Putnam Investments has begun 2009 with the introduction of four absolute return mutual funds, which are designed to provide returns of between 1 percent and 7 percent above Treasury bills over a period of three years or more — rather than to meet or beat market benchmarks.
The focus, according to the company, is on limiting “downside risk” and potentially outperforming markets in flat or negative market conditions. If the funds underperform their targets, shareholders pay reduced fees; if the funds outperform their targets, a slightly higher fee is charged.
The four new funds are:
o Putnam Absolute Return 100 Fund, positioned as an alternative to short-term securities, seeks to beat inflation by 1 percent (as measured by T-bills);
o Putnam Absolute Return 300 Fund, positioned as an alternative to bond funds, seeks to outperform inflation by 3 percent;
o Putnam Absolute Return 500 Fund, positioned as an alternative to balanced funds, seeks to outperform inflation by 5 percent; and
o Putnam Absolute Return 700 Fund, positioned as an alternative to stock funds, seeks to outperform inflation by 7 percent.
Bob Reynolds, president and CEO of Putnam Investments, says, “The launch of these funds was not made to time this market” and had been in the work for some time.
Absolute-return funds have generally been available to large institutions which have made extensive use of them in their portfolios and to high-net-worth individuals, he notes. “These funds have such interesting advantages and … are a great diversification tool.”
And these funds stood out to Reynolds when he joined the firm in mid-2008. Putnam wanted to push them into the retail marketplace, so “advisors and clients could use them,” he says.
“The timing, though perfect, isn’t something I can take credit for,” he explains. “But it is indeed a great time for them, as investors have been hit twice in the past eight years [with down markets], and baby boomers are coming up on the age curve. People want to invest to have positive returns and less volatility.”