Q1 2021 Putnam Growth Opportunities Fund Q&A
- In the first quarter, investors began to favor stocks that tend to perform better in periods of economic recovery.
- As the economy reopens, we believe there are pockets of great pent-up demand that can help drive earnings for a number of companies we own in the portfolio.
- When we witness shifts in the economy, we look for the businesses that are enabling changes and that can profit from these trends over the long term.
How were conditions in the first quarter and how did the fund perform?
After delivering very strong performance last year, growth stocks had a more challenging first quarter. The fund slightly underperformed its benchmark, which delivered a modest return. Conditions changed as Covid-19 vaccine distribution got under way and investors began to anticipate the reopening of economies. Inflation expectations rose, and the yield on the 10-year Treasury note reached its highest level in more than a year. Investors began to favor stocks that tend to perform well in periods of economic recovery, while high-growth stocks in sectors like technology struggled. Value stocks outperformed growth stocks, and small-cap stocks outperformed large caps by a significant margin.
Did your outlook or approach change as investor preferences rotated from growth to value?
Our core investment philosophy and approach has not changed. It is not our goal to try to predict which direction the market will take in the coming months, but rather to focus on individual stock selection and the long-term growth potential of our holdings. We spend the majority of our time analyzing business quality, market structure, and the underlying growth drivers, seeking companies that we believe can grow at above-market rates across a cycle. When we witness shifts in the economy, we look for the businesses that are enabling changes and that can benefit from these trends over the long term.
Although the first quarter brought challenges for growth stocks, did it bring opportunities as well?
Yes. A lot of consumers have accumulated significant savings, many are receiving government stimulus checks, and everyone is eager to get back to normal activities as the economy reopens. We believe that there are pockets of great pent-up demand that can help drive earnings for a number of companies we own in the portfolio. These are industry-leading businesses with dominant market share that found themselves in the eye of the storm during the pandemic in 2020. In our view, these companies — in areas such as travel, leisure, and live entertainment — will bounce back materially in 2021.
What is your view on growth stocks, in areas such as technology, that soared in 2020 but declined recently?
It will be challenging for some businesses that profited from the trends in 2020 to match their results in 2021. However, in our view, many of them are coming out of the pandemic in an even stronger position than they were a year ago. We have seen demand accelerate considerably across some of our themes, such as e-commerce, digital payments, cloud infrastructure, and increased screen time. We believe this demand is sustainable, and we are excited about the companies in our portfolio that are poised to capitalize on it.
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