Emerging markets outperform, and fund exceeds benchmark

Putnam Investments, 10/20/20


Q3 2020 Putnam Emerging Markets Equity Fund Q&A

  • The fund outperformed the benchmark for the quarter as well as for the 1-, 3-, 5-, and 10-year periods and the life-of-fund period ended September 30, 2020.
  • We are eyeing potential new winners in China, as our analyst team has had nearly 100 calls with the management teams of Chinese companies.
  • We believe the negative effects of the global pandemic will be less intense for emerging markets, particularly relative to U.S. and European markets.

How did the fund perform in the third quarter?

It was a very strong period of performance for the fund, which gained 15.10%, outperforming its benchmark, the MSCI Emerging Markets Index [ND], which returned 9.56%. We’re also pleased to report that the fund outperformed its benchmark for the 1-, 3-, 5-, and 10-year periods and the life-of-fund period ended September 30, 2020. Recent performance strength came from a wide range of sectors, particularly industrials, consumer discretionary, and communication services.

For global equity markets overall in the quarter, we saw volatility due to concerns about the persistent COVID-19 pandemic and continuing U.S.–China trade tensions. However, emerging-market stocks advanced in all three months.

What are some areas of focus as you position the portfolio?

As we continue to seek investment opportunities, we are eyeing potential new winners in China. Some clear themes have emerged this year as our analyst team has had nearly 100 calls with the management teams of Chinese companies. One notable trend is that Chinese brands are taking share from international brands across nearly every sector. Also, “Made in China 2025” is one of the Chinese government’s highest priorities. Its goals include increasing domestic-made content of core materials in key industries such as pharmaceuticals, aerospace, and information technology. We are watching these trends carefully and using insights from our meetings with company management teams to position the fund in what we believe are promising growth opportunities.

As we enter the final quarter of 2020, what is your outlook?

In an environment where bullish forecasts are relatively rare, we are optimistic about the prospects for emerging-market stocks. Much is still unknown about the economic impact of COVID-19 across global economies, and there is a wide range of potential outcomes. However, in terms of stocks, we believe the negative effects of the global pandemic will be less intense for emerging markets, particularly relative to U.S. and European markets. In our view, emerging-market stocks in most regions offer an attractive absolute and relative risk/reward profile. We believe lower global interest rates could also provide a tailwind.