new thinking, new solutions
DESCRIPTION
Remarks by Robert L. Reynolds, President and Chief Executive Officer, Putnam Investments Financial Advisor/Private Wealth Innovative Retirement Symposium Orlando, Florida, March 12, 2013 One reason I was pleased to be invited is that Financial Advisor’s slogan, “Knowledge for the Sophisticated Investor,” echoes the core themes I want to talk with you about today. I believe that there is a crying need — among asset managers, advisors, and investors — for new thinking and new solutions. Abraham Lincoln’s great adage “As our case is new, so we must think anew and act anew” has never been more relevant. Five years after the worst economic crisis to hit global capitalism in our lifetimes, we are still feeling the aftershocks. We find ourselves moving ever so tentatively into a financial future about which the only thing we seem sure of is that it will likely be very different than the investment world we all grew up with. Core topics To me, this suggests that the conventional wisdoms shaped by decades of high-return investing — first in equities from 1982 to 2000, then in fixed-income markets over most of this young century — need to be re-examined, revised, or even scrapped. And while I certainly don’t claim to have all the answers, I do want to sketch some of the new solution-oriented approaches that Putnam sees emerging, such as innovative investment strategies, changed views on portfolio construction, greater risk-awareness, and advances in practice management, including new technologies to enable advisors to reach and influence clients. I would also like to suggest three retirement policy innovations that the financial services industry should take the lead on — now.TRANSCRIPT
1281070 3/13
New Thinking, New Solutions
Robert L. ReynoldsPresident and CEOPutnam Investments
Remarks made at the 4th AnnualFinancial Advisor Retirement SymposiumThe views and opinions expressed are those of the speaker, are subject to change with market conditions, and are not meant as investment advice.
Mutual funds are distributed by Putnam Retail Management.
2281070 3/13
6.37.6 7.7
16.3
26.1
11.7 12.4
-0.9
Volatile markets have shaken investors’ confidence
Source: Ibbotson Large Company Total Return Index, Small Company Total Return Index, Corporate Bond Index, and U.S. Long-Term Government Bond Index. Indexes are unmanaged and used as a broad measure of market performance. It is not possible to invest directly in an index. Past performance is not indicative of future results.
18.2
15.1
8.4 8.8
15.9
20.2
6.9
8.9
Compound annualreturns
Annualized monthlystandard deviations
1990s
Large company
stocks
Small company
stocks
Long-term corporate
bonds
Long-term government
bonds
2000s
Large company
stocks
Small company
stocks
Long-term corporate
bonds
Long-term government
bonds
3281070 3/13
And rising volatility has fueled demand for new investment strategies — more focused on risk
12/31/80 12/31/99 12/31/12
$10,000
$202,516
$250,889
Source: Ibbotson, data as of 12/31/12. U.S. stocks are represented by the Ibbotson S&P 500 Total Return Index. Indexes are unmanaged and used as a broad measure of market performance. It is not possible to invest directly in an index. Past performance is not indicative of future results.
In the 1980s and 1990s, it made sense to seek benchmark returns.
Since 2000, stocks have faltered, creating a need to focus on risk.
Two bear markets caused a “lost decade” for stock investors.
4281070 3/13
Alternative strategies have shown the potential to offer broader diversification
0
200
400
600
800
1995 1997 1999 2001 2003 2005 2007 2009 2011
Bonds
Stocks
REITs
Gold
Oil
Ind
ex l
evel
Sources: Barclays Global Aggregate Bond Index (bonds), MSCI World Index (stocks), FTSE NAREIT All REITS Index (REITs), S&P GSCI Gold Index (gold), and Dow Jones Global Oil & Gas Index (oil), 2012. Index levels as of 12/31/94 equal 100. Past performance does not guarantee future results.
12/31/12
5281070 3/13
One growing response: Strategies that seek absolute returns no matter what markets do
Traditional strategy
Success = beating market benchmark
Risk = lagging the market
Limited to invest in one market or one type of security
Market benchmark
Absolute return
Success = positive returns
Risk = negative returns
Free to “go anywhere” — investacross sectors and markets
Risk-free benchmark
6281070 3/13
Offerings of “Absolute Return” funds have nearly tripled since 2008
0
5
10
15
20
25
30
35
2008 2009 2010 2011 2012
Source: Strategic Insight Simfund, 2013.
7281070 3/13
Absolute return strategies may help investors mitigate risk in their portfolios
Absolute return fundsoffer a low-risk profile
Stock market risk has tested the patience of investors in recent years, as shown by the high 3-year standard deviations of the equity indexes filling this chart.
FundStandard deviation
Absolute Return 100® 1.28
Absolute Return 300® 2.88
Absolute Return 500® 3.99
Absolute Return 700® 4.80
8281070 3/13
Indexes are limited: The S&P 500 covers just 3% of publicly traded companies
Publicly traded U.S. companies
(15,000)
S&P 500
Source: Bloomberg.
