Growth-stock rally continues as economic transition speeds up

Putnam Investments, 10/20/20


Q3 2020 Putnam Growth Opportunities Fund Q&A

  • The fund outperformed its benchmark for the 1-, 3-, 5-, and 10-year periods ended September 30, 2020.
  • We are seeing accelerating growth as a result of pandemic-related shifts in consumer preferences and behavior.
  • Personalized medicine is one of the promising themes that we believe can drive sustained growth for businesses over a multi-year time horizon.

Market conditions remained volatile in the third quarter. How did the fund perform?

The fund delivered a solid return for the quarter but underperformed its benchmark, the Russell 1000 Growth Index. However, we are pleased to report that the fund outperformed its benchmark for the 1-, 3-, 5-, and 10-year periods ended September 30, 2020.

The COVID-19 pandemic remains a critical challenge for markets and economies, but has it also offered investment opportunities?

We remain focused on companies with durable long-term growth prospects and stocks that we believe can outperform in a variety of economic environments. However, in the midst of this challenge, we are also seeing accelerating growth as a result of pandemic-related shifts in consumer preferences and behavior. We’ve witnessed impressive growth trends in many industries that offered strong growth prospects even before COVID-19 emerged as a global health crisis. In areas such as cloud infrastructure and software-as-a service, we’ve heard from company CEOs who believe they have seen 3 to 5 years of future growth effectively pulled into the past couple of months. And we believe these growth trends can continue for several years.

Your theme-based approach is a distinct feature of the fund. Could you tell us about one of your current growth themes?

Our thematic approach is a critical part of our investment process. Together with a team of analysts, we examine global trends as well as problems and potential solutions. From this analysis, we identify which themes could drive sustained growth for businesses over a multi-year time horizon.

One of our themes is personalized medicine. For many investors in the biopharmaceutical industry today, the focus is on companies that are developing vaccines or treatments for infectious diseases. For our portfolio, however, we look at longer-term themes. Personalized medicine refers to the customization of medical treatments and approaches based on an individual patient’s specific needs. We believe we are in the very early innings of a broad shift toward personalized medicine, where therapies will be targeted to a person’s DNA, RNA, and genetic composition.

Many companies are making great strides in cell and gene therapy to help in the diagnosis and treatment of cancers and genetic diseases. There are currently thousands of treatments and programs in various phases of development. When it comes to biopharmaceuticals, however, there are many complexities, uncertainties, and possible outcomes. Drug development and new product launches include multiple phases of testing and trials, FDA approvals, reimbursement challenges, regulation issues, market access barriers, and supply chain challenges.

Rather than trying to forecast which individual drugs and treatments will be successful, we are invested in Lonza, a company that provides a manufacturing facility for businesses that are developing drugs. Lonza opened the world’s largest dedicated cell-and-gene-therapy facility, and today it is outsourcing the manufacturing for over 1,000 different therapies. We believe Lonza has the potential to benefit when any of these treatments successfully come to market.

How are you positioning the portfolio in the coming months?

As active managers, we are able to take advantage of shifting market and economic conditions. Our intense focus on portfolio positioning and downside risk can be especially beneficial with ongoing challenges such as the COVID-19 pandemic. As always, we are taking a patient and methodical approach while using market weakness and dislocations to add to existing holdings or to initiate new positions.