Webcast | Measuring the impact of sustainable investing | June 10, 2020

Active Sustainability

Sustainable Future Fund (Class Y)  (PMVYX)

Investing in growing companies solving sustainability challenges

Q2 2020 | Sustainable Funds Q&A

  • PNOYX and PMVYX outperformed their benchmarks for the quarter despite continued volatility in equity markets
  • We are invested in companies providing sustainability leadership and solutions that have become even more important in recent months.
  • In our view, current conditions will illuminate new opportunities and new solutions that contribute to a thriving society, planet, and economy.

Both funds delivered strong relative performance for the quarter despite continued market volatility. What contributed to this strength?

Katherine: The outperformance is the result of our continued focus on high-quality, well-managed companies that exhibit excellent sustainability performance. If an investor is focused on a narrow approach — valuation or momentum, for example — performance can be more vulnerable when the market shifts. What has worked with our process, we believe, is that we always aim for a combination of three key elements: strong fundamental prospects, reasonable valuation, and sustainability leadership. In our portfolios, all three of these requirements must be present. We won’t, for example, own a company with superior sustainability qualities but poor business prospects. By requiring strength in all three areas, we are more likely to find companies that can do well regardless of the macroeconomic environment.

Stephanie: Putnam Sustainable Leaders Fund focuses on companies that excel in management of material sustainability issues, and Putnam Sustainable Future Fund seeks companies that provide solutions to key sustainability challenges. Many of these leadership activities and product solutions have become even more relevant during the COVID-19 crisis. Examples include technology companies that provide work from home capabilities, consumer companies that provide alternatives to traditional retail outlets, and health-care companies that provide testing, diagnostics, and remote access to care. For many of these businesses, the shifts brought on by the pandemic accelerated prior trends and enhanced their growth potential. Our exposure to high-quality businesses in a number of these areas has been beneficial to fund performance in 2020.

You recently released your 2020 sustainability and impact report. What can you tell us about this?

Katherine: We are proud of this comprehensive report, which is available to read or download at putnam.com. It provides an in-depth look at our investment process; an analysis of our portfolios according to a number of ESG-related metrics; and a discussion of the positive social and environmental impact of some of our investment themes and portfolio holdings.

Stephanie: This type of detailed reporting is important, not just for our team, but also for the broader field of sustainable investing as it continues to advance. Reporting on sustainability and impact is still evolving and is a challenge for investment managers across the industry. Our ultimate goal is to have reporting in these areas that is just as robust and complete as reporting on financial metrics, so that the links we see between sustainability issues and long-term company success are clear.

Could you highlight a topic you cover in the report?

Katherine: One important — and timely — topic is our examination of U.S. health-care costs and their impact on financial security. The COVID-19 pandemic is causing serious and widespread health consequences, creating personal financial insecurity for tens of millions of people, revealing continued racial inequity in health outcomes, and costing trillions of dollars in economic impact for world economies.

In our work as sustainable investors, we are looking for companies that are creating thriving businesses by improving current health-care systems and shaping the systems of the future. In the report, we highlight health-care innovations that can have a positive impact, such as telemedicine and digital health platforms, and companies that we believe are leaders in providing solutions.

How has the COVID-19 crisis shaped your outlook and strategy?

Katherine: We are experiencing the intersection of four related systems in simultaneous crisis: the COVID-19 health crisis and related economic crisis have set conditions that illuminate the long-term crisis of racial injustice and the ongoing climate crisis in new and profound ways. These conditions have caused widespread suffering in many dimensions, and at the same time they have reminded us of what is constant. Now more than ever, we believe that sustainable companies could prove to be more financially resilient and more beneficial than others over the long term, creating meaningful value. While highlighting current fragilities, this period will also reveal new opportunities and solutions that contribute to a thriving society, planet, and economy.

We are identifying new investment ideas in three main types of companies: those that are providing solutions to some of our current challenges, those whose strong long-term prospects have been only temporarily dampened, and those whose businesses are well-positioned for an eventual recovery. In all of these cases, our sustainability research links directly to our fundamental and valuation assessments, providing a “through line” to follow during these turbulent times.

Could you describe the strategy for Putnam Sustainable Leaders Fund?

