Q2 2021 Putnam Sustainable Funds Q&A
- U.S. stocks recorded a solid second quarter despite intermittent volatility.
- Our latest research report, Investing to thrive, explores insights and themes of our sustainable investing approach (available to financial professionals at Putnam.com/advisor).
- One investment theme, within the overarching category of “Thriving People,” is human health and well-being, with elements of preventive care, chronic disease treatment, and mental health support.
How were investing conditions and how did the funds perform in the second quarter?
U.S. stocks recorded a solid second quarter despite intermittent volatility brought on by concerns about rising inflation and an increasing number of Covid-19 variants. One notable trend has been a similarity in equity performance across styles and regions. For the quarter, both funds delivered solid absolute returns but underperformed their benchmarks slightly.
Your team recently published a report, Investing to thrive, which details themes of your sustainable investing approach. Could you share an example of one of those themes?
Within the overarching category of “Thriving People,” we examine human health and well-being. This theme includes elements of preventive care, chronic disease treatment, and mental health support. Companies that support human health include conventional healthcare products and service providers as well as those that focus on holistic wellness through nutrition and fitness. As of May 2021, this theme represented approximately 16% of the Sustainable Leaders portfolio and 30% of the Sustainable Future portfolio.
One example from chronic disease treatment is our investment in an innovative and growing medical device company that helps individuals monitor and control their blood sugar levels, a key metric for diabetics. Chronic diseases are a significant challenge for individuals and the broader healthcare system. Nearly half of all Americans suffer from at least one chronic disease, and this number is growing. Chronic diseases also account for almost 90% of total healthcare spending and an even larger proportion of public insurance [Medicare and Medicaid] spending.
Can you explain how the United Nations Sustainable Development Goals [SDGs] fit into your research?
The SDGs are a set of 17 global priorities developed by countries, non-governmental organizations, businesses, scientific communities, and other stakeholders. This widely endorsed framework represents a way to assess and address the imminent challenges facing our world. While they are not explicitly devised as an investment framework, the SDGs can serve as a guide for both companies and investors, as they help to assess long-term social and environmental impact.
As investment managers, we believe that an effective, sustainable global economy is essential to the creation of potential long-term value. In our Investing to thrive research paper, we discuss the connections between the companies selected for our portfolios and the priorities reflected in the SDGs.
Could you describe the strategy of Putnam Sustainable Leaders Fund?
The Sustainable Leaders portfolio invests in companies that have demonstrated leadership in the sustainability issues that are financially material to their businesses. Our investment thesis is that companies that exhibit this type of commitment also often demonstrate potential for strong long-term financial performance. The stocks of these companies are typically, but not always, considered to be growth stocks, and often are large cap in size. Some examples of areas where a company might demonstrate leadership include clean and efficient materials use, reductions in environmental intensity, or improvements in workplace equality and diversity.
Could you describe the strategy of Putnam Sustainable Future Fund?
The Sustainable Future portfolio invests in companies whose products and services provide solutions to essential sustainability challenges. Our investment thesis is that solutions-oriented companies with potential to create positive social and environmental impact also demonstrate potential for strong growth and long-term financial performance. The stocks of these companies are typically, but not always, considered to be growth stocks, and are often mid cap or small cap in size. Some examples of areas where a company might offer sustainable solutions include prevention and treatment of chronic disease, access to information and opportunity, growth of the renewable energy supply, or development of the circular economy.
For informational purposes only. Not an investment recommendation.
This material is provided for limited purposes. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, or any Putnam 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. The opinions expressed in this article represent the current, good-faith views of the author(s) at the time of publication. The views are provided for informational purposes only and are subject to change. This material does not take into account any investor’s particular investment objectives, strategies, tax status, or investment horizon. Investors should consult a financial advisor for advice suited to their individual financial needs. Putnam Investments cannot guarantee the accuracy or completeness of any statements or data contained in the article. Predictions, opinions, and other information contained in this article are subject to change. Any forward-looking statements speak only as of the date they are made, and Putnam assumes no duty to update them. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties. Actual results could differ materially from those anticipated. Past performance is not a guarantee of future results. As with any investment, there is a potential for profit as well as the possibility of loss.
Diversification does not guarantee a profit or ensure against loss. It is possible to lose money in a diversified portfolio.
Consider these risks before investing: International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Investments in small and/or midsize companies increase the risk of greater price fluctuations. Bond investments are subject to interest-rate risk, which means the prices of the fund’s bond investments are likely to fall if interest rates rise. Bond investments also are subject to credit risk, which is the risk that the issuer of the bond may default on payment of interest or principal. Interest-rate risk is generally greater for longer-term bonds, and credit risk is generally greater for below-investment-grade bonds, which may be considered speculative. Unlike bonds, funds that invest in bonds have ongoing fees and expenses. Lower-rated bonds may offer higher yields in return for more risk. Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. Commodities involve the risks of changes in market, political, regulatory, and natural conditions. You can lose money by investing in a mutual fund.
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