Q2 2026 Fund Commentary

Commentary and opinions are provided by Putnam Investments.

Market commentary

Global equities rebounded strongly in the second quarter of 2026, reversing the weakness seen at the end of the first quarter as markets recovered from the March energy shock. The partial unwinding of that shock, alongside ceasefire optimism and the signing of a memorandum of understanding between the U.S. and Iran, helped to ease fears around the Strait of Hormuz, lower oil prices and restore risk appetite. Asia Pacific emerged as the strongest major region, the U.S. also delivered a powerful recovery, and Europe lagged as its greater sensitivity to energy prices and weaker macroeconomic data weighed on sentiment.

Growth reasserted itself after the first quarter's defensive rotation, driven by renewed enthusiasm for semiconductors, data centres and the broader artificial intelligence (AI) complex. By June, the rally had become more selective as investors began to question the scale, financing and return profile of the next phase of AI-related capital expenditure.

Performance

Holdings in the information technology, industrials and consumer staples sectors contributed to performance.

Samsung Electronics Co., Ltd. contributed to performance as memory stocks sustained their rapid rise, supported by soaring memory prices and extended supply tightness. In the sub-advisor's view, expectations remain conservative given Samsung's leadership in a consolidated memory industry and its strategic role in AI-related high-bandwidth memory. Taiwan Semiconductor Manufacturing Co. Ltd. contributed to performance after Taiwan's financial regulator loosened fund allocation limits, driving inflows, and an across-the-board first-quarter earnings beat driven by AI-related demand. Infineon Technologies AG contributed to performance as earnings expectations rose on its potential role in AI data-centre power infrastructure, with management guidance reinforcing confidence in medium-term AI-related demand.

Holdings in the consumer discretionary, energy and communication services sectors detracted from performance.

BP plc detracted from performance as shares were pressured by weaker oil prices and renewed governance concerns following the abrupt removal of chairman Albert Manifold amid conduct-related allegations. In the sub-advisor's view, the stock continues to offer shareholder value potential as strategic initiatives, cost discipline and free cash flow support long-term earnings delivery. BYD Co., Ltd. detracted from performance as competitive pressures and weak domestic orders weighed on the shares following first-quarter results. AstraZeneca PLC also detracted from performance; the sub-advisor considers it one of its top health care picks, with an undemanding valuation relative to its growth outlook and a pipeline the market may be undervaluing.

Portfolio activity

The sub-advisor added IHI Corporation, because the long-term growth opportunities for its core aeroengine, defence and energy businesses remain underappreciated. The sub-advisor added Rio Tinto Ltd. in a swap from Galp Energia, SGPS, S.A., and added Novo Nordisk A/S, where the new Wegovy Pill in the U.S. became the fastest-launching GLP-1. The sub-advisor increased Diageo plc and Heineken N.V., partly funded by trimming Unilever PLC. Galp Energia, SGPS, S.A. was sold after reaching the sub-advisor's internal target price, and Securitas AB was sold because of AI concerns. Mitsubishi Electric Corp. and Ebara Corp. were reduced on valuation.

Outlook

June marked a welcome trend as market leadership began to broaden beyond the narrow AI trade, with progress on Iran helping to support sentiment, Europe outperforming the U.S., and industrials and other rate-sensitive cyclicals benefiting as inflation expectations eased. In the sub-advisor's view, the Fund is positioned to benefit if market leadership continues to broaden beyond AI, and further progress in the Middle East could particularly help rate-sensitive and cyclical holdings. The sub-advisor continues to see opportunities in health care, financials, utilities and high-quality companies that have been overlooked during the AI-led rally. While the sub-advisor remains a believer in the long-term AI growth story, it thinks parts of the trade may need time to digest recent gains.