Stephanie: With this fund, we seek companies with excellent sustainability leadership in areas that are relevant and financially material to their businesses. The stocks of these companies are typically, but not always, considered to be growth stocks, and in most cases, they are large cap in size. We look for performance that demonstrates true leadership — not just compliance — in areas such as clean and efficient materials use, reductions in carbon or water intensity, improvements in workplace equality and diversity, and alignment of management incentives with the company’s sustainability objectives. We always aim for a combination of three key elements: strong fundamental prospects, reasonable valuation, and sustainability leadership. By focusing on material ESG issues for each individual business, we aim to identify companies with durable financial performance and potentially lower risk profiles.

Could you describe the strategy of Putnam Sustainable Future Fund?

Katherine: Our emphasis for this fund is on solutions-oriented companies — those that offer innovative ways to address our greatest sustainability challenges. The stocks of these companies are typically, but not always, considered to be growth stocks, and often are mid-cap or small-cap in size. We seek to invest in products and services that result in positive environmental, economic, or social impact. By providing these solutions, the companies in the portfolio offer potential for strong financial growth and profitability, in our view. Again, we always seek a combination of three attributes: strong fundamental prospects, reasonable valuation, and positive impact.

What are some examples of positive impact that you seek from companies?

Stephanie: From an environmental perspective, positive impact could mean improving water quality or reducing greenhouse gas emissions. Positive social impact could include improvements in health and well-being or better access to information and opportunity. We monitor these potential social or environmental benefits, as well as potential financial returns, as part of our investing discipline. Throughout our research process for both portfolios, we take a tailored, company-specific approach, including first-hand interactions with management teams of companies and ongoing collaboration with Putnam’s research analysts.

Highlights

Objective

The fund seeks long-term capital appreciation.

Strategy and process

  • Impact companies: The fund invests in growth companies that directly demonstrate positive impact in social, environmental, or economic development.
  • Active strategy: The managers utilize bottom-up research to identify companies with attractive sustainability, fundamental, and valuation characteristics.
  • Veteran team: A dedicated sustainable investing team is backed by Putnam's equity research and quantitative/risk analysis groups.

Fund price

Yesterday’s close 52-week high 52-week low
Net asset value $22.71
-0.70% | $-0.16
$22.88
08/05/20
$13.62
03/23/20
(Optional)

Fund facts as of 07/31/20

Total net assets
$478.90M
Turnover (fiscal year end)
72%
Dividend frequency
Annually
Number of holdings
78
Fiscal year-end
April
CUSIP / Fund code
746802198 / 1856
Inception date
04/02/02
Class Y  
Category
Growth
Open to new investors
Ticker
PMVYX

Management team

Head of Sustainable Investing
Portfolio Manager


Literature


Company diversity and social justice
Company diversity is a step toward equity and equity is a step toward inclusion, which is important to company success.
Sustainability research: A week in the life of our team
Our research includes discussions with company managements, other researchers and investors, industry and subject experts, and non-profit organizations.
Sustainable value: Gender diversity on corporate boards
Diversity in companies — including gender diversity — can have a positive impact on company performance and strategic ability.

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 18.82% 13.00% 9.85% 13.96%
After sales charge N/A N/A N/A N/A
Russell Midcap Growth Index 11.91%14.76%11.60%15.09%
Russell 3000V-Russell MidcapG Linked Benchmark 11.91%11.11%10.30%13.29%

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 07/31/20 8.94% -
YTD as of 08/07/20 24.57% -

Risk-adjusted performance as of 06/30/20

Alpha (3 yrs.) 2.77
Sharpe ratio (3 yrs.) 0.62
Treynor ratio (3 yrs.) 12.52
Information ratio (3 yrs.) 0.51

Volatility as of 06/30/20

Standard deviation (3 yrs.) 18.45%
Beta 0.91
R-squared 0.97

Capture ratio as of 06/30/20

Up-market (3 yrs.) 97.24
Down-market (3 yrs.) 88.14

Lipper rankings as of 06/30/20

Time period Rank/Funds in category Percentile ranking
1 yr. 217/545 40%
3 yrs. 346/493 71%
5 yrs. 313/424 74%
10 yrs. 180/297 61%
Lipper category: Multi-Cap Growth Funds

