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Q3 2014 » Putnam Perspectives
Equity Outlook
Key takeaways
• U.S. equities continued their impressive advance, with
no significant declines during the quarter.
• In Europe, policy changes may function as an important
tailwind for growth and market performance.
• Globally, M&A activity has been on the rise, giving a
boost to equity prices across the market-cap spectrum.
• The current bull market has been significant — in terms
of both length and magnitude.
Signs of economic improvement lift
U.S. stocks in the second quarter
In a relatively calm quarter, U.S. equities continued
their impressive advance. As June came to a close,
the S&P 500 Index posted its fifth consecutive
month — and sixth consecutive quarter — of gains.
Although the market’s gain for the first half of 2014
was more muted than its return at the midpoint of
2013, equity indexes continued to surpass record
highs. And while stocks performed well in the
quarter, a defining characteristic of the market was
its relative lack of volatility, as measured by the
Chicago Board Options Exchange Volatility Index
(the VIX). There were few negative macroeconomic
events to unnerve investors and no significant pull-
backs for the U.S. market. It was also a constructive
quarter for the U.S. economy, as clear signs of
improvement emerged after the previous quarter’s
contraction. S&P 500 earnings growth has been
stronger than we expected, particularly for cyclical
businesses that had been pressured by harsh
weather conditions early in the year.
Non-U.S. markets advance as policy
uncertainty clears
Outside the United States, equity markets moved
higher following the first quarter’s results, which
ranged from negative to lackluster. In Europe,
questions about the central bank’s course of
action were answered with its decision, among
other things, to institute a negative deposit rate
in an effort to stave off deflationary pressures. In
addition, government bond yields dropped in a
number of peripheral European economies, which
we believe may be supportive of equity markets
going forward.
The market has continued to advance
amid declining volatility.
n S&P 500 Index — VIX 50-day moving average
1000
1250
1500
1750
2000
12
18
24
30
36
12/10 12/11 6/12 12/126/11 6/146/13 12/13
Data as of 6/30/14. Sources: Morningstar, S&P Dow Jones Indices.
Robert D. Ewing, CFA
Co-Head of U.S. Equities
Nick C. Thakore
Co-Head of U.S. Equities
Simon Davis
Co-Head of International Equities
Shep Perkins, CFA
Co-Head of International Equities

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Q3 2014 | Equity Outlook
The continued low-interest-rate environment, in our
view, is a significant factor behind the market’s improved
performance. In addition, we saw better growth in some
developed markets than we have seen over the past three
to four years, which has helped to boost investor confi-
dence. The growth may not have been as dramatic as
some observers were hoping, but it’s still better than we
have seen for some time.
U.S. equities
For U.S. markets, the notable theme was a
lack of notable themes
For yet another quarter, investors saw no significant
pullback in the U.S. equity market. In fact, it has been
32 months since the market has had a decline of 10%
or more — the standard definition of a correction. This
secular bull market is also notable for its magnitude;
stocks have appreciated to a greater extent than during
many previous runs. In the relatively quiet market
environment year to date, the energy and utility sectors
have outperformed, while financials, telecommunications,
and consumer sectors have lagged.
For the U.S. economy in the second quarter, we began
to see clear signs of improvement after the first-quarter
contraction, which had been driven to a large extent by
harsh winter weather. Considering the weak start to the
year, corporate earnings development has been construc-
tive. After a two-year period in which earnings growth
essentially moved sideways, we are starting to see year-
over-year advances again. First-quarter S&P 500 earnings
growth was in the mid-single-digit range — higher than
our expectations. Perhaps even more important is that
earnings expectations for the remainder of 2014 have not
changed, an encouraging trend considering the soft first
quarter. Another positive factor is the tremendous amount
of merger-and-acquisition activity in today’s market, with
many accretive deals — that is, deals that should boost
earnings growth.
A healthy resurgence in M&A activity bodes
well for equities
In April, the value of announced 2014 mergers and acqui-
sitions worldwide topped $1 trillion — only the third time
it has passed that level so early in the year, according to
Reuters. Also, in addition to the increased activity, stocks
of acquiring companies are outperforming, which has not
been the case in the past few years. A likely reason is that
equity investors, seeking growth opportunities, believe
that these deals will be accretive and can stimulate growth
for the companies and the economy.
Market scorecard
Select equity index
performance as of 6/30/14
Index name
Q2 2014
(cumulative) 1 year
3 years
(annualized)
5 years
(annualized)
10 years
(annualized)
MSCI EM Index (ND) 6.60% 14.31% -0.39% 9.24% 11.94%
S&P 500 Index 5.23 24.61 16.58 18.83 7.78
Russell 1000 Value Index 5.10 23.81 16.92 19.23 8.03
MSCI World Index (ND) 4.86 24.05 11.81 14.99 7.25
MSCI EAFE Index (ND) 4.09 23.57 8.10 11.77 6.93
MSCI Europe Index (ND) 3.30 29.28 8.67 13.03 7.54
Russell 2000 Growth Index 1.72 24.73 14.49 20.50 9.04
Sources: S&P Dow Jones Indices, MSCI.
Quarterly gains were strong and broad-based.

