Behavioral shifts bring investment opportunities

Behavioral shifts bring investment opportunities

There is still much uncertainty surrounding COVID-19, but it is becoming clear that there will be notable differences between our pre- and post-pandemic worlds. Across the business landscape, we are already observing significant changes in areas such as consumer purchasing preferences, human communication, and workflows.

Once the dust settles, we believe companies across a multitude of industries will be beneficiaries. We look beyond those businesses that have simply benefited from a closed economy. To meet our investment criteria, they must offer strong and durable growth potential over the long term. We have identified many businesses that have been resilient and strong during the COVID-19 crisis and that, in our view, are likely to become even stronger in the aftermath.

A new theme for growth investing: Viral effects

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 multi-year time horizon.

Investment opportunities emerge from a wide array of themes

Putnam Large Cap Growth Fund’s managers, along with a team of analysts, develop investment themes then narrow their focus to look for large-cap companies that offer durable long-term growth prospects.

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The “viral effects” idea developed through our discussions about COVID-19-related behavioral trends and potential changes across a multitude of industries. We considered:

  • What will be different as we come out on the other side of the pandemic
  • What the new normal will look like, and
  • Which companies will benefit in a radical and durable way.

Potential beneficiary: Danaher (DHR)

One example of this theme in our portfolio is Danaher, a company that develops leading-edge diagnostic tools. We believe diagnostic testing for all types of viruses will become prevalent as policy makers balance the openness of economies and free movement of people with safeguards against infectious diseases.

Several of Danaher’s portfolio companies are delivering a significant tailwind to its growth. One of them, Cepheid, was first to market with a rapid molecular COVID-19 test that provides results in under 45 minutes. The company will ship six million units per quarter. We believe that increased testing and the buildout of a more robust pandemic infrastructure will support normalized mid-to-high single-digit revenue growth for Danaher for several years.

Active management: A benefit in times of changing markets

As active managers, we are able to take advantage of shifting market and economic conditions. Our intense focus on portfolio positioning and downside risk may be especially beneficial with swift and unexpected events such as the COVID-19 pandemic. As always, we are taking a patient and methodical approach while using market weakness and dislocations to add to existing holdings or to initiate new positions.

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Under portfolio managers Richard E. Bodzy and Gregory D. McCullough, CFA, Large Cap Growth Fund received a 5-star Overall Morningstar Rating out of 1,224 funds in the Large Growth category based on total return as of 05/31/20.

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