Q3 2023 Putnam Large Cap Value Fund Q&A
- The fund outperformed the benchmark for the third quarter and the 1-, 3-, 5-, and 10-year periods ended September 30, 2023.
- Large-cap value stocks, which had been relative underperformers in the first half of the year, had a modest decline in the quarter.
- As a result of value’s relative underperformance, we are seeing some exciting opportunities in terms of valuation.
How were market conditions in the third quarter?
Lauren: After strong performance for the first two quarters of 2023, the equity market took a breather in the third quarter. Broad equity performance weakened as persistent inflation, uncertainty about the path of monetary tightening, and the possibility of recession weighed on sentiment. Large-cap value stocks, which had been relative underperformers in the first half of the year, had a modest decline in the quarter.
How has the fund performed?
Darren: The fund had strong relative performance in this difficult period for large-cap value. It outperformed the benchmark for the third quarter and for the 1-, 3-, 5-, and 10-year periods ended September 30, 2023. Positions in health care, utilities, and communication services were top contributors. Energy stocks were also strong performers, while holdings in industrials and information technology detracted somewhat. We continued to reduce our position in Meta Platforms. Meta was removed from the benchmark Russell 1000 Value Index when the index was rebalanced in June. Our reduction was designed to align our active risk in the portfolio with our conviction in the position.
What is your outlook for the months ahead?
Lauren: As a result of value’s relative underperformance, we are seeing some exciting opportunities in terms of valuation. From a macroeconomic perspective, inflation remains the key focus of the Federal Reserve’s policy decisions. The employment picture remains quite strong, which supports the view that an economic soft landing is still possible. We believe one more interest-rate hike is likely in 2023, but expectations for rate cuts in 2024 have eased. We are mindful of recent events in the Middle East, which are creating uncertainty for financial markets and could weigh on investor sentiment. Other potential risks include higher energy costs and the United Auto Workers strikes. If the labor disputes persist, they could impact auto production, leading to another round of new and used car price inflation.
Darren: We believe some post-pandemic headwinds bear watching. As pandemic savings continue to dwindle, consumer sentiment could also decline, and we are already seeing some signs of fatigue. Also, the financial burden for many consumers is increasing as pandemic-related benefits wind down. Already, we are seeing nascent signs of stress for lower-income borrowers, including in auto financing and credit card debt.
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