Q2 2021 Putnam Emerging Markets Equity Fund Q&A
- The fund outperformed for the quarter as well as the 1-, 3-, 5-, 10-year, and life-of-fund periods ended June 30, 2021.
- We are carefully monitoring the Covid-19 situation across all economies and its potential short- and long-term impact on businesses.
- I believe many of the leading companies of the 2020s and 2030s will originate in emerging markets.
How did the fund perform in the second quarter, and has your outlook changed for emerging markets?For the second quarter, the fund outperformed its benchmark, the MSCI Emerging Markets Index [ND]. It also outperformed the benchmark for the 1-, 3-, 5-, 10-year, and life-of-fund periods ended June 30, 2021. Despite some volatility in the first half of the year, my outlook remains bullish for emerging markets.
Why should investors consider emerging-market stocks?One reason is the simple concept of diversification. Investors who are only focused on U.S. equities should consider that the United States accounts for only 16% of world GDP — a figure that is shrinking. But more important, in my view, is that businesses in emerging markets offer so many of the world’s future growth opportunities. We are seeing an impressive amount of innovation and highly educated workforces in regions like North Asia. I believe many of the leading companies of the 2020s and 2030s will originate in emerging markets.
An example of emerging-market growth potential can be found in “unicorns.” This is a term used to describe privately held startup companies that are valued in excess of $1 billion. There are about 300 of these up-and-coming businesses in the world today. The United States leads the world in the number of unicorns, but number two is China and number four is India. China and India have the massive scale — each has a population of roughly 1.4 billion — that gives these unicorns the potential to grow into large, dynamic multinational companies.
A number of countries are still struggling with Covid-19. Does this concern you in terms of investment risk?First, it’s important to note that over 70% of the emerging-market index — countries such as Korea, Taiwan, and China — have dealt with the pandemic more effectively than much of the developed world. Unfortunately, other countries, such as India and Brazil, continue to face major Covid-19 challenges. This, of course, is why active portfolio management is key. We are carefully monitoring the Covid-19 situation across all economies and its potential short- and long-term impact on businesses.
Our strategy emphasizes bottom-up stock selection across geographies and sectors, with a focus on high-quality companies with strong balance sheets. We tend to avoid countries, companies, and currencies that we believe are more vulnerable to external macroeconomic shocks. We believe this approach has helped us add value to the portfolio, especially in recent periods of increased market turbulence.
For informational purposes only. Not an investment recommendation.
This material is provided for limited purposes. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, or any Putnam product or strategy. References to specific asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations or investment advice. The opinions expressed in this article represent the current, good-faith views of the author(s) at the time of publication. The views are provided for informational purposes only and are subject to change. This material does not take into account any investor’s particular investment objectives, strategies, tax status, or investment horizon. Investors should consult a financial advisor for advice suited to their individual financial needs. Putnam Investments cannot guarantee the accuracy or completeness of any statements or data contained in the article. Predictions, opinions, and other information contained in this article are subject to change. Any forward-looking statements speak only as of the date they are made, and Putnam assumes no duty to update them. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties. Actual results could differ materially from those anticipated. Past performance is not a guarantee of future results. As with any investment, there is a potential for profit as well as the possibility of loss.
Diversification does not guarantee a profit or ensure against loss. It is possible to lose money in a diversified portfolio.
Consider these risks before investing: International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Investments in small and/or midsize companies increase the risk of greater price fluctuations. Bond investments are subject to interest-rate risk, which means the prices of the fund’s bond investments are likely to fall if interest rates rise. Bond investments also are subject to credit risk, which is the risk that the issuer of the bond may default on payment of interest or principal. Interest-rate risk is generally greater for longer-term bonds, and credit risk is generally greater for below-investment-grade bonds, which may be considered speculative. Unlike bonds, funds that invest in bonds have ongoing fees and expenses. Lower-rated bonds may offer higher yields in return for more risk. Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. Commodities involve the risks of changes in market, political, regulatory, and natural conditions. You can lose money by investing in a mutual fund.
Putnam Retail Management.