Q1 2023 Putnam Large Cap Growth Fund Q&A
- After several challenging quarters, large-cap growth stocks delivered solid returns in the first quarter.
- Cost management actions on the part of many businesses should contribute to margin integrity and profitable growth.
- We are optimistic about the innovation we believe will come from traditional growth sectors in the next 3 to 5 years.
What can you tell us about market conditions in the first quarter?
After several challenging quarters, large-cap growth stocks delivered solid returns in the first quarter. Our investing process remained consistent, and we were encouraged to see the market was increasingly attracted to the types of stocks we favor, despite continued macroeconomic challenges.
We focus on companies with strong long-term growth potential and a narrow range of operational and financial outcomes. We look for higher-quality business models and stronger track records that will likely prove more resilient in a wide array of operating and market scenarios.
Do you believe conditions will continue to favor large-cap growth stocks in the months ahead?
Yes, we are optimistic about prospects for large-cap growth. Through most of last year, the types of stocks that outperformed were largely in the value universe or did not meet our specific growth criteria. However, growth stock multiples have pulled back substantially over the past 12 to 18 months. At the same time, forward revenue and earnings growth estimates have come down to more reasonable — less "heroic" — levels. And we are starting to see upside again in consensus growth estimates for the stocks that we own, which is encouraging. Finally, we believe the Federal Reserve will stop its monetary tightening within the next 12 months, and interest rates will stabilize.
For large-cap technology stocks specifically, many companies are no longer chasing every incremental dollar of revenue at any cost. Cost management actions on the part of many businesses should contribute to margin integrity and profitable growth. More broadly, we are optimistic about the innovation we believe will come from traditional growth sectors in the next 3 to 5 years. These sectors include technology, health care, consumer discretionary, and industrials. Conversely, the energy sector is coming off a massive run-up in 2022, and it has pulled back significantly year to date. Another sector with immense year-to-date challenges is financials, particularly some of the less well-capitalized banks.
What insights would you offer to growth investors today?
You have to be present to win. This means staying invested for the long term in good markets and challenging ones. We don't try to identify which day, month, or quarter a stock will outperform. We look for durable growth companies that tend to perform competitively within their industries across a full economic cycle. We also look for companies that offer the powerful combination of an advantaged business model and a capable, properly incentivized management team.
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.
![ESG Materiality: A North Star for multi-asset investors [2023]](/static/img/blogs/perspectives/334257_1200x627.jpg)