
Company
EPAM Systems
The Trade Desk
Mastercard
DocuSign
HubSpot
Keysight Technologies
18
“The U.S. Consumer Society Has No Historical Precedent”
Niall Ferguson, ‘Civilization, The West and the Rest’
THE HIERARCHY OF NEEDS STILL DOMINATES OUR CONSUMPTION
19 Source: Abraham Maslow in his 1943 paper "A Theory of Human Motivation" in Psychological Review.
5
4
3
2
1
Maslow’s Hierarchy of Needs
Self-actualization
Self-esteem
Love and belonging
Safety and security
Physiological needs
Morality, creativity, spontaneity, problem solving,
lack of prejudice, acceptance of facts
Self-esteem, confidence, achievement,
respect of others
Friendship, family, intimacy
Security of body, of employment, of
resources, of morality, of the family,
of health, of property
Breathing, food, water, sleep
ECOMMERCE IS STILL VERY YOUNG
1.9 2.5
4.9 4.1
14.0 14.8
15.6 15.3
0%
5%
10%
15%
20%
25%
2015 2016 2017 2018
Sa
les G
row
th
Total Retail
Online
3.2x
total retail 7.3x
total retail
5.9x
total retail
3.7x
total retail
ONLINE SALES GROWTH VS RETAIL
Source: U.S. Census Bureau and Bloomberg. Most recent data available. 1Q18 data are revised estimates. 2Q19 data are preliminary. Estimates are based on data from the Monthly Retail Trade Survey and administrative records. Estimates are adjusted for seasonal variation, but not for price changes. Total sales estimates are also adjusted for trading-day differences and moving holidays. E-commerce sales are sales of goods and services where an order is placed by the buyer or price and terms of sale are negotiated over an Internet, extranet, Electronic Data Interchange (EDI) network, electronic mail, or other online system. Payment may or may not be made online. For illustrative purposes only.
E-COMMERCE AND RETAIL SALES GROWTH (AS OF 08/19/2019)
0%
2%
4%
6%
8%
10%
12%
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
2Q01 2Q04 2Q07 2Q10 2Q13 2Q16 2Q19
mill
ion
s (
$)
U.S. Retail e-Commerce Sales
e-Commerce % of Total
20
CONSUMER DISCRETIONARY INNOVATORS
The information shown is for illustrative purposes only and does not constitute a recommendation or an offer for a particular security, nor should it be taken as a solicitation or recommendation to buy or sell securities or other investments, and should not be used as the basis for any investment decision. The securities of the referenced issuers may or may not be held in portfolios managed by Lord Abbett and, if such securities are held, no representation is being made that such securities will continue to be held. It should not be assumed that an investment in the securities of any of the issuers shown were or will be profitable.
Company
Mercado Libre
Chipotle Mexican Grill
Lululemon Athletica
Live Nation
Nike
New Oriental
Company
Amazon
Alibaba
Tesla
Match.com
Roku
YETI
21
MODERN MEDICINE: THE GENOMICS REVOLUTION
22
1865
Mendel discovers laws
of genetics
1953
Watson and Crick uncover
“double-helix” DNA structure
1971
National
“war on”
Cancer Act 2003
Human Genome
Sequence completed
1990
Human Genome
Project launched
1977
Nobel Prize
for linking
cancer to
genetic
mutation
$95,263,072
$1,121
$100
$1,000
$10,000
$100,000
$1,000,000
$10,000,000
$100,000,000
Se
p-0
1
Se
p-0
2
Se
p-0
3
Se
p-0
4
Se
p-0
5
Se
p-0
6
Se
p-0
7
Se
p-0
8
Se
p-0
9
Se
p-1
0
Se
p-1
1
Se
p-1
2
Se
p-1
3
Se
p-1
4
Se
p-1
5
Se
p-1
6
Cost per Genome
Source: National Human Genome Research Institute. Cost per genome as of 07/31/2017. For illustrative purposes only.
The Genomics Timeline
Less than 0.1% of the U.S./World’s
population has been fully sequenced
U.S. Population
316,000,000
World Population
7,000,000,000
Genomes Sequenced
229,000
DOMINANT GROWTH IN NEW BIOTECH
As of February 2020. Source: Factset, Lord Abbett. For illustrative purposes only and does not represent any specific portfolio managed by Lord Abbett or any particular investment. 23
0
10
20
30
40
50
60
70
80
90
Hist 3Yr Sales Growth
Russell 2000 Growth Pharmaceuticals Biotechnology & Life Sciences
Biotech drug discovery is driving real results for investors
HEALTH CARE INNOVATORS
The information shown is for illustrative purposes only and does not constitute a recommendation or an offer for a particular security, nor should it be taken as a solicitation or recommendation to buy or sell securities or other investments, and should not be used as the basis for any investment decision. The securities of the referenced issuers may or may not be held in portfolios managed by Lord Abbett and, if such securities are held, no representation is being made that such securities will continue to be held. It should not be assumed that an investment in the securities of any of the issuers shown were or will be profitable.
