Q2 2022 Putnam Growth Opportunities Fund Q&A
- Our expectation is that growth companies with pricing power will be able to largely offset cost pressures, including labor inflation and rising freight costs.
- We remain focused on companies we believe can grow at above-market rates across a full economic cycle.
- Our newest growth theme, "A healthier tomorrow," seeks companies that can benefit from the increased focus on health and wellness globally.
How were investing conditions in the second quarter?
It was another difficult quarter for the financial markets and especially for large-cap growth stocks. One of the biggest headwinds continued to be concern about inflation and the potential for several interest-rate hikes in the coming year. This was combined with ongoing supply chain disruptions, the Russia-Ukraine War, and other macroeconomic challenges.
What is your perspective on large-cap growth stocks in this environment?
We believe that many of the macroeconomic headwinds are priced into growth stocks already, given the year-to-date drawdown, and that conditions may stabilize over the second half of 2022. In the interim, our expectation is that growth companies with pricing power will be able to largely offset cost pressures, including labor inflation and rising freight costs.
When growth stocks uniformly sell off over short periods of time, we believe it creates opportunities for us to build positions in the types of companies we favor. We remain focused on companies we believe can grow at above-market rates across a full economic cycle. This means high-quality companies with strong long-term growth potential and a narrow range of operational and financial outcomes. These companies, which operate in oligopoly markets with limited competition, can differentiate themselves in environments like the current one, in our view.
Your theme-based approach is a distinct feature of the fund. Could you tell us about your newest growth theme?
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 multiyear time horizon.
Our new theme is "A healthier tomorrow." Across the globe, people are embracing a comprehensive approach to health and wellness. Individuals are prioritizing exercise, diet, and environmental health, and are seeking greater access to and control over their personal health data. We have identified specific growth companies that should benefit meaningfully from this secular, multidecade trend. We believe these companies should be able to sustain above-market growth across an economic cycle. While the theme is focused on individuals, large-cap growth companies can serve as the enablers of change. As demographic trends drive increased awareness of this theme, we expect public policy to support further growth in these markets.
What is your outlook as we begin a new quarter?
Looking ahead, we believe equity markets will remain volatile, and not all businesses will be able to adequately cope with the effects of inflation, supply chain disruptions, difficult earnings comparisons, and macroeconomic headwinds. Ultimately, we believe the vast majority of innovation in the economy will come from traditional growth areas of the market, such as technology, health care, industrials, and consumer, more so than traditional value sectors such as financials, energy, and materials. In our view, stocks of high-return growth companies with advantaged balance sheets in secular growth areas of the market are likely to be the fastest to return to favor and deliver sustainable returns.
For informational purposes only. Not an investment recommendation.
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