Morningstar Ratings as of 06/30/20

Time period Funds in category Morningstar Rating
Overall 1237
3 yrs. 1237
5 yrs. 1084
10 yrs. 809
Morningstar category: Large Growth

Distributions

Record/Ex dividend date 12/05/19
Payable date 12/09/19
Income $0.051
Extra income --
Short-term cap. gain $0.094
Long-term cap. gain $0.383

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

Adobe 3.58%
Danaher Corp 3.37%
Thermo Fisher Scientific 2.89%
Chipotle Mexican Grill 2.40%
Godaddy 2.16%
Ringcentral 2.07%
Dynatrace 2.07%
First Republic Bank/Ca 2.02%
Docusign 1.96%
Mccormick Md 1.94%
Top 10 holdings, percent of portfolio 24.46%



Portfolio composition as of 06/30/20

Common stock 93.96%
Cash and net other assets 3.49%
Convertible preferred stock 2.55%

Equity statistics as of 06/30/20

Median market cap $13.21B
Weighted average market cap $45.85B
Price to book 4.87
Price to earnings 37.42

Fund characteristics will vary over time.

Due to rounding, percentages may not equal 100%.

Consider these risks before 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. Growth stocks may be more susceptible to earnings disappointments, technological obsolescence, falling prices and profits, and the market may not favor growth-style investing. Investments in small and midsize companies increase the risk of greater price fluctuations.  International investing involves currency, economic, and political risks. Emerging-market securities have illiquidity and volatility risks. The fund's sustainable and environmental, social, and/or corporate governance (ESG) investment strategy may cause the fund to forego otherwise attractive investment opportunities or may increase or decrease the fund’s exposure to certain types of companies and, therefore, to underperform funds that do not invest with a similar focus. 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. In evaluating an investment opportunity, we may make investment decisions based on information and data that is incomplete or inaccurate. Due to changes in the products or services of the companies in which the fund invests, the fund may temporarily hold securities that are inconsistent with its sustainable investment criteria. 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 06/30/20

Information technology 30.18%
Health care 24.13%
Industrials 11.81%
Consumer discretionary 9.76%
Materials 6.08%
Financials 5.95%
Consumer staples 5.56%
Cash and net other assets 3.49%
Communication services 1.55%
 
Other
1.49%
Utilities 1.49%

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 R6 Class Y
Total expense ratio 1.09% 1.84% 1.84% 1.34% 0.70% 0.84%
What you pay 1.09% 1.84% 1.84% 1.34% 0.70% 0.84%

Sales charge

 Breakpoint Class A Class B Class C Class R 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 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 R6 Class Y
  0.25% 0.25% 1.00% 0.50% 0.00% 0.00%
  NA NA NA NA NA NA
  NA NA NA NA NA NA

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 Midcap Growth Index is an unmanaged index of those companies in the Russell Midcap Index chosen for their growth orientation. The Russell 3000 Value Index is an unmanaged index of those companies in the broad-market Russell 3000 Index chosen for their value orientation. The Russell 3000 Value - Russell Midcap Growth Linked Benchmark represents performance of the Russell 3000 Value Index through March 20, 2018 and performance of the Russell Midcap Growth Index thereafter. You cannot invest directly in an index.

Consider these risks before 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. Growth stocks may be more susceptible to earnings disappointments, technological obsolescence, falling prices and profits, and the market may not favor growth-style investing. Investments in small and midsize companies increase the risk of greater price fluctuations.  International investing involves currency, economic, and political risks. Emerging-market securities have illiquidity and volatility risks. The fund's sustainable and environmental, social, and/or corporate governance (ESG) investment strategy may cause the fund to forego otherwise attractive investment opportunities or may increase or decrease the fund’s exposure to certain types of companies and, therefore, to underperform funds that do not invest with a similar focus. 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. In evaluating an investment opportunity, we may make investment decisions based on information and data that is incomplete or inaccurate. Due to changes in the products or services of the companies in which the fund invests, the fund may temporarily hold securities that are inconsistent with its sustainable investment criteria. 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.