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PUTNAM INVESTMENTS | putnam.com
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U.S. merger and acquisition
spending on the rise
n Deal volume (announced deals) — Aggregate deal value
1/13 2/13 3/13 4/13 5/13 6/13 7/13 8/13 9/13 10/13 11/13 12/13 1/14 2/14 3/14 4/14
U.S. merger and acquisition spending on the rise
Source: FactSet.
■ Deal Volume (announced deals) ■ Aggregate Deal Value (USD Billions, right-hand side)
$300B
250
200
150
100
50
0
1,200
1,000
800
600
400
200
0
Source: FactSet.
With most deals today, we are finding the acquisitions
to be natural strategic extensions for the businesses.
The deals can create synergies that make the resulting
companies more productive and efficient, and as long as
the buyer isn’t overpaying, they are generally positive for
equity investors. Another factor driving M&A activity is
the perception that interest rates, which have been low for
years, might rise — potentially in the near future. CEOs and
corporate boardrooms are realizing that the most attrac-
tive deal-financing windows are open now, but maybe
they won’t be open or as attractive for long.
Keeping an eye on valuations
We remain watchful for sectors or stocks whose valua-
tions may have become stretched, particularly in light
of the market’s multi-year rally. Within the Russell 1000
Growth universe, for example, there has been a subset of
momentum growth stocks whose valuations advanced
to unreasonable levels, and many of these stocks have
corrected sharply. In most cases, we believe the selloffs
were not the result of company-specific problems. When-
ever declines are unrelated to fundamentals, it can create
opportunity. In this growth-momentum area, we are
focused on finding companies with strong growth poten-
tial combined with valuations that are more reasonable
following the declines.
Elsewhere in the equity market, dividend-paying stocks
have made a strong performance comeback in 2014. To
the surprise of almost every investor, interest rates, as
measured by the yield of the 10-year Treasury, have fallen
since the end of 2013. As a result, investors have been
favoring stocks of companies that pay dividends as well as
those that have the potential to grow their dividends. Over
the past five years, we have seen a significant number of
U.S. companies begin to pay a dividend, and the market
tends to reward companies that do so. We saw more
dividend initiations in the first quarter of 2014 than in the
first quarter of 2013, which was a record year for dividend
initiations.
A more cautious approach for 2014’s
second half
From a fundamental perspective, U.S. economic growth is
accelerating, the corporate earnings outlook is solid, and
valuations remain reasonable, particularly considering
the level of interest rates. As for sentiment, some indica-
tors suggest that investors have become more bullish, but
statistics continue to show that, overall, investors remain
underexposed to equities. The current bull market has
been significant — in terms of both length and magni-
tude — and some areas of the market could be described
as frothy. Investors need to be mindful of the market’s
run, and as we look to the second half of the year, our
approach is slightly more conservative than it has been in
recent quarters.
Acquirers are faring well as
M&A activity gathers steam.

