Active Equities

Global Health Care Fund (Class Y)  (PHSYX)

Investing in the health-care sector since 1982

Perspectives on COVID-19

Putnam's health-care analysts and portfolio managers offer their outlooks and perspectives on key aspects of the COVID-19 pandemic.

  • Until a safe and effective vaccine is available, the best near-term solutions are effective therapeutic drugs.
  • Neutralizing antibodies have the potential to significantly reduce mortality rates, and we expect to see initial clinical trials data over the summer.
  • The quantity of available tests is growing, and companies are ramping up capacity.

Kimberly Smith
Analyst, health care and biotechnology

The vaccine is a long-term solution

A key resource for our in-house research has been the guidance of Scott Gottlieb, M.D., former U.S. Food and Drug Administration commissioner. We are in agreement with his view that a safe and effective vaccine will not be ready for mass manufacturing in 2020, and perhaps not for two years. As a result, the best near-term solutions are effective therapeutic drugs.

Antivirals: Treating current COVID-19 patients, the first wave

On a much faster track than the vaccine are drugs that are used to treat people once they've become sick. I expect the initial therapies to provide modest benefits in COVID-19 patients, such as accelerated recovery times and shortened hospitalizations. These include remdesivir, an experimental antiviral drug from Gilead Sciences, and Actemra (anti-IL6), a drug from Roche that is already in use for treating rheumatoid arthritis.

The first remdesivir study in severe COVID-19 patients in China did not show a benefit, and the first large randomized anti-IL6 study reported mixed results and may only be modestly effective in critically ill COVID-19 patients. While more recent remdesivir data indicate that it may improve time to recovery by approximately 30%, other data sets have been more mixed. It appears that remdesivir is unlikely to bend the curve enough to allow us to meaningfully reduce social distancing measures. There are several studies yet to report through May, and remdesivir has the greatest potential to help mild to moderate COVID-19 patients, with the caveat that there may be insufficient supply to treat such a large patient population.

"Convalescent" plasma: Help from recovered patients

Experimental antibody treatments are being used for some of the most severe cases of COVID-19. With this process, blood and serum are taken from patients who have recovered from COVID-19. It is then purified, and the antibodies — which prevent the virus from replicating — are extracted and infused into COVID-19 patients.

We believe neutralizing antibodies have the potential to significantly reduce mortality rates. In my view, Regeneron Pharmaceuticals is in the lead for developing an effective treatment by manufacturing select neutralizing antibodies from recovered COVID-19 patients. The company plans to begin clinical trials in June, and we expect to see initial data over the summer.

The supply/demand challenge

These therapies could reduce mortality and the severity of the disease, allowing patients to leave hospitals sooner. However, because they cannot be administered in an outpatient setting, or at sufficient scale, hospitals will continue to be burdened with COVID-19 caseloads. In the short term, there is still a mismatch of supply and demand, and equipment shortages continue to be a challenge.

William C. Rives, CFA
Portfolio Manager, Analyst
Putnam Research Fund

Testing: The big challenge is logistics

The science of creating tests for COVID-19 is not nearly as complex or difficult as developing a vaccine. The technology and capacity to develop tests is in place, but the bigger hurdle today is getting a system in place to conduct mass testing. We do not yet have a central organization directing these efforts, but several effective tests are approved and should become available for everyone who needs them.

Who has the virus and who has recovered?

There are two methods of testing for COVID-19. The PCR test is a molecular test designed to identify viral loads and determine if a person currently has the virus. This is the test we've heard about most in the news, and it has largely been limited to people who are coming into hospitals with symptoms. Many PCR tests are already approved for use, and there is significant manufacturing capacity.

The second type of test, the serological test, looks for antibodies in the blood to detect a person's immune response and determine if they have already had the virus. Progress in this area is slightly behind that of PCR testing, as work continues to determine the accuracy of these tests.

Speed of PCR results and production are improving

The speed of results and scale of availability continue to increase. Today, there are point-of-care tests available that can produce results in under an hour and potentially in just 15 minutes. Hospital-based PCR tests are being developed with turnaround times of two to four hours. One company, LabCorp, received FDA authorization to send an at-home PCR test and will begin shipping to consumers in the coming weeks. At the same time, the quantity of available tests is growing. Companies that are ramping up capacity include Thermo Fisher Scientific (5 million tests per week); Hologic (1 million tests per week); Abbott Laboratories (1.25 million tests per week); Qiagen (1–2 million tests per week); and Roche (1 million tests per week).

Within a few months, we believe testing should be much more widespread. Quicker tests will likely be used for health-care workers and at-risk populations, while the higher throughput tests will be used for the general population. In the past week in the United States, an average of 225,000 tests per day were conducted, and this will continue to increase. By June, we may see as many as 500,000 conducted each day.

