Webcast | Investing for growth in volatile markets | April 8, 2020

Active Equities

Growth Opportunities Fund (Class Y)  (PGOYX)

Seeking to harness the growth potential of large U.S. companies

Growth Opportunities Fund received an  Overall Morningstar Rating™  of  
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Growth Opportunities Fund (PGOYX)

Q1 2020 | Growth Opportunities Fund Q&A

  • After advancing more than 36% in the 2019 calendar year, large-cap growth stocks declined more than 14% in the first three months of 2020.
  • In an extremely challenging quarter, the fund declined less than its Russell 1000 Growth benchmark.
  • Our risk management and portfolio construction strategies proved helpful during the difficult conditions in early 2020.

Equity markets encountered historic levels of declines and volatility in the quarter. How did the fund fare?

It was an extremely volatile and challenging quarter for all equity investors. No segment of the global equity market was immune to the shock of the downturn, but we believe our portfolio entered the period positioned well for the volatility that ensued. For the 2020 first quarter, the fund declined less than its Russell 1000 Growth benchmark.

Large-cap growth stocks, the focus of our fund, held up better than their large-cap value counterparts for the quarter. U.S. large-cap growth stocks — which advanced more than 36% in the 2019 calendar year — declined more than 14% in the first three months of 2020.

Could you tell us about your strategy for investing in difficult conditions like these?

One aspect of our process that served us well in the quarter was portfolio construction. We seek to allocate our risk budget to specific stocks, rather than to sectors or industries. We want individual stock selection to drive performance of the fund. We tend to avoid companies with levered balance sheets, overly cyclical businesses, or commodity-driven businesses. We look for secular winners in growing industries that have pricing power, which enables them to pass on costs in periods of stress.

Many of the businesses we own have subscription bases, long-term contracts, price escalators, and a general lack of customer concentration. We believe these characteristics related to business quality are more present in our portfolio than they are in the benchmark index.

Could you describe some of your risk management strategies?

We look at prior downside capture when evaluating holdings for the portfolio, and we gravitate toward companies that have a narrow range of financial outcomes. We analyze both the opportunities and the vulnerabilities of the business. We are fixated on the duration and durability of growth as much as we are on the absolute level of growth for a given business. We believe this differentiates us from our peers and has helped the fund through challenging markets.

A thematic overlay is a distinct feature of your investment process. Which growth themes have been beneficial in the current environment?

We currently have a dozen themes in the portfolio. In our view, the themes are multi-year growth drivers, with secular tailwinds that allow many of the companies in the portfolio to grow even in a stressed macroeconomic environment like we have today.

One example is controlled distribution. This is based on the idea that companies with a direct channel to their end customers will outperform their peers over time. This theme encompasses a diverse set of companies, and the benefits include the opportunity to manage inventory, to sense real-time changes in demand, to alter promotional activity, and to manage costs in a difficult environment.

As the COVID-19 crisis escalated, another key theme was cloud computing. This is the infrastructure that enables distance learning, business communication and productivity tools, social media, and gaming. In the first quarter, we witnessed a significant rise in the adoption of public cloud systems as demand soared from businesses, schools, and consumers. We believe these demand drivers are likely to persist through the remainder of the downturn and into the recovery and normalization phases.

| Download the complete Q1 2020 fund Q&A

Highlights

Objective

The fund seeks capital appreciation.

Strategy and process

  • Seeks above-average growth: The fund focuses on businesses that exhibit both a high level of growth and an above-average duration of growth.
  • A thematic approach: The portfolio managers combine top-down investment themes with bottom-up research to select securities that can benefit from growth trends.
  • Rigorous analysis: Backed by fundamental research, the managers focus on identifying management teams that act like owners.

Fund price

 Yesterday’s close 52-week high 52-week low
Net asset value $48.75
2.12% | $1.01 		$48.75
07/06/20 		$32.19
03/23/20
(Optional)

Fund facts as of 06/30/20

Total net assets
$7,108.72M
Turnover (fiscal year end)
40%
Dividend frequency
Annually
Number of holdings
56
Fiscal year-end
July
CUSIP / Fund code
746802586 / 1848
Inception date
07/01/99
Category
Growth
Open to new investors
Ticker
PGOYX

Management team

Richard E. Bodzy

Portfolio Manager

Gregory D. McCullough, CFA

Portfolio Manager, Analyst

Literature

Behavioral shifts bring investment opportunities
Many businesses that have been resilient and strong during the COVID-19 crisis are likely to become even stronger in the aftermath.
Investing for growth in volatile markets
Putnam portfolio managers discuss managing risk and finding investment opportunities in challenging markets.

