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Rating:Putnam AR Bet is an Absolute Success Not Rated 0.0 Email Routing List Email & Route  Print Print
Thursday, January 26, 2012

Putnam AR Bet is an Absolute Success

Reported by Sean Hanna, Editor in Chief

Skeptics abounded when Bob Reynolds took the wraps off a new suite of absolute return funds soon after taking the top job at Putnam Investments [profile]. Three years later Reynolds' decision to greenlight the bet that advisors and investors would seek the return of their money rather than the return on their money has paid off in positive flows.

Speaking with reporters Thursday morning at the St. Regis Hotel in New York City, Reynolds proudly pointed to the just in, three-year performance metrics from the four funds.

Together, they have taken in roughly $3.5 billion in assets. That gives Putnam nearly a 10 percent share of the absolute return, Forty Act fund segment, said Reynolds. He pointed out that Putnam's funds have also helped kick start a fast growing niche for mutual fund sponsors. Thirty-seven absolute return funds have launched over the past three years and as a group they lay claim to nearly $40 billion in assets, according to Reynolds.

Each of the Putnam Absolute Return funds showed a positive return, though each also trailed the S&P 500 by a wide margin. The Absolute Return 100 Fund averaged 1.07 percent from 2009 to 2011, while the 300 Fund gained 2.19 percent, the 500 Fund 4.32 percent and the 700 Fund 5.99 percent.

The number in the fund name is the absolute return each fund is targeting. Thus the 300 Fund was aiming for a 3 percent return -- a mark it fell just short of.

The fact that the funds have lagged the stock market has not fazed advisors (how many advisors are even watching the stock market today?). Reynolds told reporters that more than 12,000 advisors now use the AR Funds for their client portfolios.

"I think a lot of advisors have used the funds to get clients back into the market," said Reynolds, adding that many of those clients have been underweight equities. He pointed out that the funds allow advisors to target both return and risk levels.

Jeffrey Knight, Putnam's head of global asset allocation, said that the funds have been in line with their targeted return, but more importantly they have reached those objectives with low volatility and high efficiency. Knight pointed out that the standard deviation of the 300 fund is 4.2 and that of the 500 is 5.1.

Knight added that Putnam is extending its franchise in the risk management space with new strategies built around "risk parity investing."

Traditional strategies look at "how much of my money is in stocks or bonds," Knight explained. The risk-parity prism instead focuses on "how much of my risk is coming from stocks or bonds."

"Risk distribution is much more evenly distributed across the key types of investment, that sharply reduces overall volatility," Knight explained. He added that the strategies also use modest amounts of leverage to meet their return targets after dialing down their risk exposure to the key asset classes.

The firm last October launched the Putnam Dynamic Risk Allocation Fund based on this strategy. 

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