Large-cap growth rally continues into second quarter

Large-cap growth rally continues into second quarter

Q2 2023 Putnam Large Cap Growth Fund Q&A

What can you tell us about market conditions and fund performance in the second quarter?

For a second consecutive quarter, we saw strong performance from large-cap growth stocks, and particularly from mega-cap stocks in the technology sector. Again, we were encouraged to see investors recognizing the potential in the types of stocks we favor, despite some ongoing macroeconomic uncertainty.

Our investing process remained consistent, and the fund outperformed its benchmark, the Russell 1000 Growth Index, for the quarter and the one-year period ended June 30, 2023. The fund’s year-to-date performance is also noteworthy. The fund outperformed the benchmark with a return of 31.23%.

You are known for your theme-based approach, and you have a new theme. What can you tell us about it?

Our newest theme is artificial intelligence. In the technology sector, excitement around AI has been building for many years. But now we’re seeing strategic action and prominent real-world applications related to AI from some of the world’s largest tech companies. More specifically, generative AI capabilities and use cases are advancing at a remarkable pace. Generative AI has gained widespread recognition as the technology behind the ChatGPT tool introduced in late 2022. It is distinct from previous iterations of AI because it goes beyond pure data recall. It leverages a large language model and massive computing power to deliver human-like inferences in natural language.

Generative AI is an exciting theme not only because of the size and duration of the opportunity, but also because many of the potential winners fit squarely in the large-cap growth investable universe. We believe the immediate beneficiaries of this theme are the enablers, such as semiconductor companies, as well as scaled platforms, such as cloud service providers. We are already seeing initiatives in place at these companies that present large potential new streams of revenue. However, we also see meaningful potential for future applications of generative AI across most other sectors — notably in health care, consumer, and industrial end markets. We believe AI technologies could drive a durable investment cycle across economic end markets that will be both powerful and influential to future stock returns.

What is your outlook as we look to the second half of 2023?

We continue to see structural tailwinds and exciting trends that we believe can drive sustained growth for many businesses. We are focused on companies with strong long-term growth potential and a narrow range of operational and financial outcomes. We look for higher-quality business models and stronger track records that will likely prove more resilient in a wide array of operating and market scenarios.

Our thematic approach remains a critical part of our investment process and a distinct feature of the fund. Together with a team of analysts, we continue to 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 multiyear time horizon.

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