Putnam Absolute Return White Paper

8/14/2019 Putnam Absolute Return White Paper

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PUTNAM INVESTMENTS | putnam.com

February 2012 White paper

Absolute return strategies

oer modern diversication

Overthepastyearsinvestorshaveembracedinvestinginstocksandbondsto

pursuetheirnancialgoalsHowevermanyhavebeendisappointedbythestock

marketslostdecadesinceandbondsmaynowbevulnerabletosimilarset-backsgiventheinationarypotentialoexpansionaryFedpoliciesandincreasing

governmentdebt

Absolutereturninvestingoerssomethingdierentorinvestorswhohave

ollowedtraditionalstockandbondstrategiesAbsolutereturnstrategiesby

denitionpursuereturnsindependentoatraditionalbenchmarkindexlike

theS&PIndexortheBarclaysCapitalUSAggregateBondIndexAbsolute

returninvestingisunconstrainedandcangoanywhereaswellasusemodern

toolssuchashedgingstrategiesinseekingtoreduceriskorinvestors

Thispaperexplorestheeaturesoabsolutereturnundsthatdierromtraditiona

stockorbondunds:

Aocusonprovidingpositivereturnsovertimewithlessvolatilitythanmore

traditionalunds

Potentialorpositivereturnsinatordecliningmarkets

Flexibilitytopursueglobalinvestmentopportunities

Diversicationacrossnewerandalternativeassetclasses

Progressiveriskmanagementwithtoolsorhedgingtochoosewhatrisktotake

andhowmuch

Absolute return diers

rom traditional stockand bond investing.

Absolute return seeks

to reduce market

volatility or investors.

Modern tools,

investment fexibility,

and management

skill are keys to

absolute return.

Putnam oers a choice

o absolute return

unds to help diversiy

traditional portolios.

Absolute return is a modern strategy that

pursues positive returns with lower volatility

than traditional unds, to help diversiy

portolios or all kinds o investors.
http://www.facebook.com/PutnamInvestmentshttp://twitter.com/PutnamTodayhttp://www.putnamperspectives.com/http://www.youtube.com/putnaminvestmentshttp://www.putnam.com/http://www.putnam.com/


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FEBRUARY 2012 | Absolute return strategies oer modern diversifcation

Figure 1. Relative return unds invest in

traditional asset classes

Cash

3% Inflation

Bonds Stocks

9.8%

5.7%

3.6%

Annualized returns (12/31/2512/31/11)

Source:MorningstarStocksarerepresentedbytheIbbotson

S&PTotalReturnIndexbondsbytheIbbotsonUSLong-Term

GovernmentBondTotalReturnIndexcashbytheIbbotsonUS

-dayTreasuryBillTotalReturnIndexandinationbytheConsumer

PriceIndexTheindexesareunmanagedandmeasurebroadsectorso

thestockandbondmarketsYoucannotinvestdirectlyinanindexPast

perormanceisnotindicativeoutureresults

Traditional stock and bond unds ollow

benchmark indexes

Investorsturntostocksandbondsasawaytobuild

long-termwealthbecausetheseassetclasseshavea

historicaltrackrecordopositiveperormanceoverthe

longtermWhilestocksandbondshavegreaterrisks

thanshort-termsecuritiessuchasTreasurybillshistory

showsthatoverthelonghaulinvestorshavebeen

rewardedortakingtheserisksbyearninghigherrates

oreturn(Figure)

