When it comes to successful long-term investing, following the crowd has tended to be a recipe for lackluster results. For example, after the financial markets crisis in late 2008, investors took a “flight to quality” and moved their money out of asset classes with any perceived risk — including equities — and into Treasuries and money market funds. That trend generally continued throughout 2009 and 2010: According to Morningstar, investors pulled more than $100 billion out of large-cap stock mutual funds over that two-year period. Unfortunately for investors sitting on the sidelines, equities went on to stage an extraordinary rally during that time, with the S&P 500 Index gaining more than 45% during the past two years.

Price volatility has created investment opportunities in recent years
The funds we manage are designed to exploit exactly this price volatility by buying into undervalued securities with attractive long-term fundamentals. Our portfolio construction process is completely bottom-up, and begins with a comprehensive assessment of a company’s intrinsic value. We look at the cash flows of a company over a complete business cycle — through challenging periods and periods of outperformance — to seek to determine a baseline expectation for its long-term earnings potential.

Given the intrinsic value we establish, our next step is to find companies whose prices have become disconnected from the companies’ fundamental worth, companies that are undervalued for what we believe are primarily emotional reasons. For example, unexpected bad news might cause a company to sell off dramatically while its intrinsic worth remains fundamentally unchanged. In times like these, we will seek to establish positions and are willing to hold them for two to three years while waiting for our investment thesis to play out.

It is a strategy that has produced attractive returns over the last ten years. For the decade ended December 31, 2010, Putnam Capital Opportunities Fund returned an average of 5.28% a year at net asset value. Putnam International Capital Opportunities Fund returned 6.44% a year at NAV over the same time period.

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary, and you may have a gain or a loss when you sell your shares. Performance of class A shares is shown before sales charge, assumes reinvestment of distributions, and does not account for taxes. Had the 5.75% sales charge been reflected, returns would have been lower. For a portion of the periods, the funds may have had expense limitations, without which returns would have been lower. A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the funds’ prospectus. To obtain the most recent month-end performance, visit putnam.com.
View complete fund performance.

Consider these risks before investing: International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. The funds invest some or all of their assets in small and/or midsize companies. Such investments increase the risk of greater price fluctuations.