Q:  Why go Global? A : A global fund allows us to find and invest in opportunities around the world. Financial markets have been strong recently, but they’re constantly changing. For example, right now, one big change is the weakening Yen, which makes Japanese markets potentially very interesting. The big advantage to a global fund is that it provides access to investment opportunities without geographic boundaries. There’s always a bull market somewhere and a global fund allows one to pursue that. The other reality is that the vast majority of companies of meaningful size – both in the U.S. and abroad – are multi-national in nature. For example, U.S. pharmaceutical companies are competing on a daily basis against European- and Asian-based pharmaceutical firms. It makes sense to find and invest in the best companies, with the best opportunities, within key industries around the globe. And we can do that. Q:  As you assess investment opportunities, how do you view the benefits and challenges of a company’s global foot print? A : As a company, going global with a good product means you can reach more customers and pursue more growth. For Apple Inc., it makes sense to sell $600 cell phones or tablets in many markets around the world. To them, going global means selling more products to more customers and generating higher returns on their capital and for their shareholders. Of course, companies face challenges as each market is different. In the case of Apple, each country has a variety of telephone carriers and its own set of regulations. Many companies try to expand to new regions without success. At Putnam, we study and analyze these companies to gauge whether or not we expect them to be successful in a new region. Q:  What core beliefs drive your investment philosophy? A : My philosophy stems from the belief that stock prices follow changes in earnings expectations. So finding companies where estimates are likely to rise over time are generally good investments. I believe that the market is very efficient in the short term but is much less so over longer time horizons. So, I think there are opportunities to create alpha, meaning generate outperformance versus the broader market, by finding companies that can out-earn what the market is expecting over a 1-to-3 year time horizon. Market focus has increasingly become short term, with investment horizons decreasing from three years to three months for many investors. On the extreme side, high frequency traders are focused on only a few seconds of activity. Since our focus tends to be longer term, we can add further value by capitalizing on short-term volatility. Q:  Where do you seek opportunities and what is your investment process? A : As a core investor, I try to populate the fund with stocks that I expect to deliver better earnings in the long run across investment styles, including growth and value. Our research team works hard to develop differentiated views and unique insights that help us gain conviction that a company can do better than the market expects. Investment selections within the portfolio are a result of this intensive company-specific research. Often the fund’s securities selections are driven by a handful of themes. For example, one area where the fund has capitalized over the last 18 months is the recovery of the U.S. housing market, which we have benefited from as the environment continues to improve. Finally, I have a general macro-economic framework that I operate within as I try to understand at what point different regions or industries are in their business cycle. Are they at the peak or near the trough? Improving or getting worse? Is inflation accelerating or subsiding? These types of considerations comprise the general framework for identifying investment opportunities through a macro lens. Q:  How does your research team work across the globe? A : What set us apart is our resources -- combined with consistent, collaborative communication. We have a team of 40 analysts, focused on major regions around the globe, including the U.S., who are located in Boston, London and Singapore. Organized by sector, the mandate of our research team is to develop non-consensus long-term views and to find companies and industries that are most likely to grow faster or sustain growth longer than the market expects. Putnam’s daily internal research meeting connects analysts and portfolio managers across three continents to discuss key issues and new developments, changes in viewpoints, and significant updates that might increase or decrease our conviction of certain stocks and sectors. Q:  Can you cite an example of your research process? A : We usually start with a financial model that forecasts what we think a company is going to earn over the next several years, supplemented by information on what non-Putnam analysts are expecting. In addition, based on company research and industry insights, we’ll develop supporting analysis that underpins the assumptions in the financial model and indicates whether the company has the potential to earn more than the market expects. For example, we were able to leverage our understanding of the U.S. housing market and apply it to Hong Kong based Techtronic Industries Co., a maker of power tools and vacuum products, which offers popular brands like DirtDevil, Hoover, Milwaukee and Ryobi. Through store visits and conversations with regional managers at Home Depot, we were able to better understand that sales of power tools were increasing faster than expected, and that Techtronic was gaining market share. We also spoke directly with Techtronic and their competitors, who provided us with a good understanding of the industry landscape. In addition, upon conducting a deeper analysis of Techtronic’s cost structure, we found that they had ample opportunity to improve their overall profitability. So we made an investment in the company, based on their attractive valuation and our belief that they could grow sales faster than expected and generate higher profit margins. Another example of our research process in action would be our approach to European banks, which was a tough sector in 2011 through the first-half of 2012. Upon extensive research and gleaning additional insight from our fixed income team, we were able to determine -- sooner than most -- that the European financial picture was beginning to stabilize, yet the banks were still priced as if bankruptcy or dilutive capital raising was a real possibility. Once we saw that the fixed income markets in Europe had stabilized -- improving the funding situations for the banks -- we were able to capitalize on their expected return to more normalized valuation levels. In the end, our broader research team – both equity and fixed income – worked together to help uncover and take advantage of this tremendous investment opportunity. Q:  How do you play time horizon to your advantage? A : I look for big winners -- stocks that I think can double over 3 years. This requires patience and conviction. If you hold a stock for three years it has a much better chance of doubling in price than if you own it only a few months. Also, we use the volatility of a stock to our advantage. If we believe that a company which recently has dropped in price is likely to recover and out-earn market expectations over the next couple of years, we will use that share price drop to our advantage and buy more. That’s one key to successful investing. Q:  How do you construct your portfolio? A : Currently, there are about 140 names in the portfolio. I try to run a “flat” fund, meaning that the largest holding typically accounts for less than 3 or 4% of the total assets. In addition, the top 10 holdings usually account for around 15% to 20% of the fund’s total assets. This way all the names in the fund count, but none of the weightings are too large. In addition, I use the MSCI Worldwide Index sector weightings as guard rails, maintaining each of the fund’s sector positionings within 750 basis points. Q:  How do you define risks? And how do you manage them? A : Risk can be managed from the overall portfolio perspective down to the security level. From the portfolio perspective, I emphasize the flat fund as a way to manage risk. As mentioned, I also use sector percentages as guard rails so that I don’t have huge industry bets -- although occasionally I will consciously take a positive or negative stance on a sector. In addition, I mitigate currency risk, by hedging it in line with the index. This doesn’t reduce currency risk altogether, but it does limit it as a risk relative to the benchmark. On an individual security basis, I look at possible downside risk. Our team performs rigorous analysis to assess how a stock price might change based on a range of potential scenarios. Over the last 4 or 5 years, we have learned that the global nature of the markets means that risks are entwined and correlated more than originally thought. From a statistical standpoint, it is important to understand how much risk you are taking by looking at beta, tracking error and active share -- all measures of a portfolio’s potential volatility compared to its benchmark. Q:  What are the benefits of having a portfolio of 140 names? A : First and foremost, there is a diversification benefit. I can own companies that have the potential to double in 3 years, yet take less risk from an overall portfolio perspective. Secondly, as our analysts continue to uncover compelling investment opportunities, I have ample room in the portfolio to include many of their best ideas in addition to my own. And finally, holding a broad selection of securities helps us achieve our goal of delivering superior, risk-adjusted returns.