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Q3 2014 | Equity Outlook
Non-U.S. equities
European stimulus a net benefit for stocks
Outside the United States, better growth returned in the
second quarter and a variety of uncertainties diminished,
leading to improved market performance. In early June,
the European Central Bank made the first in what could
potentially be a series of policy decisions to stimulate the
economy and reduce the risk of deflation. As expected,
the ECB cut its key refinancing rate from 0.25% to a new
historic low of 0.15%. Also, it took the unprecedented step
of instituting a negative deposit rate of -0.10%, which
would effectively charge banking institutions a fee to park
money at the ECB. By making this move, the ECB hopes
to encourage banks to lend more and thereby get more
capital working in the economy, but it is an experimental
measure that has yet to be tested on a large scale.
Targeted measures to boost growth
Another measure that we believe could potentially be
quite helpful was the ECB’s implementation of targeted
long-term refinancing operations [TLTROs], which are
also designed to encourage lending and stimulate growth.
Clearly, ECB actions can have a meaningful impact on the
share prices of banks as well as the markets in general. For
equity portfolios with a pro-cyclical bias, this could trans-
late into highly positive news.
The introduction of TLTROs will allow banks to borrow
funds from the ECB for four years at a very low cost. This
will be especially beneficial to peripheral European banks,
which have typically had to borrow at much higher rates.
This will enable the banks to lend money at relatively low
rates to consumers and corporate entities and still make
an attractive profit on the spread between those rates
and their TLTRO funding cost. A number of European
banks, particularly in Spain and Italy, performed well
in the second quarter — both because of the TLTRO
announcement and because government borrowing costs
declined during the period, which had a positive effect on
the banks.
Will corporations take the funding bait?
At a recent financial-market conference in Madrid, many
companies acknowledged that TLTROs could be quite
helpful. But they also suggested there is a credit demand
problem in the market — that is, too few corporations are
confident enough in the economic recovery to borrow
more at this stage. After all, just because the ECB has
announced it is ready to hand out money at low cost
doesn’t mean European corporations will start lining up to
borrow. Again, the ECB is trying new measures to stimu-
late the economy. We consider these promising avenues
but by no means a guaranteed cure. Nevertheless, if
demand for credit picks up, then we think at some point
TLTRO funding could become extremely attractive to
lending institutions.
Reforms in Japan are moving slowly
In Japan, a consumption tax hike was implemented at the
start of the second quarter. While there is fear that this
will be a headwind, early signs suggests that any nega-
tive impact on the economy has been muted. It is also
worth pointing out that while the tax went from 5% to 8%
in April, this is just the beginning. Policymakers plan to
raise it again in October 2015 from 8% to 10%, depending
on the economy’s condition. In any case, the earnings
momentum of Japanese companies is still strong, in our
view, and the exporters stand to benefit from the relatively
weak yen.
Setting records for
record-setting
Since 1968, the market has hit new highs
in 24 different years.* Of those years with
record-setting closes, the median number
of days that saw a new high is 22, and only
six years saw the market reach a new high
more than 40 times. The year 2013 was one
of those six years, and 2014 — with 22 record
closes through June 30 — could be on track
to be number 7.
Years with highest number of
record-setting market closes
(since 1968)
1985: 43 1997: 45
1987: 46 1998: 47
1995: 77 2013: 45
1Based on daily close for S&P 500 Index,
April 18, 1968–June 30, 2014.

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PUTNAM INVESTMENTS | putnam.com
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The Bank of Japan, too, has been waiting to see what
effects the tax hike produces before the BoJ delivers
any further rounds of monetary easing. All of this policy-
related change is rather slow-moving, of course, as is the
so-called “third arrow” of the government’s structural
reform agenda. In our view, the latter has become more
of a growth strategy, in which we expect to see a gradual
reduction of corporate tax rates and the creation of
special economic zones. The latter will likely take the form
of geographical locations in which businesses will have
greater flexibility in hiring and firing, for example, and
where much-needed growth in institutions like teaching
hospitals may be able to occur.
The emerging market rally: memorable
moment or enduring trend?
The second quarter saw emerging-market assets make
a strong advance. However, with the possible exceptions
of India, Indonesia, and Mexico, which have implemented
painful reforms, we think most emerging markets still
run the risk of funding problems if U.S. interest rates rise,
which we expect will happen. Countries such as Turkey,
South Africa, and Brazil are contending with different
forms of structural fragility, including rising current
account deficits and interest rates that may be too low
relative to inflation. The rally has indeed been strong in a
variety of emerging markets, but the trend could easily
reverse as foreign capital becomes a flight risk if U.S. rates
tick higher.
Challenges to China’s growth
China appears to be relatively fragile due to its credit
bubble that has been building for quite some time. At the
moment, the government is walking a tightrope between
not deflating this bubble too quickly and transitioning the
economy away from being over-reliant on exports toward
domestic consumption. When the authorities worry about
slowing growth, they have tended to announce measures
that are perceived to stimulate the economy to maintain a
minimum 7% growth rate, but the downside risks remain.
As an export-manufacturing base, for example, China has
arguably been overtaken by Mexico, given rampant wage
cost inflation in China.
In addition, China’s recent crackdown on corruption
may carry unforeseen negative consequences for growth.
Recent heightened attention on state officials’ patronage
of Macau casinos, for example, has led to a marked drop
in VIP gambling. To the extent China slows, that can have
an outsized impact on regional trade among other devel-
oping economies in Asia. While we think it is most likely
that China will achieve something close to a 7% growth
rate, the challenges to the country’s economic transition
raise the potential that China may disappoint, despite
healthy growth figures.
Valuation and dividend yield
As of 6/30/14
Index 12-month trailing P/E 12-month forward P/E Dividend yield
S&P 500 Index 22.31 15.43 2.01%
MSCI EAFE Index 19.44 13.06 3.24%
MSCI World Index 20.59 14.51 2.52%
Sources: S&P Dow Jones Indices, MSCI.
Non-U.S. stocks are somewhat cheaper than
their U.S. counterparts.

