In the final quarter of 2025, the Lord Abbett Core Fixed Income Fund demonstrated a return of 1.05%, measured by the net asset value of its Class I shares with all distributions reinvested. This performance placed it slightly below its benchmark, the Bloomberg U.S. Aggregate Index, which yielded 1.10% over the same period. The fund's outcomes were shaped by a mix of contributing and detracting factors, highlighting the complexities of fixed income investing. Specifically, strategic choices within investment-grade corporate bonds proved beneficial, largely driven by strong performance in the Consumer sector. Conversely, selections in agency commercial mortgage-backed securities (CMBS) had a modest negative impact on overall relative performance.
Amidst the fluctuating market conditions, the fund made deliberate adjustments to its portfolio. A notable shift involved reducing exposure to agency MBS. This decision was influenced by their prior outperformance and the identification of more attractive valuation opportunities in other segments of the market. Concurrently, the fund increased its allocation to non-agency MBS and health care corporate bonds, seeking to capitalize on perceived better value and potential for growth. These adjustments underscore a dynamic investment approach, aiming to optimize returns by actively managing sector exposures and identifying areas with compelling risk-reward profiles.
Quarterly Returns and Market Landscape
The Lord Abbett Core Fixed Income Fund posted a return of 1.05% during the fourth quarter of 2025, assessed through the net asset value of its Class I shares with reinvested distributions. This result lagged behind the Bloomberg U.S. Aggregate Index, which served as the fund's benchmark, achieving a 1.10% return over the identical period. The fixed income market witnessed specific shifts, including a decrease in the 2-year U.S. Treasury Yield from 3.61% to 3.48%, while the 10-year U.S. Treasury Yield marginally increased from 4.15% to 4.17%. The 2-10 U.S. Treasury Yield Spread expanded from 54 to 69 basis points, reflecting changes in investor expectations for short-term versus long-term interest rates. This divergence in bond yields played a role in shaping the overall market environment for fixed income investments.
Analysis of the fund's performance drivers revealed that security selection within agency commercial mortgage-backed securities unfavorably influenced relative returns. Conversely, careful selection within investment-grade corporate bonds positively contributed to performance, particularly benefiting from holdings in the Consumer sector. The strategic allocation and security choices across various fixed income segments are critical for navigating market dynamics. These quarterly results provide insight into the fund's positioning relative to its benchmark and the broader market, emphasizing the nuanced impact of sector-specific decisions and evolving yield curves on portfolio outcomes in the fixed income landscape.
Portfolio Adjustments and Sector Performance
In response to observed sector performance and evolving valuations, the Lord Abbett Core Fixed Income Fund implemented several key portfolio adjustments during the fourth quarter of 2025. A primary change involved strategically reducing the fund's exposure to agency commercial mortgage-backed securities (MBS). This decision was prompted by the strong prior outperformance of these securities, which suggested they had become less attractive from a valuation perspective, encouraging reallocation to areas offering better potential returns and risk profiles. The management actively sought to optimize the portfolio's composition by shifting capital towards more promising opportunities.
Simultaneously, the fund increased its allocations to non-agency MBS and corporate bonds within the Health Care sector. This move reflected a belief in the enhanced value and growth prospects within these segments. The non-agency MBS market offered diversification and potentially higher yields, while the Health Care corporate sector was identified for its stability and potential for capital appreciation, contributing positively to the fund's relative performance. These tactical shifts underscore a proactive management approach, continuously evaluating market conditions to position the fund for optimal returns while managing risk across different fixed income categories.