Company
Exact Sciences
Dexcom
GW Pharmaceuticals
Tandem Diabetes Care
Sage Therapeutics
Blueprint Medicines
Company
Illumina
Glaukos
Vertex Pharmaceuticals
Sarepta Therapeutics
Intuitive Surgical
Penumbra
24
25
Investing in Innovation
Requires a momentum approach
ACCESSING INNOVATION WHEN IT IS BEING REWARDED
26
Price
Momentum
Operating
Momentum
Innovators and
Superior Businesses
POTENTIAL
REALIZATION RECOGNITION
Years refers to years of industry experience as of 01/01/2019.
EXPERIENCED PORTFOLIO MANAGEMENT
ACCESS INNOVATION WITH AN EXPERIENCED MANAGEMENT TEAM
27
F. Thomas O’Halloran, J.D., CFA Partner & Portfolio Manager
32 Years
Matthew R. DeCicco, CFA Managing Director & Portfolio
Manager
20 Years
Vernon Bice, CMT Portfolio Manager
18 Years
Ben Ebel
Technology, Telecomm
28 Years
Steve Wortman
Consumer, Industrials,
Financials
22 Years
Samantha Shevins
Health Care
20 Years
So Young Lee
Consumer Staples,
Health Care
20 Years
DEEP RESEARCH ON INNOVATION
Michael Glaccum, CFA
Consumer, Technology
12 Years
THOUGHT LEADERSHIP & INVESTMENT STRATEGY
Brian Foerster, CFA
Investment Strategist
25 Years
FINDING HIGH GROWTH COMPANIES CAN DRASTICALLY IMPACT RESULTS
Revenue Growth P/E Ratios
(Average Starting P/E)
Average Annual
Earnings Growth Annualized Return
Top 10% 38.5 12.8% 35.2%
Bottom 90% 17.8 2.7% 14.4%
Highest Revenue
Growth Companies
have had High P/E Ratios but offered Higher Earnings
Growth
which led to Higher Average
Returns
32.2%
16.5%
0%
10%
20%
30%
40%
32.2%Risk (Standard Deviation)
Top 10% High RevenueGrowth Stock
Growth Leaders Fund
HIGH GROWTH COMPANIES HAVE BEEN WORTH THEIR PREMIUM THREE-YEAR ROLLING AVERAGES (12/31/2005 – 12/31/2019)
HIGH GROWTH STOCKS HAVE BEEN INHERENTLY MORE VOLATILE, ACTIVE MANAGEMENT HAS
HISTORICALLY BEEN CRUCIAL Three-Year Standard Deviation of Returns (12/31/2016 – 12/31/2019)
Source: FactSet and Lord Abbett Research. Based on annual reported earnings.
The average top 10% of high-revenue-growth stocks were chosen by screening all companies with a market capitalization greater than $10 billion at the end of each three-year time period and then stacking the companies according to their revenue growth over that three-year time period. The historical data are for illustrative purposes only, do not represent the performance of any specific portfolio managed by Lord Abbett or any particular investment, and are not intended to predict or depict future results. Due to market volatility, the market may not perform in a similar manner in the future. Past performance is not a reliable indicator or guarantee of future results. 28
APPENDIX
29
IMPORTANT INFORMATION
30
The information contained herein is provided by Lord, Abbett & Co. LLC (“Lord Abbett”). Distribution of this information to any person other than the person to
whom it was originally delivered and to such person’s advisers is unauthorized, and any reproduction of these materials, in whole or in part, or the divulgence of
any of the contents hereof, without the prior consent of Lord Abbett, is prohibited. The information contained herein is current as of the date of issuance (or such
earlier date as referenced herein) and is subject to change without notice. Lord Abbett has no obligation to update any or all of such information. All amounts,
market value information, and estimates included herein have been obtained from outside sources where indicated or represent the good faith judgment of Lord
Abbett. Where such information has been obtained from outside sources, Lord Abbett cannot guarantee the accuracy or completeness of such information.
These materials are not intended to be an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any
investment management services. These materials do not constitute investment advice and should not be used as the basis for any investment
decision.
These materials do not take into account individual client circumstances, objectives, or needs. No determination has been made regarding the suitability of any
securities, financial instruments, or strategies for particular clients or prospects.
References to specific securities and issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to
purchase or sell such securities. The securities referenced may or may not be held in portfolios managed by Lord Abbett and, if such securities are held, no
representation is being made that such securities will continue to be held.
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.
The information in this presentation is only for illustrative purposes and is intended to provide general investment education and is not intended to provide legal, tax or
investment advice.
The views and opinions expressed are as of the date of publication and subject to change based on subsequent developments and may not reflect the views of the firm as a whole.
This material is not intended to be legal or tax advice and is not to be relied upon as a forecast, or research or investment advice regarding a particular investment or the
markets in general, nor is it intended to predict or depict performance of any investment. It should not be assumed that investments in the securities and/or sectors described
were or will be profitable.
IMPORTANT PERFORMANCE AND OTHER INFORMATION
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.
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 (888)
522-2388 or visit us at lordabbett.com. Read the prospectus carefully before you invest.
Mutual funds are not insured by the FDIC, are not deposits or other obligations of, or guaranteed
by banks, and are subject to investment risks including possible loss of principal amount
invested. Lord Abbett Distributor LLC is the principal underwriter of the Lord Abbett Mutual
Funds.
31
