Behavioral shifts bring potential investment opportunities

Behavioral shifts bring potential investment opportunities

  • As a result of COVID-19, we are already observing significant changes in areas such as consumer purchasing preferences, human communication, and workflows.
  • Our newest growth theme focuses on which companies we believe will benefit as we come out on the other side of the pandemic.
  • We expect companies that develop leading-edge diagnostic tools to benefit as the free movement of people will need to be balanced with safeguards against infectious diseases.

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 which we believe are likely to become even stronger in the aftermath.

Companies across a multitude of industries could be beneficiaries once the dust settles.

“Viral effects” is our newest durable growth theme

Our investment approach is notable for our thematic approach. 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.

The “viral effects” idea developed through our ongoing discussions about themes that drive our fundamental research. We looked at COVID-19-related trends and discussed potential changes in behavior. We considered what may be different as we come out on the other side of the pandemic, what the new normal may look like, and which companies may potentially benefit in a radical and durable way.

The “viral effects” idea developed through our ongoing discussions about themes that drive our fundamental research.

Potential example: 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. Policymakers will need to balance the openness of economies and free movement of people with safeguards against infectious diseases.

Several of Danaher’s portfolio companies, such as Cepheid, Pall, IDT, and Radiometer, have the potential to deliver a significant tailwind to its growth. Cepheid’s rapid molecular COVID-19 test was first to market and provides results in under 45 minutes. The company is anticipated to ship six million units per quarter. We believe that increased testing and the buildout of a more robust pandemic infrastructure may potentially support normalized mid-to-high single-digit revenue growth for Danaher for several years.

Active management: A potential benefit in times of changing markets

As active managers, we seek to take advantage of shifting market and economic conditions. Our intense focus on portfolio positioning is especially helpful 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.

As of March 31, 2020, Danaher accounted for 2.39% of the Putnam U.S. Large Cap Growth Equity strategy. The company presented as an investment example represents the positions deemed most relevant to the applicable “viral effects” investment theme being discussed. Investment themes selected are determined by the portfolio management team based on certain growth factors. Current investment themes and investment examples were selected without regard to whether such themes, or relevant securities, were profitable and are intended to help illustrate the investment process. The inclusion of holdings information should not be interpreted as a recommendation to buy or sell or hold any security. It should not be assumed that investment in the securities mentioned was or will be profitable. Holdings are for a representative account and are shown for illustrative purposes only. Each account is managed individually. Accordingly, account characteristics may vary.

This material is a general communication for informational and educational purposes only. It is not designed to be a recommendation of any specific investment product, strategy, or decision, and is not intended to suggest taking or refraining from any course of action. The material was not prepared, and is not intended, to address the needs, circumstances, and objectives of any specific institution, plan, or individual(s). Putnam is not providing advice in a fiduciary capacity under applicable law in providing this material, which should not be viewed as impartial, because it is provided as part of the general marketing and advertising activities of Putnam, which earns fees when clients select its products and services. The views and strategies described herein may not be suitable for all investors. Prior to making any investment or financial decisions, any recipients of this material should seek individualized advice from their personal financial, legal, tax, and other professional advisors that takes into account all of the particular facts and circumstances of their situation. Representative account data in this report is for illustrative purposes only. Generally, the representative account is selected based on the account that has the longest track record or that is most representative of the intended strategy taking into consideration the account with the least investment restrictions, the size of the account, and/or most relevant and applicable to the prospective client. Representative accounts may change over time. Predictions, opinions, and other information contained in this material are subject to change. Actual results could differ materially from those anticipated. All investments involve risk, and investment recommendations will not always be profitable. Putnam Investments does not guarantee any minimum level of investment performance or the success of any investment strategy. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.


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