Durable growth remains a focus after difficult year for equities

Durable growth remains a focus after difficult year for equities

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.

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