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.”
The four funds allow customization with individual portfolios, Reynolds explains. In addition, Putnam wanted to offer transparency, liquidity and pricing like traditional mutual funds.
And, Putnam says, it is the first fund group with funds that range from a conservative, all-bond focus to a more aggressive asset mix that includes U.S. and foreign stocks, bonds, currencies, commodities and real estate investment trusts (REITs).
In institutional and other marketplaces, absolute-return products have made up 20 percent to 50 percent of some portfolios. They are popular tools for decreasing the level of market volatility or beta in a client’s portfolio.
Reynolds says that interest in the funds by advisors and investors has been “phenomenal,” and he acknowledges that “the market has been helping us.” Millions of dollars in investments have come into the funds during their first week or so, the executive states.
“An advisor sitting down to talk with a client today wants something to talk about that is positive,” he shares. “And these funds clearly give you a positive subject to discuss with clients.”
Given that the need for such products is “immense,” the executive says, other firms should be introducing their own absolute-return products over the next few years.
Putnam’s rollout has executives “very pleased,” Reynolds says. “It’s really exceeding all our expectations.”
In other news, Putnam announced that it named former Fidelity executive Edmund F. Murphy as managing director and head of defined contribution. In his new role, Murphy will lead Putnam Investments’ defined-contribution retirement plan business, reporting directly to Jeffrey Carney, head of global marketing and products.