Perormance is measured against

a market index

Mosttraditionalmutualundstasktheportoliomanager

withoutperormingastockorbondbenchmarksuchas

theS&PIndexorBarclaysCapitalUSAggregate

BondIndexThemanagerisusuallyconstrainedto

investonlyinthedomesticmarketorinaspecicasset

classAccordingtotheInvestmentCompanyInstitute

FactBookomutualundassetsareinunds

ocusedonaspecicassetclassstocksbondsor

moneymarketsecuritiesHybridundsareanexcep-

tionThesetraditionalundshavegreaterexibility

toinvestacrossglobalassetclassesHoweveronly

aboutoindustryassetsareinvestedinhybrid

undsFurthermoresometraditionalundshaveeven

tighterconstraintssuchasbondundsthatinvestonly

ingovernmentbondsorhigh-yieldbondsandstock

undsthatinvestonlyinsmallcompaniesorgrowth

stocksSuchconstraintsbenetinvestorsinthatthey

discourageamoneymanagerromtakingarange

ounintendedrisksandtheyocuseortson

securityselection

Volatility tied to market risk

Atthesametimeconstraintscarryadisadvantageas

wellInageneralmarketdeclinewhensecuritiesallin

priceorsystemicratherthanspecicreasonsthereis

littlethataconstrainedmanagercandotoavoida

negativeresultInactamanagermaydowhatis

consideredagoodjobbyoutperormingthemarket

benchmarkyetduringabearmarkettheundmight

postasignicantdeclineorshareholders

Bear markets can be devastating

TherehavebeenbearmarketsinstockssinceWorld

WarIIwithpricesdecliningovermonths

onaverageBearmarketsposesubstantialrisks

Foryoungerinvestorsadownturninterruptsthe

compoundingoreturnsandthisdelayswealthaccu-

mulationForinvestorswhohavealreadybuiltup

savingsandmayberelyingonthemtogenerateincome

theimpactoabearmarketcanbedevastatingFor

saetysuchinvestorstypicallyavormoreconservative

investmentswhichwithlowerratesoreturnrequire

anumberoyearstorecoverromadownturn(Figure)

Sincetheirtimehorizonisshorterolderinvestorscannot

reallocateenoughmoneytostockstopotentiallybenet

romarecoveryinpricesandrestoretheirwealth

Retired investors are vulnerable

Forretiredinvestorsabearmarketposesspecialrisks

Withdrawingmoneyduringdeclineslocksinthelow

stockpricesandleavesinvestorswithasmallerposi-

tionorwhenthemarketrecoversInshortretireesareparticularlyvulnerabletobearmarketswhichcanshrink

savingsandreducethepotentialorgeneratingauture

incomestreambecauseretireesareunabletoaddto

theirportoliosromoccupationalincome

Tounderstandtheheightenedbearmarketriskor

retiredinvestorsconsidertheexampleothestock

marketdeclineoFigurecomparestwo


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investorsonewhoretiredinlateatthestartoa

bearmarketandonewhoretiredinlatenearthe

beginningoarecoveryTherstinvestorsportolio

declinedduringthebearmarketandremainedwell

belowitsoriginalvalueevenaterthemarketrecovered

leavingtheinvestorwithlessnancialsecurityTheotherinvestorbenetedrommarketperormanceandthe

portolioevenappreciatedorseveralyearsThedier-

encehighlightsthedamagingimpactoabearmarket

Formoreinormationontheimportanceostablereturns

inretirementvisittheretirementsavingschallengecom

Absolute return strategies are less constrained

Anabsolutereturnobjectiveremovesmanyconstraints

onmanagersandallowsthemtoimplementmorestrate-

giesoraddressingmarketvolatilityMoretraditional

strategiescanhavesomeexibilitybutaregenerally

moreconstrainedForexampleatraditionalbondundmanagermaybeallowedtoinvestinallsectorsbutis

likelytobeinuencedbythesectorweightingsothe

benchmarkindexbecausedivergingromthemcan

causeriskThisgenerallycompelstraditionalundsto

takeonmarketexposureBycontrastpursuingabsolute

returnsmeansthatmanagersdonothavetotaketherisk

oullmarketexposure

Figure 2. Retired investors cannot take the risk o a bear market because it can take years to recover

