Q4 2025 Fund Commentary

Commentary and opinions are provided by Putnam Investments.

Market commentary

U.S. equities rose during the fourth quarter of 2025. Early in the quarter, markets responded positively to strong earnings from a range of sectors and a truce in the ongoing U.S.-China trade war. Equities declined toward year-end, resulting in relatively flat performance for December.

Overall, the period was characterized by sharp rebounds and declines, fuelled by excitement and uncertainty around artificial intelligence (AI). Concerns about stretched valuations for information technology stocks weighed on markets, as did the U.S. government shutdown, which ended in early November.

Performance

The Fund’s overweight exposures to General Motors Co., Regeneron Pharmaceuticals Inc. and Citigroup Inc. contributed to performance. Overweight exposure to PulteGroup Inc. detracted from performance, as did an out-of-benchmark holding in Microsoft Corp. A lack of exposure to Micron Technology Inc. also detracted from performance.

At a sector level, stock selection in the financials, consumer discretionary, materials and industrials sectors contributed to the Fund’s performance. Underweight exposure to the real estate sector also contributed to performance. Stock selection in the information technology sector detracted from performance. Underweight exposure to the communication services sector and overweight exposure to the consumer staples sector detracted from performance.

Portfolio activity

There were no notable trades made in the Fund during the quarter.

Outlook

The U.S. economy and equity markets demonstrated resilience in 2025 despite concerns surrounding the impact of tariffs. Looking ahead, the sub-advisor expects investors will likely focus on actions from the U.S. Federal Reserve Board (Fed). The Fed is challenged by a combination of above-target inflation and a weakening employment outlook in the U.S.

In the sub-advisor’s view, economic growth should be supported by an ongoing weak U.S. dollar. Growth could accelerate due to the U.S. administration’s One Big Beautiful Bill Act (OBBBA), which supports increased capital spending and ongoing expansionary tactics.

The sub-advisor is watching the consumer closely, given their significant impact on the overall U.S. economy. Data has pointed to a healthy consumer, with the credit picture particularly strong. However, the sub-advisor is mindful of potential challenges, including the mid-2025 expiration of the student loan moratorium, expiring health care subsidies and declining sentiment indicators.

Equity valuations have been elevated by optimism over accelerating economic growth and the potential of AI to boost innovation, capital spending and productivity. The sub-advisor is cautious about high valuations that are so dependent on AI performance and investment. Markets could be vulnerable to results that don’t meet the high expectations. However, high valuations could be supported by continued high earnings growth, fuelled by AI spending and the OBBBA.

With U.S. midterm elections coming in November 2026, the sub-advisor expects market volatility. Given the delicate balance of power in the U.S. Congress and Senate, the sub-advisor anticipates efforts by the current U.S. administration to keep approval ratings high.

Currently, the largest sector overweight exposures for the Fund are in the consumer staples and materials sectors. The Fund’s exposure to the financials sector is one of the largest absolute weights, but it is currently underweight. The communication services, real estate and industrials sectors are also below benchmark weight.