Key takeaways for your client conversations:
Even in challenging markets, stocks alone give investors the high-performance potential to achieve major financial goals.
Girding a stock portfolio for uncertainty means using active strategies that offer valuable risk-management flexibility.
In a slow-growth world, selection strategies should focus on earnings and balance-sheet strength.
Low economic growth, rising geopolitical instability, and elevated financial market volatility — in short, the conditions seen over and over again in the past decade — can give any investor reason to consider staying away from the equity market. Still, big financial goals may require the sort of returns that no asset class besides stocks has historically provided.
We believe investors can invest in stocks with confidence despite the headwinds slowing the global economy. And in choppy markets, we believe that active investment management is quite valuable. When clouds appear on the horizon, equity analysts take a second and third look at their assumptions about the stocks held in a portfolio, and change positions if needed.
Choose earnings and balance sheet strength
At Putnam, our fundamental equity research operates on the belief that over longer time frames, earnings matter most in the determination of stock prices. That is why we spend the bulk of our time trying to get the earnings picture right while analyzing companies from many angles.
Of course, earnings are not the only factor we consider. In today’s sluggish growth environment in the global economy, we are also focused on key facets of company strength, including balance-sheet flexibility, market-share advantage, and superior technological attributes. Perhaps not surprisingly, such health is not currently in abundance in U.S. or non-U.S. markets — which is another reason why we consider active selection strategies to be so valuable.
All funds involve different levels of risk, have different fees and expenses, and have different objectives that you should consider before investing. Absolute return funds have fewer limitations on where they can invest as compared with traditional funds. They have the ability to move among security types (i.e., stocks, bonds, cash, and alternatives), capitalization ranges, styles, durations, credit qualities, and geographic regions. This flexibility in terms of asset allocation offers the advantage of improved portfolio diversification as compared with many traditional funds. Absolute return funds also may have additional risks that traditional funds might not incur such as investing in derivatives and commodities, and from the use of leverage. Absolute return funds are not intended to outperform stocks and bonds during strong market rallies. Draft - content not finalized. Thursday, May 12, 2016 at 11:28:04 AM. Diversification does not guarantee a profit or ensure against loss. It is possible to lose money in a diversified portfolio.