Performance

  • Total return (%) as of 06/30/20

  • Annual performance as of 06/30/20

Annualized Total return (%) as of 06/30/20

Annualized performance 1 yr. 3 yrs. 5 yrs. 10 yrs.
Before sales charge 25.64% 22.05% 17.37% 17.84%
After sales charge N/A N/A N/A N/A
Russell 1000 Growth Index 23.28%18.99%15.89%17.23%

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary, and you may have a gain or loss when you sell your shares. Performance assumes reinvestment of distributions and does not account for taxes. Returns before sales charge do not reflect the current maximum sales charges as indicated below. Had the sales charge been reflected, returns would be lower. Returns at public offering price (after sales charge) for class A and class M shares reflect the current maximum initial sales charges of 5.75% and 3.50% for equity funds and 4.00% and 3.25% for income funds (2.25% for class A of Putnam Floating Rate Income Fund, Short-Term Municipal Income, Short Duration Bond Fund, and Fixed Income Absolute Return Fund), respectively. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter (except for Putnam Floating Rate Income Fund, Putnam Short Duration Bond Fund, Putnam Fixed Income Absolute Return Fund, and Putnam Short-Term Municipal Income Fund, which is 1% in the first year, declining to 0.5% in the second year, and is eliminated thereafter). Class C shares reflect a 1% CDSC the first year that is eliminated thereafter. Performance for class B, C, M, N, R, and Y shares prior to their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and, except for class Y shares, the higher operating expenses for such shares (with the exception of Putnam Tax-Free High Yield Fund and Putnam AMT-Free Municipal Fund, which are based on the historical performance of class B shares). Performance for class A, C, R6, and Y shares of Putnam Mortgage Opportunities Fund before their inception is derived from the historical performance of class I shares, which have been adjusted for the applicable sales charge (or CDSC) and the higher operating expenses for such shares. Returns at public offering price (after sales charge) for class N shares reflect the current maximum initial sales charge of 1.50%. Class R5/R6 shares, available to qualified employee-benefit plans only, are sold without an initial sales charge and have no CDSC. Class Y shares are generally only available for corporate and institutional clients and have no initial sales charge. Performance for class R5/R6 shares before their inception are derived from the historical performance of class Y shares, which have not been adjusted for the lower expenses; had they, returns would have been higher. Class A shares of Putnam money market funds have no initial sales charge. For a portion of the period, some funds had expenses limitations or had been sold on a limited basis with limited assets and expenses, without which returns would be lower.

Performance snapshot

  Before sales charge After sales charge
1 mt. as of 06/30/20 4.57% -
YTD as of 06/30/20 14.46% -

Risk-adjusted performance as of 05/31/20

Alpha (3 yrs.) 3.73
Sharpe ratio (3 yrs.) 1.11
Treynor ratio (3 yrs.) 19.49
Information ratio (3 yrs.) 1.04

Volatility as of 05/31/20

Standard deviation (3 yrs.) 16.65%
Beta 0.95
R-squared 0.97

Capture ratio as of 05/31/20

Up-market (3 yrs.) 102.47
Down-market (3 yrs.) 90.13

Lipper rankings as of 05/31/20

Time period Rank/Funds in category Percentile ranking
1 yr. 109/631 18%
3 yrs. 40/595 7%
5 yrs. 33/526 7%
10 yrs. 38/414 10%
Lipper category: Large-Cap Growth Funds

Morningstar Ratings™ as of 05/31/20

Time period Funds in category Morningstar Rating™
Overall 1244
3 yrs. 1244
5 yrs. 1084
10 yrs. 814
Morningstar category: Large Growth

Distributions

Record/Ex dividend date 12/05/19
Payable date 12/09/19
Income --
Extra income --
Short-term cap. gain --
Long-term cap. gain $1.497

Lipper rankings are based on total return without sales charge relative to all share classes of funds with similar objectives as determined by Lipper. Past performance is not indicative of future results.

The Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

The up-market capture ratio is used to evaluate how well an investment manager performed relative to an index during periods when that index has risen. The ratio is calculated by dividing the manager’s returns by the returns of the index during the up-market, and multiplying that factor by 100. The down-market capture ratio is used to evaluate how well an investment manager performed relative to an index during periods when that index has dropped. The ratio is calculated by dividing the manager’s returns by the returns of the index during the down-market and multiplying that factor by 100.

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Holdings

Microsoft Corp 9.90%
Apple 7.77%
Amazon.Com 7.45%
Alphabet 4.78%
Paypal Holdings 3.51%
Visa 3.48%
UnitedHealth Group 2.72%
Mastercard 2.58%
Adobe 2.46%
Nvidia Corp 2.45%
Top 10 holdings, percent of portfolio 47.10%

Portfolio composition as of 05/31/20

Common stock 98.80%
Cash and net other assets 1.20%

Equity statistics as of 05/31/20

Median market cap $82.04B
Weighted average market cap $495.35B
Price to book 9.29
Price to earnings 34.25

Fund characteristics will vary over time.

