As absolute return investment strategies capture a growing share
of investor assets, financial advisors are likely to recommend
funds using these strategies to their clients, and many may use
absolute return funds in the next 12 months, according to a new
national survey released today by Putnam Investments who contracted
with Brightwork Partners LLC, to conduct the telephone survey of
256 financial advisors and brokers across all channels, who
actively advise retail investors and have been in the business for
three years or more.
“These results suggest that we are just beginning to see
absolute return investing break into the mainstream,” said Putnam
CEO Robert Reynolds. “Investor and advisor interest in these
solutions is growing.”
The survey found that three-quarters of advisors (76%) said they
were familiar with absolute return strategies and more than half
(59%) said they were at least somewhat likely to recommend funds
that employ those strategies to their clients. Most immediately,
absolute return strategies are particularly attractive to advisors
looking to manage risk while moving clients out of cash or bonds in
a rising market: Three in five advisors (59%) said that a major
strength of absolute return funds was minimizing portfolio
volatility and half (52%) saw their chief use as serving as an
asset class diversification strategy. In addition to the thousands
of advisors already positioning absolute return funds with their
clients, about one advisor in five is very likely to “test drive”
an absolute return fund in the year ahead, and about one in three
may consider using absolute return funds in the next 12 months.
The results were released at the Absolute Return Symposium, a
Putnam-sponsored educational forum on absolute return investing
held today in New York that featured an array of practicing experts
in the field. The speakers explored the universe of absolute return
strategies in today’s marketplace and commented on the uses and
effectiveness of these strategies, especially in helping to
mitigate volatility and serving as an asset class diversification
strategy.
“In the uncertain markets of the past couple of years, managing
volatility has been an important objective for most advisors and
their clients. The increasing receptivity of retail advisors to
absolute return strategies as a way to seek to alleviate market
volatility may reflect a growing confidence that these strategies
can be an effective way for investors to help stabilize their
portfolios while pursuing more reliable returns,” said Reynolds,
speaking at the symposium.
Absolute return strategies seek to earn a positive total return
over a full market cycle with less volatility than traditional
funds and performance that is largely independent of market
conditions. An absolute return strategy can outperform broad market
indexes during periods of flat or negative market performance.
The advisors surveyed by Putnam are bullish, with four in five
(81%) expecting the stock market to be higher a year from now,
three-fifths (63%) expecting the same of GDP growth and 58 percent
expecting the unemployment rate to be lower. With optimism on the
rise, more than half (56%) of the advisors expect to increase their
clients’ allocation to equities over the next year, and a third
(33%) expect to increase their allocation to alternative
investments. Just one in seven (14%) foresee an increased
allocation to fixed income and only 5 percent envision allocating
more to cash over the coming year.
However, the advisors do see some warning signs on the horizon.
Nearly half (45%) believe inflation will be higher, and 57 percent
think the same of long-term interest rates. These trends could
threaten their ability to achieve the goals they think are most
important for their clients, including seeking to deliver secure
and adequate retirement income for clients (cited by 88%), helping
their retired clients pace portfolio withdrawals appropriately
(86%), helping clients keep up with inflation (74%) and securing
adequate returns in view of market volatility (66%).
Although 69% of advisors still consider the traditional
portfolio construction of stocks and bonds as a way to diversify
client portfolios, one-quarter consider the return philosophy of
various instruments, including relative return versus absolute
return as a great diversification strategy.
“It’s clear that most advisors are familiar with absolute return
strategies, how they are constructed and how they are used.
However, there is still a need for greater understanding of when
these strategies are appropriate for a portfolio and the importance
that absolute return strategies play in diversification,” said
Jeffrey L. Knight, Head of Global Asset Allocation, Putnam
Investments, who co-manages the Putnam Absolute Return Funds.
Among other financial professionals speaking at the symposium
were Cathy Saunders, Head of RIA Business, Putnam Investments; Merl
W. Baker, Principal, Brightwork Partners LLC; Dr. Gabriel Burstein,
Global Head of Portfolio Solutions and Investment, Research, Lipper
Thomson Reuters; and Cynthia F. Steer, Chief Research Strategist,
Rogerscasey.
Putnam and Absolute Strategies
Putnam Investments launched the mutual fund industry’s first
suite of Absolute Return Funds in January 2009 with four funds:
- Putnam Absolute Return 100 Fund
(Class A: PARTX) seeks to outperform inflation by 1% over periods
of three years or more net of all fund expenses as measured by
T-bills, and can be an alternative to short-term securities
- Putnam Absolute Return 300 Fund
(Class A: PTRNX) seeks to outperform inflation by 3% over periods
of three years or more net of all fund expenses as measured by
T-bills, and can be an alternative to bond funds
- Putnam Absolute Return 500 Fund
(Class A: PJMDX) seeks to outperform inflation by 5% over periods
of three years or more net of all fund expenses as measured by
T-bills, and can be an alternative to balanced funds
- Putnam Absolute Return 700 Fund
(Class A: PDMAX) seeks to outperform inflation by 7% over periods
of three years or more net of all fund expenses as measured by
T-bills, and can be an alternative to stock funds
Putnam Absolute Return Funds have employed diverse strategies to
help manage risk, including investments across sectors;
short-maturity fixed-income securities; derivatives to hedge
against market declines; Treasury futures contracts to reduce
interest-rate risk; and cash positions to stabilize fund
performance. Currently, Putnam Absolute Return Funds are closing in
on $3 billion in gross sales. Nearly 9,000 advisors from over 500
broker-dealers have used Putnam absolute return products in
portfolio construction.
Putnam RetirementReady® Funds, the firm’s suite of 10
target-date/lifecycle retirement funds, include target Absolute
Return Funds* in its mix of underlying investments. RetirementReady
Funds became the only suite of lifecycle funds to integrate
absolute return strategies, which seek positive returns over time
with less volatility than more traditional mutual funds. Employed
in retirement portfolios, absolute return strategies are intended
to pursue positive returns in up and down markets, to protect
against the harmful effects of adverse investment returns, and to
reduce volatility, particularly for investors in or near
retirement.
Putnam Advisor/Broker Survey on Absolute Return
Strategies
The findings are based on a telephone survey of 256 financial
advisors and brokers from banks, wirehouses and independent firms
conducted for Putnam Investments by Brightwork Partners from
October 13-November 1, 2010.
About Putnam Investments
Founded in 1937, Putnam Investments is a leading global money
management firm with over 70 years of investment experience. The
firm was recently named “Mutual Fund Manager of the Year” by
Institutional Investor. At the end of October 2010, Putnam had $118
billion in assets under management. Putnam has offices in Boston,
London, Frankfurt, Amsterdam, Tokyo, Singapore, and Sydney. For
more information, visit putnam.com.
Putnam mutual funds are distributed by Putnam Retail
Management.
* Putnam’s Absolute Return Funds are not intended to outperform
stocks and bonds during strong market rallies.
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