Rateoreturn Sizeobearmarketdownturn

-10% -20% -30% -40% -50%

5.25 years 11.25 years 17.75 years 25.50 years 34.75 years

2.75 years 5.50 years 9.00 years 12.75 years 17.25 years

6 1.75 years 3.75 years 6.00 years 8.50 years 11.50 years

8 1.25 years 2.75 years 4.50 years 6.50 years 8.75 years

1.00 year 2.25 years 3.50 years 5.25 years 7.00 years

ThishypotheticalillustrationisbasedonmathematicalprinciplesandassumesmonthlycompoundingItisnotmeantasaorecastoutureevents

orasastatementthatpriormarketsmaybeduplicatedRecoveryperiodsareroundedtothenearestquarteroayear

Figure 3. Reducing volatility is a key to retirement success

Ending balance

$566,923

Ending balance

$109,106

Taking withdrawals

amplifies market losses

Taking withdrawals

amplifies market loss s

$500,000

$0

6 7 8 9 Annualwithdrawals

$25,000 $25,750 $26,523 $27,318 $28,138 $28,982 $29,851 $30,747 $31,669 $32,619 $33,598 $34,606 (5% in year 1, increased by

3% thereafter)$25,000 $25,750 $26,523 $27,318 $28,138 $28,982 $29,851 $30,747 $31,669

Thisillustrationdepictstwohypothetical$investmentsinstocksasrepresentedbytheS&PIndexOneinvestorstartson//

withdrawsinyearoneandincreasesthatamountbyeachyeartoadjustorinationAnotherinvestortakesthesameapproachbutstarts

threeyearslatertherebymissingthemarketdeclineoPastperormanceisnotindicativeoutureresults


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Absolute return strategies are independent

o traditional benchmarks

Unliketraditionalundsabsolutereturnundsarenot

measuredagainsttraditionalmarketindexesInstead

theyaremeasuredagainsttheirreturngoalsThisalsohelpstoremovemanyconstraintsoninvestment

managersThereisnoincentiveoranabsolutereturn

managertomakeaundlooksimilartoanysecurities

indexInsteadthereisgreaterincentivetoavoidtherisk

onegativereturns

A goal to beat infation

Anabsolutereturnobjectiveocusesmoneymanagers

ontheelementaryconcernsoaninvestorachieving

apositiverealreturnonethatenhancespurchasing

powerThisobjectiveisvaluabletoinvestorsbecause

othelong-termpersistenceoinationIthasaver-

agedannuallyoverthepastyears()

accordingtotheBureauoLaborStatisticsInation

undercutsthereturnsoalltraditionalassetclasses

includingcashstocksandbondsandmanytraditional

undshavenomandatetooutperorminationThegoal

ooutperorminginationbyaspecicmarginregard-

lessowhetherstockandbondmarketsarerisingor

allingmakesabsolutereturnstrategiesattractiveor

diversiyingaportolio

Seeking to keep market risk low

Traditionalundscompeteonthebasisorelativereturns

ratherthanriskAlthoughinvestorshavepaidgreater

attentiontoriskovertheyearsmanagingriskinaport-

oliodependsonassetallocationstrategiesAbsolute

returnstrategiesemployassetallocationasastarting

pointHoweverabsolutereturnmanagersgenerally

havegreaterlatitudetoinvestinawideruniverseo

securitiesandwithoutthexedassetweightingso

traditionalassetallocationapproaches(Figure)

