(Runtime: 6:00. Read the audio transcript.)
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After years of market concentration, companies beyond a select few tech names are showing renewed strength, says Jyotsana Wadera of Putnam Investments.
She said investors would be wise to cast their nets further out when looking for U.S. equity winners.
“We are transitioning from a market driven largely by enthusiasm and earnings growth in some companies, towards an environment that is going to favour active management,” she said.
Speaking on the Soundbites podcast this week, Wadera said she believes the most compelling opportunities increasingly lie outside of the narrow group of mega cap companies that have dominated the market in recent years.
“Only two out of the Mag Seven outperformed the S&P in 2025, and the Mag 7 has actually underperformed a vast majority of other technology names and generally other names across the U.S. equity markets,” she said.
She said that opens up great opportunities for active managers.
“I always think about active management as not just what you can invest behind, but also what you can avoid,” she said. “And we want to avoid the losers.”
The market appreciates the current AI story, she acknowledged. But it may be underestimating second-order beneficiaries like providers of infrastructure solutions, power generation, industrial automation, software productivity and health care applications.
“That’s where we think the market has underestimated the earnings power and the potential productivity gains,” she said.
Wadera noted that software companies have lagged semiconductor and memory names this year, creating opportunities for active managers to distinguish future winners from losers.
As AI tools become increasingly capable, software companies are being forced to demonstrate their value proposition in a changing productivity environment.
“There are beneficiaries of AI within software, but there’s definitely going to be losers as well,” she said. “There’s a lot of software companies — Salesforce, Adobe, and others — that have to prove that [users] have to pay for their graphics or their ability to generate documents when that’s something that a lot of AI already has built in.”
The biggest factor driving returns is earnings growth tied to productivity improvements. Tariffs, interest rates, and geopolitical risk may create short-term volatility, but ultimately, stock prices follow earnings. And while the “easy gains and multiple expansion” may be behind us at this point, she said opportunities within the U.S. remain compelling.
Among the names she likes in the current moment are:
- Fremont, Calif.-based Lam Research, a global supplier of wafer fabrication equipment and services to the semiconductor industry;
- Cambridge, Mass.-based GE Vernova, a global energy company that manufactures equipment and provides services to generate, transfer, and store electricity;
- Irving, Tex.-based Caterpillar Inc., a manufacturer of heavy machinery and construction equipment;
- Purchase, N.Y.-based Mastercard, which she said continues to benefit from digital payment adoption and growth opportunities in emerging markets;
- Indianapolis, Ind.-based Eli Lilly, a pharmaceutical giant with leading obesity and diabetes franchises; and
- Sunnyvale, Calif.-based Intuitive Surgical, a maker of robotics-enabled hospital equipment.
“We remain very constructive on the U.S. because the economic growth remains resilient,” she said, adding that corporate earnings remain strong and less affected by politics.
“AI is still in its very early stages, and the U.S. consumer remains very strong and very resilient, and is an increasingly big part of U.S. GDP,” she said.
She remains focused on finding high-quality companies with durable drivers and strong competitive positions.
“Owning the broad market is not going to be enough going forward,” she said. “You’re going to want to be active in this market environment.”
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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.
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