Q4 2022 Putnam Growth Opportunities Fund Q&A
- We continue to focus on companies we believe can grow at above-market rates across a full economic cycle.
- Our 5G connectivity theme is based on the rapid growth in connected devices and systems that will drive carriers to invest rapidly in 5G networks.
- We are optimistic that a heightened focus on business fundamentals and stock analysis will support our strategy and fund performance over time.
This past year was a difficult one for large-cap growth. What can you tell us about fund performance in 2022?
In a difficult year for all asset classes, notable contributors to the fund’s performance included UnitedHealth Group, Deere, O’Reilly Automotive, and Mastercard. The top detractor from 2022 performance was having no exposure to energy stocks, which advanced significantly but represent only 2% of the Russell 1000 Growth Index. Also detracting was our decision to not hold AbbVie, Coca-Cola, PepsiCo, and Lockheed Martin. These stocks, like those in the energy sector, performed well but did not meet our growth criteria.
We focus 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. We believe these are the companies that will distinguish themselves from the competition and the stocks that are most likely to return to favor.
Your theme-based approach is a distinct feature of the fund. Could you tell us about one of your growth themes?
One of our themes is 5G connectivity. 5G wireless technology increases network speed and responsiveness, which allows users to connect to more devices at once. The rapid growth in connected devices and systems will drive carriers to invest rapidly in 5G networks. The transition to 5G will play out in waves globally over the next 15 years.
Often, we favor the “enablers” of growth themes and trends. Also known as pick-and-shovel businesses, these companies provide products or services that enable the growth of the overall industry. Within our 5G theme, American Tower is an enabler. The business rents space on towers and rooftop antennas to wireless carriers and broadcasters. This company is indifferent to which mobile provider will gain the most market share, which might be a challenge to accurately predict. Instead, the company stands to benefit from the $30 billion-plus in infrastructure that’s necessary to transition from 4G LTE to 5G.
How are you positioning the fund for the months ahead?
As we head into 2023, our focus remains on companies with higher-quality business models and stronger track records that will likely prove more resilient in a wide array of operating and market scenarios. While we are less certain of the arc of the broader markets this year, we are optimistic that a heightened focus on business fundamentals and stock analysis will support our strategy and fund performance over time.
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.