9281070 3/13
Value beyond the indexes: Of the 500 companies inthe S&P 500, Putnam Capital Spectrum Fund held only 9
Data as of 12/31/12.Allocations will vary over time.
10281070 3/13
U.S. Treasury/agency
Agency pass-through
Investment-grade corporate bonds
International Treasury/agency
Emerging-market bonds
Commercial MBS
High-yield corporate bonds
Residential MBS (non-agency)
Agency CMO
Net cash
Other
Value beyond the indices: Putnam Diversified Income Trust seeks FI opportunities beyond the Barclays “Agg” and not reliant on declining rates
Data as of 12/31/12.Allocations will vary over time.
Barclays U.S. Aggregate Bond IndexDiversified Income Trust0%
2%
3%
1%
12%
12%
30%
21%
18%
7%
2%
41%
30%
21%
3%
2%
2%
0%
0%
0%
0%
1%
11281070 3/13
Re-evaluating diversification: Because traditional asset allocation formulas can mask a portfolio’s true “risk allocation”
For illustrative purposes only. This is not indicative of any Putnam fund or product.
12281070 3/13
Low-beta stocks have produced strong risk-adjusted returns
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
1 2 3 4 5 6 7 8 9 10 Market Avgstock
U.S. large-cap stocks sorted by beta decile compared with the market, 1983 to 2012
Sh
arp
e ra
tio
Source: Putnam, Russell, IDC, Barra. Chart represents one thousand largest U.S. stocks each month, as represented by the Russell 1000 Index, an unmanaged index of large-cap companies. You cannot invest directly in an index. Ten equal-weighted portfolios were formed each month, one for each decile of beta. These portfolios were rebalanced monthly. Beta measures volatility in relation to the fund’s benchmark. A beta of less than 1.0 indicates lower volatility; a beta of more than 1.0, higher volatility than the benchmark. Beta is defined as predicted beta from the Barra U.S.E3 risk model.
13281070 3/13
Risks may be rising in core fixed-income holdings while new drivers of return may still deliver results
Low point in 10-year Treasury
14281070 3/13
Seeking income beyond bonds: Many S&P 500 companies have been raising dividend pay outs
Number of S&P companies
Source: Standard & Poor’s, 2012.
151
243
320 333
6 13 22 15
68
4 5 1110 1 0 1
2009 2010 2011 2012
Increasing their dividend Starting to pay
Decreasing their dividend Stopping payment
15281070 3/13
Three policy innovations our industryshould be leading
Make the PPA’s best practices the new norm
Full “AUTO”for all
workplace savings
1
Extend workplacesavings coverage to all
SupportAUTO-IRA
2
Raise deferral savings rates system wide
10%+as thenew
baseline
3
16281070 3/13
New Thinking, New Solutions
Robert L. ReynoldsPresident and CEOPutnam Investments
The views and opinions expressed are those of the speaker, are subject to change with market conditions, and are not meant as investment advice.
Mutual funds are distributed by Putnam Retail Management.
17281070 3/13
The views and opinions expressed are those of the Robert L. Reynolds, President and CEO of Putnam Investments, as of March 12, 2013, are subject to change with market conditions, and are not meant as investment advice.
Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund before investing. For a prospectus, or a summary prospectus if available, containing this and other information for any Putnam fund or product, call your financial representative or call Putnam at 1-800-225-1581. Please read the prospectus carefully before investing.
Consider these risks before investing: Our allocation of assets among permitted asset categories may hurt performance. The prices of stocks and bonds in the fund’s portfolio may fall or fail to rise over extended periods of time for a variety of reasons, including both general financial market conditions and factors related to a specific issuer or industry. You can lose money by investing in the fund. Our active trading strategy may lose money or not earn a return sufficient to cover associated trading and other costs. Our use of leverage obtained through derivatives increases these risks by increasing investment exposure. Bond investments are subject to interest-rate risk, which means the prices of the fund’s bond investments are likely to fall if interest rates rise. Bond investments also are subject to credit risk, which is the risk that the issuer of the bond may default on payment of interest or principal. Interest-rate risk is generally greater for longer-term bonds, and credit risk is generally greater for below-investment-grade bonds, which may be considered speculative. Unlike bonds, funds that invest in bonds have ongoing fees and expenses. Lower-rated bonds may offer higher yields in return for more risk. Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. Our use of derivatives may increase these risks by increasing investment exposure (which may be considered leverage) or, in the case of many over-the-counter instruments, because of the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. The fund may not achieve its goal, and it is not intended to be a complete investment program. The fund’s effort to produce lower volatility returns may not be successful and may make it more difficult at times for the fund to achieve its targeted return. In addition, under certain market conditions, the fund may accept greater volatility than would typically be the case, in order to seek its targeted return. Our alpha strategy may lose money or not earn a return sufficient to cover associated trading and other costs. REITs involve the risks of real estate investing, including declining property values. Commodities involve the risks of changes in market, political, regulatory, and natural conditions. Additional risks are listed in the funds’ prospectus.
Putnam Retail Management
putnam.com