Putnam US Value Equity
Mandate commentary
Q2 2025
Highlights
① Despite a volatile start to the period for U.S. stocks, the portfolio generated a positive return and outperformed its benchmark.
② Equities staged a sharp V-shaped recovery after tariff reversal.
③ Investors look ahead to trade-policy clarity.
Mandate overview
Broad U.S. equity markets delivered strong gains during the second quarter of 2025, while value stocks posted a solid, yet more muted, gain. The quarter began with significant turmoil following U.S. President Donald Trump’s announcement of sweeping and surprisingly steep tariffs on nearly all imports, which led to historically sharp losses for U.S. equities. Stocks dramatically reversed course when Trump announced a 90-day pause on certain tariffs to most countries. Equities rebounded in May as a better-than-expected jobs report eased recession fears, and the U.S. Federal Reserve (the Fed) kept interest rates unchanged for a third consecutive meeting.
In this environment, the portfolio outperformed its benchmark. Relative performance was driven by strong stock selection, with sector allocation decisions detracting modestly.
Stock selection was strongest in the financials, information technology, utilities and consumer staples sectors. Weakness in the health care and industrials sectors offset those strengths somewhat. From a sector allocation perspective, an underweight exposure to industrials had the most significant negative impact.
Mandate: US Large Cap Value Concentrated SMA
Performance contributors
NRG Energy — The overweight position was a top contributor as the company’s announcement of an acquisition was received favourably.
Seagate Technology — An out-of-benchmark position was a positive contributor as fundamentals in the digital storage industry strengthen and the company’s profitability improves.
Oracle — An out-of-benchmark position contributed positively as the company is showing accelerating demand for its cloud solutions amid new partnership agreements.
Performance detractors
Sanofi — An out-of-benchmark position was the top detractor. Concerns surrounding the Trump administration’s approach to vaccines weighed on the stock.
UnitedHealth — The portfolio’s overweight position detracted. Several operational missteps, combined with a change in management, shook investors’ confidence.
Thermo Fisher Scientific — A relative overweight position weighed on results. The company reduced guidance as a result of tariffs and the new administration’s health care policy.
Total gross returns:
Total return | QTD | YTD | 1YR | 3YR | 5YR | since INC. (NOV. 14, 2016) |
PUTNAM US VALUE EQUITY | 5.87%
| 8.31%
| 11.88%
| 19.11%
| 19.35%
| 15.05%
|
Mandate repositioning
Uncertainty continues to surround the Trump administration’s actions, such as the tariff proposals that shook global equity markets early in the second quarter. However, the U.S. economy has remained resilient, investors shrugged off the volatility, and markets climbed to all-time highs by the midpoint of the year. Equity valuations are on the rich side of history, leaving stocks vulnerable to negative developments that are likely at this stage of the economic cycle. The labour market is expected to soften, consumer sentiment remains fragile, and proposed tariffs could reintroduce inflation. The portfolio management team expects market volatility to return when the pause on tariffs expires.
Corporate earnings have remained strong and are expected to continue to grow, albeit at a slower pace than previously anticipated. The implementation of meaningful tariffs could have a significant impact on earnings growth, stressing current expensive multiples. The financials sector makes up a considerable portion of the value universe, and the portfolio management team is watching for proposals that could ease the regulatory burden on banks and boost long-term return potential for the sector. Although uncertainty remains, as value investors, the portfolio management team recognizes that market disruptions can also present attractive investment opportunities.
By sector, the portfolio remains within +/-5% of benchmark weight. Currently, the largest overweight sectors are consumer staples and consumer discretionary. While financials is the largest sector weight in the portfolio, it is one of the largest relative underweight exposures. Exposures to the industrials, real estate and communication services sectors also remain below benchmark weight.
Market overview: volatility gripped global markets during "Liberation Day" fallout
The second quarter of 2025 served as a stark lesson in the market’s ability to absorb sharp, politically driven shocks. The period was dominated by the U.S. administration's chaotic trade policy, beginning with the April announcement of sweeping tariffs, which sent global equities into a tailspin. The S&P 500 Index plunged into correction territory, marking its most significant retreat since March 2020.
This initial panic sent investors fleeing to safe havens, a move clearly reflected in the 5.7% surge in gold prices this quarter. However, the administration’s subsequent and rapid reversal of the policy triggered an equally dramatic V-shaped recovery. The initial fear that gripped the market evaporated, and major equity indices charged back into positive territory
Throughout this turbulence, central banks remained on the sidelines. The U.S. Federal Reserve (the Fed) and the Bank of Canada (BoC) held rates steady, caught between the inflationary threat of tariffs and the risk of a corresponding economic slowdown.
Market outlook: solid reasons for optimism, despite ongoing uncertainty
The world is rarely free of turmoil. Over the past five years, the world economy has faced a global pandemic, multi-decade inflation highs, aggressive interest rate hikes and significant international conflicts. Yet, despite these challenges, markets have demonstrated resilience as businesses adapt, consumers adjust, and economies discover new pathways to growth.
Looking ahead, trade policy clarity and its influence on corporate earnings will be key drivers of market sentiment. Attractive equity valuations and the potential for mid-teens earnings growth provide reasons for optimism, though uncertainty around policy and geopolitical risks remains a headwind. Central banks are expected to shift toward more accommodative monetary policy, with rate cuts anticipated in some regions. This could support economic growth while stabilizing markets, particularly in fixed income.
Persistent volatility may weigh on sentiment in the near term, especially in areas more exposed to trade tensions. However, as these risks moderate, the outlook should improve, with opportunities emerging in sectors poised to benefit from easing uncertainty. It’s important to remember that volatility, while challenging, can also create opportunities.
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