Testing is key to easing restrictions

Testing results should help authorities determine how aggressively to ease quarantine restrictions and reopen businesses and communities while vaccine development continues. Those who have recovered from COVID-19 and developed immunity may be able to get back into the workforce sooner. As infections decline and stay-at-home orders are lifted, we are likely to see widespread testing to detect immediately when new clusters of infections emerge. In these areas, measures such as social distancing can be quickly reintroduced to slow the spread. As a result of improved testing, hospitals will be less overwhelmed and patient outcomes should improve considerably.

Testing will play a slightly different, but just as important, role over the longer term. I believe that testing and monitoring of the population will become a permanent part of our new normal. The goal will be to put comprehensive testing procedures in place to prepare for — and ideally prevent — future outbreaks of COVID-19 as well as other viruses.

Michael J. Maguire, CFA
Portfolio Manager, Analyst
Putnam Global Health Care Fund

The challenges ahead

Among the most frustrating aspects of this crisis is the fact that an "all clear" for COVID-19 depends on a comprehensive vaccination program that is effective and safe. Since this solution is at least one year away, if not two or more, we need to assume for the time being that it does not exist as we try to plan for reopening economies and businesses.

On the positive side, if we achieve sufficient hospital capacity, fulfill equipment needs, and create a better mechanism for catching patients earlier in the viral load, we will manage COVID-19 more effectively. If we encounter another wave of infections in the fall, I would be surprised if the mortality rates are anywhere near the levels we have seen with this first wave. In this scenario, a second wave might be considered a non-event by equity markets.

Investment considerations

As investors, of course, we are researching the risks and opportunities resulting from this global pandemic. While the human toll is devastating, businesses are responding. Many recent top-performing stocks represent companies that are creating tests, as well as the suppliers to those companies. These businesses should continue to benefit as the number of diagnostic tests conducted globally will be sustainably higher than in the past. We are also likely to see increased spending on medical research, particularly in the area of infectious diseases. This will be beneficial for life sciences companies.

Companies that will be negatively affected are those with leverage and those with elective procedure risk — the cancellations of any procedures that are not considered critical, such as orthopedic surgeries or dental appointments. Since we have entered a recessionary environment, this elective procedure risk could be with us for some time. Most vulnerable are the hospitals themselves, which operate with financial leverage and will be under significant pricing pressure due largely to much fewer elective procedures.

Putnam Global Health Care Fund

Top 10 holdings as of 3/31/20

UnitedHealth Group, 5.87%
Novartis Ag, 5.63%
Roche Holding Ag, 5.54%
Merck, 5.39%
Johnson & Johnson, 5.29%
Abbvie, 4.89%
Astrazeneca, 4.31%
Pfizer, 4.29%
Eli Lilly, 3.41%
Ascendis Pharma A/S, 3.19%
Top 10 holdings, percent of portfolio: 47.81%

Consider these risks before investing: International investing involves currency, economic, and political risks. Emerging-market securities carry illiquidity and volatility risks. Investments in small and/or midsize companies increase the risk of greater price fluctuations. The health care industries may be affected by technological obsolescence, changes in regulatory approval policies for drugs, medical devices, or procedures, and changes in governmental and private payment systems. The fund concentrates on a limited group of industries and is non-diversified. Because the fund may invest in fewer issuers than a diversified fund, it is vulnerable to common economic forces and may result in greater losses and volatility. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. The use of short selling may result in losses if the securities appreciate in value. Risks associated with derivatives include increased investment exposure (which may be considered leverage) and, in the case of over-the-counter instruments, the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. 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. You can lose money by investing in the fund.

Putnam Research Fund

Top 10 holdings as of 3/31/20

Microsoft Corp, 5.96%
Amazon.Com, 4.21%
Alphabet, 3.41%
Apple, 3.31%
Activision Blizzard, 2.42%
Procter Gamble, 2.20%
Fidelity National Information Services, 2.09%
Home Depot, 1.90%
Facebook, 1.86%
Adobe, 1.59%
Top 10 holdings, percent of portfolio: 28.95%

Consider these risks before investing: Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. 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. You can lose money by investing in the fund.

Highlights

Objective

The fund seeks capital appreciation.

Strategy and process

  • A dynamic sector: From biotech and drugs to devices and hospitals, the fund invests in industries that can profit from the global demand for health care products and services.
  • A global approach: To seek the best opportunities, the fund's managers have the flexibility to invest in stocks from around the world.
  • Active management: The managers, supported by experienced research analysts, combine rigorous fundamental research with macroeconomic views to pinpoint opportunities across the sector.