Tools or protection during bear markets

Flexibilitytousemoderninvestmenttoolsallows

managerstogobeyondtraditionalmethodsoobtaining

exposuretomarketsandtoseekalphaopportunities

Alphareerstoreturnsbeyondthosegeneratedbymarket

movementsActiveuseotoolsthatcancapturealpha

canhelpinvestmentperormancewhenmarketsareat

ornegativeHereaswellmanytraditionalundsemploy

similartoolsbutinmostcasestheyarelessintegraltoa

strategywhenaunddoesnothaveaspecicreturngoal

likeanabsolutereturntarget

Givingamoneymanagerexibilitytoinvestglobally

acrossavarietyosectorsandwithmoderntoolsallows

askilledproessionaltopursuemoreconsistentpositive

returnsMoneymanagerswithhands-onexperiencein

avarietyomarketscandecidewhichareasarelikelyto

appreciateandwhicharenotInastrategywithoutasset

classconstraintsamanagercanmovemoneyouto

stocksandintobondsoroutobothstocksandbonds

andintocashandalternativeinvestmentsAnabsolute

returnmanagerisreetotakeriskonlywithinvestments

consideredlikelytogeneratepositivereturnsandtriesto

avoidweakerinvestments

Diversiying across sectors and asset classes

Oneothemoredistinctivetoolsavailabletoabsolute

returnstrategiesisthereedomtoownarangeoinvest-

mentsandtogotoanysectororassetclassthatoers

attractiveopportunitiesInanabsolutereturnstrategy

Figure 4. Absolute return portolios can adjust with changing market conditions

Traditionalbalancedund Absolutereturnund

60% stocks, 40% bonds

No xed allocations

Maximum and minimum stockweightings prevent deviation

rom the benchmark

Flexible to respond to changing markets

Vulnerable to market volatilityCan be largely independent o

market volatility


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Figure 5. Several asset classes oer low or negative correlation with bonds

-yearcorrelationwiththeBarclaysCapitalUSAggregateBondIndexaso//

Negatively correlated Positively correlated

-1.0% -0.5% 0% 0.5% 1.0%

International stocks

REITs

Commodities

Source:PutnamCorrelationisameasureohowsimilarthehistoricalperormancesotwodierentassetclasseshavebeenThemaximumcorrelationisandtheminimumisApositivecorrelationclosetoindicatesthatthehistoricalreturnsothetwoassetclassesbeingcomparedhavebeenverysimilarAnegativecorrela-

tionclosetoindicatesthatthehistoricalreturnsothetwoassetclassesbeingcomparedhavebeenoppositeeachother:Forexamplewhenonegainedtheother

declinedCorrelationsnearzeroindicatethattherehasbeenlittlediscerniblerelationshipbetweenthetwoassetclassesbeingcompared

thisexibilityisgreaterthaninmosttraditionalasset

allocationstrategiesandittakesadvantageothe

increasingdiversicationonancialmarketsinrecent

yearsCombininginvestmentsinsecuritiesthathavelow

perormancecorrelationcanreduceportoliovolatility

relativetoreturns(Figure)

Newer fxed-income sectors

Notonlyhasthevolumeosecuritiesexpandedbut

sohasthevarietyparticularlyinthebondmarket

Thisoersabroaderrangeoopportunitiestomoney

managerswhocanresearchandevaluatetheirpotential

Diversiedbondportoliostodaycanincludetraditional

securitieslikesovereigngovernmentbondsinvestment-

gradeandhigh-yieldcorporatebondsconvertiblesand

mortgage-backedsecurities(MBS)

Alternative asset classes commodities,

real estate, and oreign currencies

Anotherdimensionoabsolutereturninvestinginvolves

alternativeassetclassesageneralcategorythatincludes

investmentsbeyondstocksandbondsExamplesinclude

commoditiesrealestateandoreigncurrencies

Addingarangeodierentinvestmentstomoreconven-

tionalinvestmentscandiversiythesourcesoreturnthat

improveperormancerelativetoriskproducingamore

efcientoverallportolioFreedomtochooseamongthese

investmentswhengiventoanexperiencedproessional

moneymanagercanhelpinvestmentperormanceinany

givenmarketenvironmentForexamplethemanagercan

determinetheperiodswhenitmightbebenecialtohave

broaddiversicationacrossarangeoassetclassesand

atothertimesselectivelyocusonahanduloareaswhile

dialingdownexposuretoothersAnumberotraditional

undscaninvestinalternativeassetclassesbuttheseare

typicallyspecializedundsdesignedtoprovideexposure

totheassetclassBycontrastalternativeassetclassesare

employedopportunisticallyinanabsolutereturnstrategy

asameanstoachieveitspositivereturngoalandmaybe

excludedwhennegativereturnsareexpected

Amongthemoreprominentalternativeassetclasses

arecommoditiesandREITsCommoditiescaninclude

arangeoproductssuchasgoldandotherpreciousmetalsnaturalresourcessuchaspaperandtimber

