Active Equities

Emerging Markets Equity Fund (Class A)  (PEMMX)

Pursuing growth opportunities in developing economies

Emerging Markets Equity Fund received an  Overall Morningstar Rating  of  

Q2 2020 | Emerging Markets Equity Fund Q&A

  • Emerging-market equities outperformed broader markets as price/earnings multiples appealed to investors.
  • Coronavirus pandemic provided boost to e-commerce companies and food retailers.
  • We remain bullish on the outlook for emerging-market equities as valuations and currencies remain supportive.

How were market conditions in the second quarter? How did the fund perform?

The risk and rewards were extremely positive for emerging-market equities as we entered the second quarter of this year. The MSCI Emerging Markets Index [ND] was trading at trough valuations on absolute and relative terms. In addition, emerging-market currencies were at the cheapest levels since 1998, having depreciated during the first few months of the year. Emerging-market equities recovered strongly in the second quarter, rising 18% driven by record stimulus measures and improving economic indicators amid the coronavirus pandemic.

The rally started with beneficiaries of the crisis including food retailers and e-commerce platforms, and eventually broadened across all sectors including travel.

Putnam Emerging Markets Equity Fund is built to be agnostic to the direction of the market. The fund was able to outperform during the strong bull market of the second quarter of this year and the volatile bear market of the first quarter. The fund rose 24.76% in the second quarter, outperforming its benchmark, the MSCI Emerging Markets Index, by 6.68%. The outperformance during the period was driven by bottom-up stock selection with contributions from nearly all countries and sectors.

Could you describe your strategy for the fund?

The fund’s strategy of investing in high-quality businesses — where we have a differentiated view of future earnings — continued to pay dividends during the quarter. Every week we try to connect with the management teams of at least five businesses. These late-night calls uncovered some big winners in the second quarter.

Universal Vision Biotechnology, a Taiwanese eye care company, was another big winner and an undiscovered company with underappreciated earnings power. Revenue and profitability are inflecting as management is closing loss-making retail locations and opening higher margin clinics and reducing losses in China. The CEO hosted a call with international investors during the first week of May, and the increased awareness of this name served as a catalyst for the stock. Earnings-per-share estimates are at least 35% too low, and we believe shares can double again from here.

What is your outlook going into the second half of 2020?

We remain extremely bullish on the outlook for emerging market equities. The valuations [the price/earnings multiple] of equities and currencies remain supportive. Lower global interest rates could also provide a tailwind for the asset class. While the Nasdaq is up over 10% year to date, the EM index would need to rise over 15% to return to peak levels achieved in January. For those who remain concerned about the long-lasting impact of COVID-19 in the United States and can’t stomach paying a price of 40-times revenue for Zoom, there are lots of opportunities in North Asia where the pandemic is under control and life is returning to normalcy.

In Thailand, there are no new cases, and the country has reopened malls to very large crowds. Mobility trends in South Korea and Taiwan are down less than 10% from last year’s levels.

And in Shanghai, China, life is back to normal as schools and businesses have all reopened and there are lines to get into restaurants.

Within emerging markets, Brazil and India remain trouble spots, but high frequency indicators suggest that the trough has passed, and economic data has started to surprise on the upside. Mobility and electricity consumption by country are two indicators that we have been following more closely. These suggest a continued sequential recovery across most markets.

Percentages of each security held in the portfolio as of 6/30/20
Universal Vision Biotechnology Co. 1.17%

Highlights

Objective

The fund seeks long-term capital appreciation.

Strategy and process

  • Growth potential: Emerging markets offer the potential for continued growth due to attractive demographics, rising wealth, and increased investment in infrastructure in developing countries.
  • A disciplined process: By integrating multiple perspectives into portfolio construction, the fund manager is able to better evaluate individual companies within the context of changing local and global influences.
  • Rigorous research: The manager leverages Putnam's global research platform to identify opportunities across emerging and select frontier markets.

Fund price

Yesterday’s close 52-week high 52-week low
Net asset value $14.19
0.42% | $0.06
$14.23
07/29/20
$9.25
03/23/20
(Optional)

Fund facts as of 06/30/20

Total net assets
$332.28M
Turnover (fiscal year end)
175%
Dividend frequency
Annually
Number of holdings
66
Fiscal year-end
August
CUSIP / Fund code
746764109 / 0059
Inception date
09/29/08
Category
Blend
Open to new investors
Ticker
PEMMX

Management team

Portfolio Manager
Portfolio Manager, Analyst


Literature


Navigating market turmoil: Our intrinsic value compass
Our investments in the communications sector help illustrate our intrinsic value approach to finding opportunities.

Performance

Consistency of positive performance over five years

Performance represents 5-year returns in rolling quarter-end periods since inception.

