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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Elevated front-end yields warrant an emphasis on high-quality securitized credit and defensive carry as technical supply pressures from corporate artificial intelligence financing expand across debt markets."
Lord Abbett Short Duration Income Fund posted a net return of -0.31% for Class I shares during the third quarter of 2026, trailing its benchmark, the ICE BofA 1-3 Year U.S. Corporate Index, which returned -0.17%, but outperforming the Morningstar Short-Term Bond Funds Average of -0.74%. The strategy experienced relative performance headwinds from its longer duration posture as interest rates shifted higher across short-term maturities, alongside softness in agency residential mortgage-backed securities. Detractions were partially offset by positive excess contributions from collateralized loan obligations and non-agency commercial mortgage-backed securities. Portfolio allocations finished the quarter distributed across investment grade corporate bonds at 37.6%, high yield corporate bonds at 12.4%, collateralized loan obligations at 11.9%, asset-backed securities at 10.8%, and commercial mortgage-backed securities at 9.4%. Macroeconomic conditions were defined by sticky inflation and surprising economic resilience, culminating in the Federal Reserve executing a 25 basis point policy rate increase in September. The broader yield curve steepened, with the 2-year Treasury finishing at 4.88% and the 10-year Treasury rising to 5.29% amid fiscal deficit overhangs, robust Treasury issuance, and ongoing geopolitical tensions in the Middle East. Simultaneously, corporate credit spreads reflected a bifurcated technical environment, where investment grade widened by 11 basis points while asset-backed debt tightened by 4 basis points. Portfolio positioning maintains an overweight exposure to corporate credit with a dedicated focus on harvesting high-quality carry rather than chasing capital appreciation. The management team expanded allocations toward high-quality securitized instruments, emphasizing AAA-rated CLOs, commercial real estate CLOs, and conduit CMBS due to superior relative value against compressed corporate debt spreads. Management is also monitoring heavy capital expenditure and debt issuance driven by artificial intelligence development, maintaining dry powder to exploit future technical dislocations.
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