industrialmetalsandagriculturalproductstonamea

ewThisassetclasscanprovideprotectionromina-

tionbecausecommoditypricesarestronglylinked

tosupplyanddemandpressuresDuringperiodso

economicexpansiondemandincreasesorcommodi-

tieswhichpushesuppricesandrewardsinvestors


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Converselywheneconomiessloworrecededemand

orcommoditiesusuallyallsandpricesdeclineaswell

Realestatecanprotectinvestorsrominationor

similarreasonsDemandorrealestateusuallyincreases

whentheeconomyisstrongandinationarypressures

arerisingTheutilizationorealestatepropertiestypi-

callyincreasesduringexpansionswhichlitsthecash

owoREITsandirealestatesupplyisconstrained

rentalratescanalsoincrease

Currenciesalsorepresentatypeoalternativeasset

classUnlikemostotherassetscurrencieshaveno

intrinsicvaluebuttheycanneverthelessgeneratea

returnorlossbecauseouctuationsinexchangerates

Theseuctuationsarecausedbyahostoactors

butorinvestorswhoturntocurrenciesasasourceo

diversicationthekeybenetisthatexchange-rate

uctuationsaregenerallynotcorrelatedwiththeperor-

manceootherassetclasses

Investing in global opportunities

Absolutereturnstrategiesarenotconstrainedby

geographyTheycaninvestintheUnitedStatesandin

non-USmarketstodrawromawiderangeooppor-

tunitiesWhiletheUnitedStatesisthesingle-largest

marketinternationalstockmarketsrepresentamajority

otheworldssecuritiesasmeasuredbythemarket

capitalizationweightingsotheMSCIWorldIndex

Fixed-incomemarketsoutsidetheUnitedStateseature

awiderangeoissuersincludingoreigngovernments

andcorporationswithdierentprolesoriskand

returnthatallowexibilityormanagersconstructing

portolios

Withglobalexibilityabsolutereturnstrategiescan

pursuethemostattractiveinvestmentsanywhereinthe

worldandmovemoneyoutotheleastattractiveBy

contrasttraditionalglobalundsgenerallydonotmove

moneywiththesamedegreeoexibilityAtraditional

globalstrategyinvestsinboththeUSandinternational

marketsatalltimeswhileatraditionalinternational

strategyisconstrainedtoinvestonlyoutsidetheUnited

StatesAnabsolutereturnstrategycanmovemoney

withoutconstraintamongglobalmarketsatanytimein

pursuitoitsreturngoal

Adapting fexibly to changing markets

Asmarketsevolveabsolutereturnstrategiescanadapt

withthemThegoalistomakethestrategiesmoreresilient

andmoreversatileinchangingmarketsThisexibilitycan

helpabsolutereturnstrategiesastheyseektoovercome

theshort-termvolatilityrisksthathaveposedproblemsortraditionalstrategies

Hedging risk with modern investment tools

Anothertypeoexibilityusuallyassociatedwith

absolutereturnstrategiesistheabilitytousemodern

investmenttoolssuchasderivativesincludingorwards

uturesandoptioncontractsAtrainedproessional

moneymanagercanusethesetoolstogainexposureto

specicmarketstone-tuneportoliostrategiesandto

mitigateunwantedmarketrisks

Manytraditionalinvestmentstrategiesarepermittedto

employhedgingtechniquesbuttheiruseothesetools

isnotguidedbyanabsolutereturngoalInotherwords

inatraditionalstrategyhedgingmightbeabluntinstru-

menttoprotectperormanceinabroadmarketdecline

Anabsolutereturnstrategyimplementshedgingasone

omanyapproachestoachieveaocusedgoal

Futures, orwards, and options

Broadlyspeakingaderivativeisanytypeoinvestmentwhosevalueislinkedtotheperormanceoanother

