Q1 2026 Fund Commentary

Commentary and opinions are provided by Putnam Investments.

Market commentary

Non-U.S. equities were roughly flat during the first quarter of 2026. After gains in January and February, international equity performance reversed in March. European equities performed well early in the quarter, with some markets hitting record highs, benefiting from broader global optimism and commodity strength. Asian markets also posted solid performance, driven by strong demand for artificial intelligence (AI)-related and technology infrastructure stocks.

In March, global equity markets experienced declines and turbulence driven by the conflict in the Middle East, which began in late February. The conflict pushed up oil prices and raised inflation fears and anxiety over the potential for escalation. Markets became sensitive to oil price swings and conflict-related headlines, with European equities among the hardest hit because of the region's energy dependency risk. In Asia, stocks were particularly sensitive to oil import costs and supply disruptions.

Performance

Sector allocation was the primary driver of performance during the quarter. An underweight allocation to the consumer discretionary sector and an overweight allocation to the energy sector contributed to performance. Stock selection within the information technology, health care and materials sectors also contributed to performance. By country, selection within the U.K., Switzerland and South Korea was positive.

An overweight exposure to Glencore plc contributed to performance. Samsung Electronics Co. Ltd., an out-of-benchmark allocation, also contributed to performance. An overweight exposure to Galp Energia SGPS S.A. contributed to performance.

Stock selection detracted from performance in the industrials, communication services and consumer discretionary sectors. By country, selection within Japan, France and Indonesia detracted. A slight overweight allocation to the industrials sector also marginally detracted from performance.

An overweight exposure to Deutsche Bank AG detracted from performance. Out-of-benchmark allocations to Alibaba Group Holding Ltd. and CRH plc detracted from performance during the quarter.

Portfolio activity

The sub-advisor added BHP Group Ltd., Galp Energia SGPS S.A. and Hitachi Ltd. during the quarter. The sub-advisor increased Glencore plc, BP p.l.c. and Japan Exchange Group Inc.

The sub-advisor sold London Stock Exchange Group plc, Accor S.A. and Akzo Nobel N.V. The sub-advisor also reduced Prudential plc, Compass Group plc and Ryanair Holdings plc.

Outlook

The first quarter turned turbulent in its final month as the conflict in the Middle East brought notable uncertainty to global equity markets. In the sub-advisor's view, the situation remains fluid, and the conflict presents a wide range of implications depending on its duration and outcome. A relatively quick resolution could ease energy prices and inflationary pressures, while a drawn-out conflict could weigh on equity markets.

The sub-advisor notes a sharp momentum reversal in equities since the start of the conflict, especially in markets outside the U.S., which are more sensitive to energy price shocks. Concerns related to AI disruption, particularly in software, have added to uncertainty. The sub-advisor remains focused on active management and disciplined fundamental research, an approach the sub-advisor believes is particularly important in uncertain and volatile environments.