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Putnam to Introduce Its First ESG Funds

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Putnam Investments is joining the growing number of asset managers that have introduced ESG-focused funds. It expects to launch two actively managed ESG funds in March: the multi-cap Putnam Sustainable Leaders Funds and mid-cap Sustainable Future Fund, pending SEC approval.

Both funds are being formed through the repositioning of existing funds. The Leaders fund replaces the $4.3 billion Putnam Multi-Cap Growth Fund, and the Future fund replaces the $450 million Putnam Multi-Cap Value Fund.

“The true value of active management is being able to find compelling, differentiated investment opportunities that are often undiscovered and away from underlying benchmarks — ultimately seeking to add meaningful alpha to clients’ portfolios,” said Robert L. Reynolds, president and CEO of Putnam Investments, in a statement.

“Our ESG product developments are part of a larger continuing effort by Putnam to use its evolving product lineup to help clients capitalize on a broad range of market dynamics through an effective mix of innovative traditional and nontraditional investment strategies.”

(Related: Will Advisors Finally Embrace ESG and Sustainable Investing in 2018?)

Investors in the new ESG offerings stand to benefit because “companies engaged in sustainability often show enhanced fundamental and financial performance,” said Putnam’s chief investment officer for equities, Aaron Cooper, in a statement. He told ThinkAdvisor that in addition to enhancing returns, stocks that qualify for their ESG attributes help to mitigate risk, which is an important consideration for investors in the current aging bull market trading near record highs. “These are high-quality businesses that will be more likely to better perform in a down market,” said Cooper.

(Related: Top 10 Best Performing ESG Funds of 2017: Morningstar)

Putnam, which manages just over $170 billion in actively managed assets through advisor-sold funds, is in the process of communicating to advisors through fund distributors the news about the metamorphosis of two existing funds into ESG funds, noting that the move is part of a broader evolution of asset management at the firm.

Katherine Collins, hired in May as head of sustainable investing at Putnam, has been working with the firm’s entire team of portfolio managers to use ESG data in their investment process. She will co-manage the Putnam Sustainable Leaders Fund, with Shep Perkins, co-head of equities, and the Putnam Sustainable Future Fund with Assistant Portfolio Manager Stephanie Henderson. The choice of Perkins as co-manager signals the firm’s intention to do more ESG investing over time.

Both ESG funds will hold between 30 and 60 stocks, including many current holdings, and their expense ratios will be same as the funds they replace: 75 basis points for the Leaders Funds Y shares and 83 basis points for the Future Fund Y shares.

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