securityFuturesorwardsandoptionsareamongthe

mostcommonlyusedderivativesFuturesandorward

contractsaresimilartheyareagreementstobuyorto

sellsomethinginaspeciedquantityandoraspecied

priceatauturetimeThesecontractsprovideanindi-

cationowhereinvestorsthinkpricesareheadedand

theyaretypicallyusedoreitherspeculativeorhedging

purposesFuturesororwardcontractsmaybeusedto

obtainexposuretoaninvestmentandprotitheprice

movesasexpectedInhedgingstrategiesalmostthe

exactoppositeoccursthecontractisusedtolockin

acertainpriceintheutureandtherebyremovethe

uncertaintyinvolvedinthepricemovementForward

contractsarealsoheavilyusedtoestablishpositionsin

currencieswhileuturescontractsarecommontools

orgainingexposuretostockindexesandbondssuch

asTreasuries


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Optionscontractsarealsoocusedonuturesprices

butinsteadocreatinganobligationthesecontracts

givethebuyerorsellertherighttopurchaseorsell

securitiesatacertainpricewithinaspeciedperiod

otimeAputoptionistherighttosellasecuritywhile

acalloptionistherighttopurchaseasecurity

Reducing market risk

Forthepurposeoanabsolutereturnstrategyan

attractiveeatureoorwardsuturesandoptionsis

theabilitytoreduceriskbyhedgingagainstmarket

declinesInparticularbyusingputoptionsonmarket

indexesaninvestorcanbuildinabueragainst

marketdeclinesThatisbecauseaputoptionbecomes

morevaluablewhentheunderlyingsecurityorindex

approachesorallsbelowtheputprice

Derivativescanbeusedtohelpundsperormmore

independentlyooverallmarketdirectionTheyalso

allowinvestmentmanagerstoimplementtheirviews

aboutwhichsecuritiessectorsormarketsarelikely

toappreciateordepreciateWiththistoolinvestment

managerscanmorecomprehensivelycapturetheir

overallinvestmentviewinaportolioandnotbelimited

tolongexposuresonly

Employing derivatives prudently

Whilederivativescanbeaveryvaluabletoolitis

importanttorememberthattheyarenotacure-allthat

eliminatestheriskomarketdeclinesFirstoallusing

derivativeseectivelyrequiresanalyticalandorecasting

skillssimilartothoseusedinselectingsecuritiesAs

suchnoteverydecisionmadewithderivativeswillhelp

astrategySecondbecausederivativesgiveinvestors

agreatdealoleewaytheycanalsohaveanoutsized

impactonperormanceandwhenthedecisionsare

wrongtheyrepresentarisktoperormanceThird

tradingderivativesinvolvesinvestmentcoststhatcan

reduceperormanceWhilehighlyspecializedand

aggressivestrategiesrelyonwidespreaduseoderiva-

tivesormostinvestorsaprudentjudiciousapproach

toderivativesismosteective

Putnams approach to absolute return

PutnamInvestmentsoersabsolutereturnundsor

retailinvestors(Figure)PreviouslyPutnamsabsolute

returnstrategieswereavailableprimarilytoinstitutional

investorsbuttheycannowserveimportantrolesin

individualportoliosaswellParticularlyinlightothe

nearlyunprecedentedvolatilityseenacrossglobal

marketssinceindividualsarere-examiningtheir

investmentassumptionsandconsideringstrategiesthat

cancomplementundswithtraditionalbenchmarks

PutnamAbsoluteReturnFundspursuepositivereturns

aboveinationasmeasuredbyTreasurybillsovermarketcyclesoatleastthreeyearswithlowervolatility

thanmarketsandmoretraditionalundsTheundsare

designedtoserveinvestorsbyusingawiderangeo

investmenttoolsPutnamsundscanusestrategiesthat

addperormancepotentialandseektoreducemarket

riskIsuccessulthestrategiescanbeexpectedto

Figure 6. Putnam Absolute Return Funds or all kinds o investors

PutnamAbsolute

ReturnFund

PutnamAbsolute

ReturnFund

PutnamAbsolute

ReturnFund

PutnamAbsolute

Return7Fund

Return target 1% above T-bills 3% above T-bills 5% above T-bills 7% above T-bills

