Putnam US Value Equity
Mandate commentary
Q3 2025
Highlights
① In a strong environment for U.S. stocks, the portfolio outperformed its benchmark, the Russell 1000 Value Index.
② Balancing geopolitical uncertainty with positive economic fundamentals.
③ Broad diversification remains the best way to handle mixed market conditions.
Mandate overview
For the quarter, US equities, as measured by the S&P 500 Index, returned 8.12%. Stocks were boosted in part by optimism surrounding U.S. Federal Reserve (the Fed) rate cuts and technology sector strength. At the start of the quarter, the Fed held interest rates steady for a fifth straight meeting. And in September, it delivered a highly anticipated 25-basis-point (quarter of a percentage point) interest rate cut. Chair Jerome Powell said the Fed needs to balance inflation concerns with a weakening job market for upcoming rate decisions.
The portfolio outperformed the benchmark during the period. Relative performance was driven by strong stock selection, with sector allocation decisions detracting modestly.
Stock selection was strongest in the information technology, health care and financials sectors. Weakness in materials and consumer staples offset those strengths somewhat. From a sector allocation perspective, relative performance was hurt by an overweight to consumer staples and an underweight to communication services.
Mandate: US Large Cap Value Concentrated SMA
Performance contributors
Seagate Technology: the out-of-benchmark position was a top contributor, as fundamentals in the digital storage industry strengthened and the company’s profitability improved.
Citigroup: an overweight was a positive contributor, as the company has benefited from a positive environment for banks and is seeing results in its turnaround effort.
PulteGroup: an overweight position contributed positively, given the company’s strong operating results in what has been perceived as a more challenging environment for home builders.
Performance detractors
American International Group: an overweight position was the top detractor. Concerns surrounding catastrophe and property insurance pricing weighed on the stock.
Charter Communications: the portfolio’s overweight position detracted. The company’s subscriber growth fell short of expectations.
Philip Morris International: a relative overweight weighed on results. Investors have been concerned about sales volume for one of the company’s smokeless products.
Total gross returns:
Total return | QTD | YTD | 1YR | 3YR | 5YR | since INC. (NOV. 14, 2016) |
PUTNAM US VALUE EQUITY | 6.68%
| 14.74%
| 12.96%
| 23.32%
| 20.72%
| 15.39%
|
Mandate repositioning
U.S. economic growth and equity markets remain resilient, despite macroeconomic challenges. These include a softening labour market, a growing bifurcation of the consumer sector and the formalization of some tariffs. 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.
We continue to see uncertainty around the Trump administration’s policies, several of which could have consequences for economic growth and investor confidence. At the same time, 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.
By sector, we remain within +/-5% of benchmark weight. Currently, the largest overweight sectors are consumer staples and consumer discretionary. While financials is the largest weight in the portfolio, it is currently underweight. Communication services, real estate and industrials also remain below benchmark weight.
Market overview: signs of optimism emerge, despite the noise during "Liberation Day" fallout
The third quarter delivered broad gains across asset classes, with market performance largely overriding a backdrop of cautious sentiment. Investors looked past persistent trade policy headlines, increasingly treating the U.S. administration's tariff policy as noise rather than a core risk. The primary catalysts for the positive performance were a subtle shift toward lower-interest-rate expectations and resilient corporate earnings.
Signals from the U.S. Federal Reserve of imminent rate cuts were followed by a quarter percentage cut in September. Government bond yields eased into the quarter's end, supporting bond prices, while corporate bonds outperformed government bonds.
Market outlook: solid reasons for optimism, despite ongoing uncertainty
Looking ahead, the normalization of inflation is a key development, providing central banks with the flexibility to begin an easing cycle over the next six to 12 months. This anticipated shift toward more accommodative monetary policy is expected to lower borrowing costs, creating a supportive foundation for economic activity.
This should help the macroeconomic environment sustain corporate strength. Earnings are projected to remain robust, building on a consistent trend of exceeding expectations. Resilient corporate profitability continues to be a primary driver of market performance.
The combination of impending rate cuts and durable earnings growth establishes a constructive outlook for equities. This environment reinforces the principle that focusing on underlying fundamentals, rather than reacting to short-term market volatility, is a prudent strategy for capturing future growth potential.
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