Q1 2022 Putnam Growth Opportunities Fund Q&A
- Companies across most industries and sectors faced issues such as supply chain disruptions and higher costs for energy, labor, and materials.
- We stayed focused on companies we believe can grow at above-market rates across a full economic cycle.
- We could see a wider range of stock price outcomes in 2022, which would be favorable for our active management strategy.
How were investing conditions in the first quarter, and how did large-cap stocks fare?
It was a challenging quarter for large-cap growth stocks. Companies across most industries and sectors faced issues such as supply chain disruptions and higher costs for energy, labor, and materials. Concerns about Covid-19 variants and Russia's invasion of Ukraine weighed on investor sentiment as well. One of the biggest headwinds for the financial markets was concern about inflation and the potential for several interest-rate hikes in the coming year.
How did you manage the portfolio in this environment?
In a difficult environment for growth stocks, the fund performed in line with its benchmark for the first quarter. In managing the portfolio, we stayed focused on companies we believe can grow at above-market rates across a full economic cycle. This means high-quality companies with strong long-term growth potential and a narrow range of outcomes.
Could you describe some key components of your process?
Despite short-term headwinds, our process remains the same. We continue to prioritize above-market growth across a cycle, regardless of the economic backdrop. We focus on the return profiles of businesses we invest in, including return on invested capital, industry structure, and pricing power. We also prioritize an ownership culture, which includes insider ownership, divisional accountability, and managers who act like owners. We seek businesses with high levels of recurring revenue, long-term customer contracts, the ability to set prices, and a lack of customer concentration.
What is your outlook as we begin a new quarter?
Looking ahead, we believe equity markets will remain volatile and growth will become scarcer than it was over the past year, meaning fewer companies will report strong earnings growth. Not all businesses will be able to adequately cope with the effects of inflation, supply chain disruptions, difficult earnings comparisons, and macroeconomic headwinds. As companies navigate this wide array of challenges, it's reasonable to assume we'll see a wider range of stock price outcomes in 2022 than in typical years. We believe this will be a favorable environment for our active management strategy because we focus on stocks with a narrower range of likely outcomes.
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.
Putnam Retail Management.