Holdings Global bonds Global bonds Global bonds, stocks, andalternative asset classes

Global bonds, stocks, andalternative asset classes

Alternative to Short-term securities Bond und Balanced und Stock und

EachundseekstooutperormTreasurybillsbytargetedamountsWhileTreasurybillsarebackedbytheUSgovernmentinvestmentsinmutual

undsarenot


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Putnam Retail Management | One Post Oice Square | Boston, MA 02109 | putnam.com II861 272111 2/12

outperormgeneralsecuritiesmarketsduringperiodso

atornegativemarketperormancealthoughtheymay

lagduringmarketrallies

PutnamAbsoluteReturnFundsoeracomplementto

undsconstrainedbytraditionalbenchmarksPutnams

strategiesmixtraditionalandalternativeinvestmentsas

wellastraditionalsecurityselectionwithmoreadvanced

activestrategiesinvolvingderivativesPutnamsundscan

usederivativestoobtainorenhanceexposuretosectors

andmarketsandtomitigaterisksTheundswillnot

borrowmoneyinordertoestablishleveragebutsomeo

themcanusederivativestogainleveragedexposures

WiththeseattributesPutnamAbsoluteReturnFunds

canbevaluableadditionstoportoliosconstructedwith

traditionalinvestments

The hallmarks o Putnams approach to

absolute return

Aocusonpositivereturnswithlessvolatilityovertime

thanmoretraditionalunds

Potentialoroutperormanceduringaatornegative

marketenvironment

Awiderangeoinvestments

Progressiveriskmanagementwithmoderntools

Flexibilitytoinvestwithoutconstraints

Portoliomanagersexperiencedinabsolutereturn

strategiesovermanyyears

Putnams experience and capabilities

PutnamsFixedIncomeGrouphasmanagedabsolute

returnstrategiesorinstitutionalinvestorssince

Theabsolutereturnportoliomanagershaveworked

togetherormorethanyearsbackedbymorethan

xed-incomeexpertsinallsectorsPutnamsGlobalAssetAllocationGrouphasmanagedamulti-assetstrategyor

institutionssinceapplyingstrategiesthatreect

theskillsthatthis-membergrouphasdevelopedover

yearsomanagingassetallocationunds

Considertheserisksbeoreyouinvest:Assetallocation

decisionsmaynotalwaysbecorrectandmayadversely

aectundperormanceTheuseoleveragethrough

derivativesmaymagniythisriskLeverageandderivatives

carryotherrisksthatmayresultinlossesincludingthe

eectsounexpectedmarketshitsand/orthepotentialilliquidityocertainderivativesInternationalinvestments

carryrisksovolatilecurrencieseconomiesandgovern-

mentsandemerging-marketsecuritiescanbeilliquid

Bondsareaectedbychangesininterestratescredit

conditionsandinationAsinterestratesrisepriceso

bondsallLong-termbondsaremoresensitivetointerest-

rateriskthanshort-termbondswhilelower-ratedbonds

mayoerhigheryieldsinreturnormoreriskUnlike

bondsbondundshaveongoingeesandexpenses

Stocksosmalland/ormidsizecompaniesincreasetheriskogreaterpriceuctuationsREITsinvolvetheriskso

realestateinvestingincludingdecliningpropertyvalues

Commoditiesinvolvetherisksochangesinmarketpolit-

icalregulatoryandnaturalconditionsAdditionalrisksare

listedintheundsprospectus

Requestaprospectus,orasummaryprospectusi

available,romyourfnancialrepresentativeorby

callingPutnamat-8--8.Theprospectus

includesinvestmentobjectives,risks,ees,expenses,

andotherinormationthatyoushouldreadandconsidercareullybeoreinvesting.

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Putnam Absolute Return White Paper