Fund price

Yesterday’s close 52-week high 52-week low
Net asset value $65.14
0.18% | $0.12
$65.48
07/20/20
$46.61
03/23/20
(Optional)

Fund facts as of 07/31/20

Total net assets
$1,462.21M
Turnover (fiscal year end)
81%
Dividend frequency
Annually
Number of holdings
55
Fiscal year-end
August
CUSIP / Fund code
746778505 / 1813
Inception date
04/04/00
Class Y  
Category
Global Sector
Open to new investors
Ticker
PHSYX

Management team

Portfolio Manager, Analyst



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 19.10% 10.12% 5.31% 13.99%
After sales charge N/A N/A N/A N/A
MSCI World Health Care Index (ND) 13.87%9.80%6.76%13.59%

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 2.85% -
YTD as of 08/07/20 6.79% -

Risk-adjusted performance as of 06/30/20

Alpha (3 yrs.) 0.15
Sharpe ratio (3 yrs.) 0.57
Treynor ratio (3 yrs.) 8.31
Information ratio (3 yrs.) 0.09

Volatility as of 06/30/20

Standard deviation (3 yrs.) 14.75%
Beta 1.02
R-squared 0.95

Capture ratio as of 06/30/20

Up-market (3 yrs.) 104.64
Down-market (3 yrs.) 106.01

Morningstar Ratings as of 06/30/20

Time period Funds in category Morningstar Rating
Overall 135
3 yrs. 135
5 yrs. 125
10 yrs. 104
Morningstar category: Health

Distributions

Record/Ex dividend date 12/23/19
Payable date 12/26/19
Income $0.303
Extra income --
Short-term cap. gain --
Long-term cap. gain $3.056

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

Abbvie 5.99%
UnitedHealth Group 5.95%
Johnson Johnson 5.52%
Roche Holding Ag 5.06%
Novartis Ag 4.29%
Merck 3.91%
Astrazeneca 3.86%
Eli Lilly And 3.52%
Thermo Fisher Scientific 3.43%
Danaher Corp 3.41%
Top 10 holdings, percent of portfolio 44.94%



Portfolio composition as of 06/30/20

Common stock 96.77%
Cash and net other assets 2.76%
Convertible preferred stock 0.47%

Equity statistics as of 06/30/20

Median market cap $51.26B
Weighted average market cap $133.48B
Price to book 5.16
Price to earnings 18.64

Fund characteristics will vary over time.

Due to rounding, percentages may not equal 100%.

Consider these risks before investing: International investing involves currency, economic, and political risks. Emerging-market securities carry illiquidity and volatility risks. Investments in small and/or midsize companies increase the risk of greater price fluctuations. The health care industries may be affected by technological obsolescence, changes in regulatory approval policies for drugs, medical devices, or procedures, and changes in governmental and private payment systems. The fund concentrates on a limited group of industries and is non-diversified. Because the fund may invest in fewer issuers than a diversified fund, it is vulnerable to common economic forces and may result in greater losses and volatility. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. The use of short selling may result in losses if the securities appreciate in value. Risks associated with derivatives include increased investment exposure (which may be considered leverage) and, in the case of over-the-counter instruments, the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. 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. 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

Pharmaceuticals 38.07%
Biotechnology 23.83%
Health Care Providers & Services 14.62%
Health Care Equipment & Supplies 12.52%
Life Sciences Tools & Services 7.36%
Cash and net other assets 2.76%
Health Care Technology 0.52%
Diversified Financial Services 0.32%

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

Sectors will vary over time.

Country allocation as of 06/30/20

United States 70.93%
Switzerland 11.15%
United Kingdom 5.61%
Denmark 4.98%
Japan 3.21%
Cash and net other assets 2.76%
France 0.95%
Netherlands 0.34%
Germany 0.07%

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% 0.73% 0.84%
What you pay 1.09% 1.84% 1.84% 1.34% 0.73% 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 MSCI World Health Care Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets in the health care sector. You cannot invest directly in an index.

Consider these risks before investing: International investing involves currency, economic, and political risks. Emerging-market securities carry illiquidity and volatility risks. Investments in small and/or midsize companies increase the risk of greater price fluctuations. The health care industries may be affected by technological obsolescence, changes in regulatory approval policies for drugs, medical devices, or procedures, and changes in governmental and private payment systems. The fund concentrates on a limited group of industries and is non-diversified. Because the fund may invest in fewer issuers than a diversified fund, it is vulnerable to common economic forces and may result in greater losses and volatility. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. The use of short selling may result in losses if the securities appreciate in value. Risks associated with derivatives include increased investment exposure (which may be considered leverage) and, in the case of over-the-counter instruments, the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. 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. 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.