Putnam announced on Tuesday that it is taking steps to enhance its small-cap equity capabilities. Putnam believes small-cap equity is an area of opportunity for active managers, according to Aaron Cooper, chief investment officer for Putnam.
“We feel that there is a real opportunity in the small-cap space for an active manager to be able to add value and perform for clients,” Cooper told ThinkAdvisor.
“It’s a space that’s less efficient than most other areas of the market,” he added. “We feel like we’ve generated some really good stock picking over time, and if you can invest behind the right talent base and run money in a somewhat more concentrated way with fewer holdings, you can really deliver in the space.”
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Effective March 31, David Diamond, formerly of The Boston Co. and High Rock Capital, will join Putnam as a portfolio manager on the Putnam Small Cap Value Fund. He will be co-manager with Eric Harthun until Harthun retires as the end of 2017.
Putnam is also expanding its analyst team with Bill Wiese, who worked with Diamond at The Boston Co. and High Rock. Putnam’s small-cap equity team now numbers eight analysts.
Putnam believes research is critical to investment in the small-cap equity space, and is naming several of its small-cap analysts as managers of various funds. Kate Lakin, co-director of equity research, will manage the Capital Opportunities Fund, taking over for Pam Gao, who is leaving the firm at the end of March.
The International Capital Opportunities Fund will be managed by Karan Sodhi, Spencer Morgan and Andrew Yoon as of March 31. At the same time, Bill Monroe will take over the Small-Cap Growth Fund.
Managers will also reduce the number of holdings in these funds.
“The concept is to be more active. When you have a real insight to be able to run these with fewer holdings so that when you perform you can really perform solidly in excess of the benchmark net of fees,” Cooper explained.
There have been “major signs of improving business and consumer sentiment,” he said, “and the key question is whether there is going to be follow-through in terms of corporate earnings.”
He believes there will be follow through and expects the S&P 500 to show double-digit growth this year.
The various objectives of the Trump administration could be the cause of “a lot of hand wringing” over the next few months, Cooper said, but he’s optimistic about the potential for corporations. “When we look back a year from now, what you’re likely to see is deregulation across industries, and you’re likely to see very business-friendly tax reform.”
If that’s the case it could be especially good for small-cap “because traditionally, when the economy is on stable footing, small and mid-cap stocks outperform large and mega-cap stocks.”
This economic cycle is an anomaly, he said, in that small and mid-caps “have performed roughly in line with larger caps. […] If the economic situation is in fairly good shape, you should see small caps outperform from here.”
— Check out 4 Investment Strategies for an Uncertain World on ThinkAdvisor.