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.
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.