Your SlideShare is downloading. ×
Putnam Equity Income Fund Q&A Q2 2013
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Putnam Equity Income Fund Q&A Q2 2013

106
views

Published on

The portfolio’s pro-cyclical bias was beneficial as we continued to see a shift in favor of cyclical stocks over defensive sectors. Over the past few years, we have seen a significant expansion in the …

The portfolio’s pro-cyclical bias was beneficial as we continued to see a shift in favor of cyclical stocks over defensive sectors. Over the past few years, we have seen a significant expansion in the universe of companies with the ability and willingness to pay a dividend. Given the speed with which stocks have advanced and the introduction of increased interest-rate volatility, I would describe my outlook for equities as cautious for the short term.

Published in: Business, Economy & Finance

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
106
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. PUTNAM INVESTMENTS | putnam.com Key takeaways •The portfolio’s pro-cyclical bias was beneficial as we continued to see a shift in favor of cyclical stocks over defensive sectors. •Over the past few years, we have seen a significant expansion in the universe of companies with the ability and willingness to pay a dividend. •Given the speed with which stocks have advanced and the introduction of increased interest-rate volatility, I would describe my outlook for equities as cautious for the short term. What can you tell us about conditions in the second quarter and performance for the portfolio? Both the U.S. equity market and the fund fared well in the second quarter. Within the fund’s portfolio, sectors that worked well were industrials, financials, and materials, while health-care, energy, and information technology holdings were weaker. The portfolio’s pro-cyclical bias was beneficial as we continued to see a shift in favor of cyclical stocks over defensive sectors. This, I believe, is a reflection of changing macroeconomic conditions. In the United States in particular, we have seen vast improvement on the employment front and in the housing market. This has boosted sentiment and encouraged more risk-taking on the part of equity investors. In terms of portfolio construction, we were able to focus on these opportunities in cyclical stocks without sacrificing yield potential. Another interesting aspect of the second quarter involved the importance of cash flow to company performance. Companies with high free-cash-flow yields have outperformed those with weaker free-cash-flow yields. At the same time, companies with high dividend yields have underperformed. As cash flow became preferred over dividend yield, cyclical sectors benefited, including industrials, financials, and information technology. Among the highest-dividend-yielding stocks, those in defensive sectors — consumer staples, utilities, and telecom — were weakest. Assistant Portfolio Manager Walter D. Scully, CPA (industry since 1990) Q2 | 2013 » Putnam Equity Income Fund Q&A Dividend-paying stocks rise to the challenge of higher interest rates Darren A. Jaroch, CFA Portfolio Manager
  • 2. Q2 2013 | Dividend-paying stocks rise to the challenge of higher interest rates 2 As investors begin to anticipate rising interest rates, do you expect demand to weaken further for dividend-paying stocks? Which sectors are typically most affected by rising rates? A rise in interest rates will likely taper demand for dividend-paying stocks. The high-yielding sectors — the so-called “bond proxies” — will be most affected by the initial moves, particularly REITs and utilities stocks. Looking ahead, however, it is important to consider the reason for rising rates, which is broadening improve- ment in the economy. This is good for equities and therefore, as I view stocks in the context of a diversified portfolio that also seeks capital appreciation over time, my outlook is bullish. Another reason you’ve cited for your optimism is the wider range of opportunities among dividend-paying companies. Can you tell us more about this? Historically, dividend-paying stocks were almost exclu- sively those in defensive and “bond-like” sectors such as telecom and utilities. Over the past few years, however, we have seen a significant expansion in the universe of companies with dividend-paying proclivity — the ability and the willingness to return cash to shareholders. Currently, approximately 80% of S&P 500 compa- nies are paying dividends. And, even more important, the practice has extended well beyond the defensive sectors. For example, over the past few quarters, many information technology companies, a group that traditionally withheld cash for reinvestment or other purposes, have initiated or increased dividends. In fact, I would estimate this trend is occurring in 6 or 7 of the 10 S&P 500 sectors — even in this rising-rate environment. There are no guarantees that a company will continue to pay dividends. As we enter the second half of 2013, what is your outlook? As an equity investor, I have been pleased with the performance of the market and the improvement in investor sentiment. However, given the speed with which stocks have advanced and the introduction of increased interest-rate volatility, I would describe my outlook as cautious for the short term. We are seeing legitimate economic expansion in the United States, although it is slower than expected, and investors are less jittery about risks that had been distracting them for a while, such as slowing growth in China, recession in Europe, and U.S. government budget challenges. One notable risk that remains, in my view, is the possibility of a dramatic spike in interest rates, partic- ularly if the Federal Reserve communicates its plans for tapering bond-buying programs in a way that unnerves investors. I view this as a short-term risk, however, and my long-term view remains constructive for equity investing. While volatility for stocks is certainly possible in the coming months, it is important to remember that retrenchment can be healthy for the market. Putnam Equity Income Fund (PEYAX) Annualized total return performance as of June 30, 2013 Class A shares (inception 6/15/77) Before sales charge After sales charge Russell 1000 Value Index Last quarter 3.18% -2.76% 3.20% 1 year 29.24 21.81 25.32 3 years 20.00 17.65 18.51 5 years 9.07 7.79 6.67 10 years 8.73 8.09 7.79 Life of fund 10.15 9.97 — Total expense ratio: 1.09% Returns for periods less than one year are not annualized. 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 before sales charge assumes reinvestment of distributions and does not account for taxes. After-sales-charge returns reflect a maximum 5.75% load. The fund’s expense ratio is based on the most recent prospectus and is subject to change. To obtain the most recent month-end performance, visit putnam.com. The Russell 1000 Value Index is an unmanaged index of those companies in the large-cap Russell 1000 Index chosen for their value orientation. You cannot invest directly in an index.
  • 3. Q2 2013 | Dividend-paying stocks rise to the challenge of higher interest rates EO148 281770 7/13 The views and opinions expressed are those of Darren A. Jaroch, CFA, Portfolio Manager, as of June 30, 2013. They are subject to change with market conditions and are not meant as investment advice. Consider these risks before investing: Value stocks may fail to rebound, and the market may not favor value-style investing. Income provided by the fund may be reduced by changes in the dividend policies of, and the capital resources available at, the companies in which the fund invests. Stock prices may fall or fail to rise over time for several reasons, including general financial market conditions and factors related to a specific issuer or industry. You can lose money by investing in the fund. Request a prospectus or summary prospectus from your financial representative or by calling 1-800-225-1581. The prospectus includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing. Putnam Retail Management | One Post Office Square | Boston, MA 02109 | putnam.com

×