Q1 2026 Fund Commentary

Commentary and opinions are provided by Putnam Investments.

Market commentary

U.S. equities faced a challenging first quarter, with modest losses in January and February giving way to sharper declines and turbulence in March. Technology stocks experienced notable volatility as investors weighed the implications of artificial intelligence (AI) across industries. The conflict in Iran in late February drove oil prices higher and raised concerns about inflation and its potential to slow economic growth.

Performance

Sector allocation decisions contributed to performance, particularly an overweight allocation to the materials sector and an underweight allocation to the communication services sector. Stock selection in the energy, financials and consumer staples sectors also contributed to performance during the quarter.

Valero Energy Corporation contributed to performance because of the sub-advisor's overweight allocation. Seagate Technology Holdings plc, an out-of-benchmark allocation, also contributed to performance. Shell plc, another out-of-benchmark allocation, contributed to performance.

Stock selection detracted from performance overall, particularly in the information technology, health care and real estate sectors. An underweight allocation to the energy and industrials sectors also detracted from performance during the quarter.

Microsoft Corp., an out-of-benchmark allocation, detracted from performance. Overweight exposures to Capital One Financial Corp. and Accenture plc detracted from performance.

Portfolio activity

The sub-advisor added Boston Scientific Corp. because of an attractive valuation opportunity and Kroger Co. because of a successful operational turnaround. The sub-advisor increased Honeywell International Inc. and Otis Worldwide Corp. because of improving fundamentals and attractive valuations.

The sub-advisor sold Target Corp., DuPont de Nemours Inc. and Lululemon Athletica Inc. The sub-advisor also reduced Walmart Inc. and Johnson Controls International plc.

Outlook

The conflict in the Middle East disrupts what had been an optimistic economic growth outlook. In the sub-advisor's view, tensions around the Strait of Hormuz and elevated oil prices increase recession risk.

Valuations remain elevated despite recent price declines. The sub-advisor believes the AI narrative is oversimplified and that most companies lie between the extremes of "winner" and "loser." Consumer spending has remained resilient, and capital spending continues to be robust, driven by AI development. The sub-advisor remains focused on identifying high-quality value opportunities and believes disciplined stock selection may be rewarded in the current environment.