Performance shown above does not reflect the effects of any sales charges. Note that returns of 0.00% are counted as positive periods. For complete fund performance, please see below.

12.70%

Best 5-year annualized return

(for period ending 12/31/13)


-4.95%

Worst 5-year annualized return

(for period ending 03/31/16)


3.39%

Average 5-year annualized return


  • 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 9.92% 7.20% 6.01% 4.56%
After sales charge 3.60% 5.10% 4.77% 3.94%
MSCI Emerging Markets Index (ND) -3.39%1.90%2.86%3.27%

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 11.26% 4.86%
YTD as of 08/03/20 13.61% 7.08%

Risk-adjusted performance as of 06/30/20

Alpha (3 yrs.) 5.31
Sharpe ratio (3 yrs.) 0.31
Treynor ratio (3 yrs.) 5.90
Information ratio (3 yrs.) 1.15

Volatility as of 06/30/20

Standard deviation (3 yrs.) 17.80%
Beta 0.94
R-squared 0.94

Capture ratio as of 06/30/20

Up-market (3 yrs.) 107.99
Down-market (3 yrs.) 87.56

Lipper rankings as of 06/30/20

Time period Rank/Funds in category Percentile ranking
1 yr. 63/785 9%
3 yrs. 57/679 9%
5 yrs. 69/574 12%
10 yrs. 76/252 31%
Lipper category: Emerging Markets Funds

Morningstar Ratings as of 06/30/20

Time period Funds in category Morningstar Rating
Overall 704
3 yrs. 704
5 yrs. 595
10 yrs. 246
Morningstar category: Diversified Emerging Mkts

Distributions

Record/Ex dividend date 12/23/19
Payable date 12/26/19
Income $0.136
Extra income --
Short-term cap. gain --
Long-term cap. gain --

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.


Holdings

Tencent Holdings 10.08%
Alibaba Group Holding 9.71%
Taiwan Semiconductor Manufacturing 5.60%
Samsung Electronics 4.66%
Reliance Industries 2.94%
Jd.Com 2.38%
Hdfc Bank 2.36%
China Mobile Hk 2.34%
Mediatek 2.10%
Sk Hynix 1.97%
Top 10 holdings, percent of portfolio 44.14%



Portfolio composition as of 06/30/20

Common stock 97.77%
Preferred stock 1.87%
Cash and net other assets 0.36%

Equity statistics as of 06/30/20

Median market cap $17.46B
Weighted average market cap $177.87B
Price to book 3.13
Price to earnings 18.45

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.  From time to time, the fund may invest a significant portion of its assets in companies in one or more related industries or sectors, which would make the fund more vulnerable to adverse developments affecting those industries or sectors. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. 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

Consumer discretionary 23.82%
Information technology 19.81%
Communication services 19.18%
Industrials 7.45%
Consumer staples 6.93%
Financials 6.92%
Health care 6.42%
Energy 4.57%
Utilities 2.88%
 
Other
2.02%
Materials 0.64%
Real estate 0.53%
Unclassified 0.49%
Cash and net other assets 0.36%

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

China 41.16%
Taiwan 13.71%
South Korea 10.09%
India 9.54%
Brazil 4.76%
Russia 3.95%
South Africa 2.19%
Indonesia 1.68%
Mexico 1.66%
 
Other
11.26%
Argentina 1.57%
Netherlands 1.37%
Malaysia 1.27%
Hong Kong 1.15%
Kenya 1.09%
Greece 0.98%
Poland 0.93%
Egypt 0.88%
Philippines 0.68%
Portugal 0.49%
United States 0.49%
Cash and net other assets 0.36%

Expenses

Expense ratio

Class A Class B Class C Class R Class R6 Class Y
Total expense ratio 1.74% 2.49% 2.49% 1.99% 1.30% 1.49%
What you pay† 1.29% 2.04% 2.04% 1.54% 0.85% 1.04%

† The fund's expense ratio is taken from the most recent prospectus and is subject to change. What you pay reflects Putnam Management's decision to contractually limit expenses through 12/30/20

Sales charge

Investment Breakpoint Class A Class B Class C Class R Class R6 Class Y
$0-$49,999 5.75% 0.00% 0.00% -- -- --
$50,000-$99,999 4.50% 0.00% 0.00% -- -- --
$100,000-$249,999 3.50% -- 0.00% -- -- --
$250,000-$499,999 2.50% -- 0.00% -- -- --
$500,000-$999,999 2.00% -- 0.00% -- -- --
$1M-$4M 0.00% -- -- -- -- --
$4M-$50M 0.00% -- -- -- -- --
$50M+ 0.00% -- -- -- -- --

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% -- -- --

MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. 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.  From time to time, the fund may invest a significant portion of its assets in companies in one or more related industries or sectors, which would make the fund more vulnerable to adverse developments affecting those industries or sectors. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. 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.