Q4 2025 Fund Commentary

Commentary and opinions are provided by Putnam Investments.

Market commentary

Non-U.S. equities, as measured by the MSCI EAFE Index, returned 6.1% in the fourth quarter of 2025. Trade policy was a key driver of market sentiment, and many non-U.S. equity markets rebounded on optimism that the U.S. and China were progressing toward a trade truce. In its World Economic Outlook report, the International Monetary Fund said global economic growth would slow to 3.2% in 2025 from 3.3% in 2024. Growth was projected to fall to 3.1% in 2026 as protectionist measures being adopted in the U.S. and around the world take hold.

In Europe, stocks benefited from expectations of increased defence-related spending and a potential easing in trade tensions. Asian markets experienced volatility because of concerns about stretched valuations, particularly for information technology stocks. Information technology and growth stocks struggled most in November.

In December, Asian stock markets rose because of strength in information technology stocks and optimism around the potential of artificial intelligence (AI). South Korea experienced one of the strongest rebounds in the region, driven largely by AI chipmaker performance. In the U.K., economic uncertainty and weak consumer sentiment in certain sectors weighed on performance. Several U.K.-listed mining stocks performed well, driven by surging precious metal prices.

Performance

The Fund’s exposures to Samsung Electronics Co. Ltd. and Unilever PLC contributed to performance, as did overweight exposure to Hoya Corp. Overweight exposure to Nintendo Co. Ltd. detracted from performance, as did exposures to Alibaba Group Holding Ltd. and Tencent Holdings Ltd.

At the sector level, stock selection in the information technology, health care, consumer staples and financials sectors contributed to the Fund’s performance. Overweight exposure to the utilities sector also contributed to performance. Stock selection within the industrials, consumer discretionary and materials sectors detracted from performance, as did overweight exposure to the communication services sector. The Fund’s cash holding also detracted from performance.

At the regional level, underweight exposure to Australia contributed to the Fund’s performance. Overweight exposure to China detracted from performance.

Portfolio activity

The sub-advisor added to the Fund holdings in Safran SA, Chugai Pharmaceutical Co. Ltd., Infineon Technologies AG, ABB Ltd. and Ashtead Group PLC. Holdings in London Stock Exchange Group PLC, AstraZeneca PLC, British American Tobacco PLC, Enel SPA and Compass Group PLC were increased. Holdings in Tencent Holdings, Vinci SA, Thales SA, SK Hynix Inc. and Deutsche Boerse AG were sold. Holdings in Nintendo, Novo Nordisk AS and CRH PLC were reduced.

Outlook

The sub-advisor believes that the current environment could be supportive of equities. Financial conditions globally are easing, the result of synchronized interest rate cuts from central banks. While higher prices still exist, recent inflation trends remain in check, even with the impact of tariffs.

As debate intensifies around the risk of an AI bubble, the sub-advisor believes that investors should not lose sight of the long-term power of this emerging technology. The planned investment in AI is huge, and it is also starting an investment cycle in electricity generation and transmission. The sub-advisor expects AI to offer new subsets of potential winners and a wide array of new use cases.

Potential challenges for equities include worsening consumer sentiment, potential impacts from tariffs and ongoing U.S.-China tensions.

In the sub-advisor’s view, strong earnings growth could power equity markets higher through 2026. However, higher valuations and significant investments in AI with unclear long-term payoffs should increase volatility in equity markets.