Due to rounding, percentages may not equal 100%.

Consider these risks before investing: Growth stocks may be more susceptible to earnings disappointments, and the market may not favor growth-style investing. The value of investments in the fund's portfolio may fall or fail to rise over extended periods of time for a variety of reasons, including general economic, political or financial market conditions, investor sentiment and market perceptions, government actions, geopolitical events or changes, and factors related to a specific issuer, geography, industry or sector. These and other factors may lead to increased volatility and reduced liquidity in the fund's portfolio holdings. From time to time, the fund may invest a significant portion of its assets in companies in one or more related industries or sectors, which would make the fund more vulnerable to adverse developments affecting those industries or sectors. Our investment techniques, analyses, and judgments may not produce the outcome we intend. The investments we select for the fund may not perform as well as other securities that we do not select for the fund. We, or the fund's other service providers, may experience disruptions or operating errors that could have a negative effect on the fund. You can lose money by investing in the fund.

Top industry sectors as of 05/31/20

Information technology 41.30%
Consumer discretionary 14.81%
Health care 14.59%
Communication services 10.15%
Industrials 7.30%
Real estate 2.99%
Financials 2.87%
Consumer staples 2.86%
Materials 1.93%
 
Other		 1.20%
Cash and net other assets 1.20%

The unclassified sector (where applicable) includes exchange traded funds and other securities not able to be classified by sector.

Sectors will vary over time.

Expenses

Expense ratio

 Class A Class B Class C Class R Class R5 Class R6 Class Y
Total expense ratio 1.03% 1.78% 1.78% 1.28% 0.76% 0.66% 0.78%
What you pay 1.03% 1.78% 1.78% 1.28% 0.76% 0.66% 0.78%

Sales charge

 Breakpoint Class A Class B Class C Class R Class R5 Class R6 Class Y
$0-$49,999 5.75% / 5.00% 0.00% / 4.00% 0.00% / 1.00% -- -- -- --
$50,000-$99,999 4.50% / 3.75% 0.00% / 4.00% 0.00% / 1.00% -- -- -- --
$100,000-$249,999 3.50% / 2.75% -- 0.00% / 1.00% -- -- -- --
$250,000-$499,999 2.50% / 2.00% -- 0.00% / 1.00% -- -- -- --
$500,000-$999,999 2.00% / 1.75% -- 0.00% / 1.00% -- -- -- --
$1M-$4M 0.00% / 1.00% -- -- -- -- -- --
$4M-$50M 0.00% / 0.50% -- -- -- -- -- --
$50M+ 0.00% / 0.25% -- -- -- -- -- --

CDSC

  Class A (sales for $1,000,000+) Class B Class C Class R Class R5 Class R6 Class Y
0 to 9 mts. 1.00% 5.00% 1.00% -- -- -- --
9 to 12 mts. 1.00% 5.00% 1.00% -- -- -- --
2 yrs. 0.00% 4.00% 0.00% -- -- -- --
3 yrs. 0.00% 3.00% 0.00% -- -- -- --
4 yrs. 0.00% 3.00% 0.00% -- -- -- --
5 yrs. 0.00% 2.00% 0.00% -- -- -- --
6 yrs. 0.00% 1.00% 0.00% -- -- -- --
7+ yrs. 0.00% 0.00% 0.00% -- -- -- --

Trail commissions

  Class A Class B Class C Class R Class R5 Class R6 Class Y
  0.25% 0.20%1 1.00% 0.50% 0.00% 0.00% 0.00%
  NA 0.25%2 NA NA NA NA NA
  NA NA NA NA NA NA NA
  1. Through 03/31/90
  2. After 03/31/90

For sales and trail commission information on purchases over $1 million and participant-directed qualified retirement plans, see a Putnam fund prospectus and the statement of additional information.

The Russell 1000 Growth Index is an unmanaged index of those companies in the large-cap Russell 1000 Index chosen for their growth orientation. You cannot invest directly in an index.

Consider these risks before investing: Growth stocks may be more susceptible to earnings disappointments, and the market may not favor growth-style investing. The value of investments in the fund's portfolio may fall or fail to rise over extended periods of time for a variety of reasons, including general economic, political or financial market conditions, investor sentiment and market perceptions, government actions, geopolitical events or changes, and factors related to a specific issuer, geography, industry or sector. These and other factors may lead to increased volatility and reduced liquidity in the fund's portfolio holdings. From time to time, the fund may invest a significant portion of its assets in companies in one or more related industries or sectors, which would make the fund more vulnerable to adverse developments affecting those industries or sectors. Our investment techniques, analyses, and judgments may not produce the outcome we intend. The investments we select for the fund may not perform as well as other securities that we do not select for the fund. We, or the fund's other service providers, may experience disruptions or operating errors that could have a negative effect on the fund. You can lose money by investing in the fund.