6.
Opportunities outweigh risks outside the United States
We feel that international stocks offer numerous opportunities to
investors at the present time. Valuations, earnings recoveries, and
restructuring opportunities all continue to make the case for international
stock investing fairly compelling.
We believe gradual healing for Europe is under way. With positive
external factors, including improving U.S. growth, stable Chinese growth,
and incrementally recovering global corporate confidence, our outlook
for Europe and other developed-market equities is quite positive.
We are attentive to the risks posed by various political transitions in
emerging-market countries such as India, Indonesia, and Brazil. Political
regime change is rarely a seamless process, so there is room for economic
and market disappointments. Also, while growth appears stable in China,
markets tend to be sensitive to any signs of softer economic data in this
country.
Other geopolitical risks remain. The situation in Ukraine, for example,
has effectively become a civil war. Iraq, too, is in crisis, as is South Sudan,
where ethnic tensions have similarly destabilized economic progress and
political coherence. Having said that, although geopolitical crises appear
to have become the norm, the opportunities in international stocks
outweigh many of the risks, in our view.
Index definitions
The Chicago Board Options Exchange (CBOE) Volatility Index is a key measure of market expectations of near-term
volatility conveyed by S&P 500 stock index option prices.
MSCI EAFE Index is an unmanaged index of equity securities from developed countries in Western Europe, the Far East,
and Australasia.
MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity
market performance in the global emerging markets.
MSCI Europe Index is an unmanaged index of Western European equity securities.
MSCI World Index is an unmanaged index of equity securities from developed countries.
Russell 1000 Value Index is an unmanaged capitalization-weighted index of large-cap stocks chosen for their value
orientation.
Russell 2000 Growth Index is an unmanaged index of those companies in the small-cap Russell 2000 Index chosen for
their growth orientation. You cannot invest directly in an index.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for fees. It is not possible to invest directly in an index.

7.
Active management,
fundamental research, and new
insights to capture the growth
potential of equities
Equity investing at Putnam features a tenured
and talented team of portfolio managers backed
by an integrated group of research analysts with
worldwide reach. Our research organization is
structured to focus fundamental analysis on the
factors that matter most in global equity markets.
Simon Davis
Co-Head of
International Equities
Investing since 1988
Joined Putnam in 2000
Robert D. Ewing, CFA
Co-Head of U.S. Equities
Investing since 1990
Joined Putnam in 2008
Shep Perkins, CFA
Co-Head of
International Equities
Investing since 1993
Joined Putnam in 2011
Nick C. Thakore
Co-Head of U.S. Equities
Investing since 1993
Joined Putnam in 2008
The views and opinions expressed are those of the authors (Simon Davis and Shep Perkins, Co-Heads of International
Equities, and Robert D. Ewing and Nick C. Thakore, Co-Heads of U.S. Equities) as of June 30, 2014, are subject to change
with market conditions, and are not meant as investment advice.
Consider these risks before investing: International investing involves certain risks, such as currency fluctuations,
economic instability, and political developments. Investments in small and/or midsize companies increase the risk of
greater price fluctuations. Bond investments are subject to interest-rate risk, which means the prices of a fund’s bond
investments are likely to fall if interest rates rise. Bond investments also are subject to credit risk, which is the risk that the
issuer of the bond may default on payment of interest or principal. Interest-rate risk is generally greater for longer-term
bonds, and credit risk is generally greater for below-investment-grade bonds, which may be considered speculative. Unlike
bonds, funds that invest in bonds have ongoing fees and expenses. Lower-rated bonds may offer higher yields in return
for more risk. Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to
prepayment risk. Commodities involve the risks of changes in market, political, regulatory, and natural conditions.
Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund before
investing. For a prospectus, or a summary prospectus if available, containing this and other information for any
Putnam fund or product, call your financial representative or call Putnam at 1-800-225-1581. Please read the
prospectus carefully before investing.

8.
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