PSLAX
Putnam SmallCap Value-A
Introduction to Putnam SmallCap Value-A
Putnam SmallCap Value-A (PSLAX) is a mutual fund designed to seek capital appreciation by investing primarily in undervalued small-cap stocks within the United States. Managed by Franklin Templeton Investments, this fund targets companies that are believed to be currently undervalued by the market, offering investors a unique opportunity to capitalize on potential growth. The fund’s strategy is aligned with the Russell 2000 Index, focusing on small companies that have the potential to deliver significant returns over time. With an expense ratio of 1.18%, PSLAX provides a competitive option for investors looking to diversify their portfolios with small-cap value stocks.
At A Glance
Executive Summary
PSLAX focuses on undervalued small-cap US stocks, offering potential for capital appreciation with a 1.18% expense ratio.
Focus on undervalued small-cap stocks. Potential for capital appreciation. Managed by Franklin Templeton Investments.
Higher expense ratio than some peers. Negative alpha and Sharpe ratio. High beta indicates volatility.
Performance Analysis: A Mixed Bag
The performance of PSLAX over the past year has been notable, with a one-year return of 32.40%, which is impressive but still falls short of the S&P 500 Total Return Index’s 37.62%. Over a five-year period, the fund has achieved an annualized return of 12.61%, indicating its potential for long-term growth. However, the fund’s alpha of -5.26% and Sharpe ratio of -0.25 suggest that it has not been able to generate returns commensurate with its risk level. The fund’s beta of 1.22 indicates higher volatility compared to the benchmark, which may concern risk-averse investors. Despite these challenges, the fund’s focus on undervalued stocks could provide upside potential in favorable market conditions.
Sector Allocation: A Heavy Lean on Financials
PSLAX’s portfolio is heavily weighted towards the financial sector, which constitutes 25.22% of its holdings. This significant allocation reflects the fund’s strategy of investing in undervalued stocks, as financials often present opportunities for value investing. Other notable sectors include health care (11.04%), industrials (10.61%), and cyclical stocks (10.97%). The fund’s diversified sector allocation aims to mitigate risks associated with any single industry, although the heavy concentration in financials could expose it to sector-specific risks. Investors should consider how this sector allocation aligns with their own investment goals and risk tolerance.
Top Holdings: A Focus on Diverse Industries
The top holdings of PSLAX include a diverse range of companies such as OFG Bancorp, ConnectOne Bancorp Inc, and Taylor Morrison Home Corp. These holdings reflect the fund’s strategy of investing in small-cap companies across various industries, including financials, real estate, and energy. The fund’s top ten holdings account for a small percentage of the overall portfolio, indicating a well-diversified approach. This diversification helps to spread risk and provides exposure to different sectors that may perform well under varying economic conditions. Investors interested in small-cap value stocks will find PSLAX’s top holdings aligned with their investment strategy.
Risk Metrics: Understanding the Volatility
PSLAX exhibits a higher level of risk, as indicated by its beta of 1.22 and standard deviation of 6.15%. These metrics suggest that the fund is more volatile than the broader market, which could lead to significant price fluctuations. The fund’s negative alpha of -5.26% and Treynor ratio of -4.32 further highlight its challenges in delivering risk-adjusted returns. Additionally, the fund’s downside risk (UI) of 4.23% and max drawdown of -10.5% indicate potential for substantial losses during market downturns. Investors should carefully consider these risk metrics when evaluating PSLAX, especially if they have a low risk tolerance.
Competitive Comparison: How PSLAX Stacks Up
When compared to similar funds such as Federated Hermes Kaufmann SmallCap-A (FKASX) and Delaware Ivy SmallCap Growth-A (WSGAX), PSLAX offers a unique value proposition with its focus on undervalued small-cap stocks. However, its expense ratio of 1.18% is higher than some peers, which may impact net returns. While PSLAX’s one-year return of 32.40% is competitive, it lags behind some peers like WSGAX, which achieved a 35.16% return. The fund’s higher beta also suggests greater volatility compared to its competitors. Investors should weigh these factors when considering PSLAX against other small-cap value funds.
Investor Suitability: Who Should Consider PSLAX?
PSLAX is best suited for investors who are seeking exposure to small-cap value stocks and are comfortable with higher volatility. The fund’s focus on undervalued companies offers potential for capital appreciation, making it an attractive option for growth-oriented investors. However, the fund’s higher expense ratio and risk metrics may not appeal to conservative investors or those with a low risk tolerance. Investors who are willing to accept short-term volatility for the possibility of long-term gains may find PSLAX to be a suitable addition to their investment portfolio.
Conclusion: A Strategic Choice for Value Investors
In conclusion, Putnam SmallCap Value-A (PSLAX) stands out as a strategic choice for investors looking to capitalize on undervalued small-cap stocks. While the fund presents certain risks, such as higher volatility and a negative alpha, its focus on value investing and potential for capital appreciation make it a compelling option for growth-oriented investors. The fund’s diversified sector allocation and top holdings provide exposure to various industries, enhancing its appeal to those seeking a balanced approach to small-cap investing. Investors should carefully assess their risk tolerance and investment objectives before adding PSLAX to their portfolios.
Similar Securities
JSIVX: Janus Henderson SmallCap Value-L | Undervalued Small-Cap Stock Investment
JSIVX offers small-cap value exposure with a focus on undervalued stocks, a 0.75% expense ratio, and a 33.33% 1-year return.
PSLAX: Putnam SmallCap Value-A | Undervalued Small-Cap Investment
PSLAX focuses on undervalued small-cap US stocks, offering potential for capital appreciation with a 1.18% expense ratio.
VSCAX: Invesco SmallCap Value-A | High Alpha Small-Cap Investment
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LEGFX: BrandywineGLOBAL SmallCap Value-I | Small-Cap Equity Investment
LEGFX offers small-cap value exposure with a 1.22% expense ratio, focusing on undervalued stocks. It has a 25.03% 1-year return, ideal for risk-tolerant investors.
Futher Reading
https://finance.yahoo.com/quote/PSLAX/”>Yahoo: Putnam SmallCap Value-A
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