essays pieces of the puzzle
Thursday, June 9th, 2011
the seven hundred club

Conveniently located on the back of the latest InvestmentNews magazine was an ad for the Putnam Absolute Return Funds.  The subhead said, “These funds employ strategies that pursue positive returns of 1%, 3%, 5%, or 7% above Treasury bills over three years, regardless of market conditions.”  (Italics mine.)

So, I looked up the factsheet for the one with the loftiest goals, the Putnam Absolute Return 700 Fund (PDF; ticker PDMAX).  The first thing I noticed was that the subhead on the factsheet said “above inflation” rather than “above Treasury bills,” although the objective immediately next to it has the latter.  That lack of precision is stark next to the marketing precision connoted by the use of 100, 300, 500, and 700 in the fund names.

If only it were all that easy.  Yesterday’s pix featured “go anywhere” allocation funds.  In the same vein, prospective clients for Putnam’s seven hundred club are reminded that the fund isn’t “tied to a narrow investment universe,” and that it “can adjust as opportunities change.”  How?  Well, I didn’t have time to go beyond the factsheet, which says it uses “modern investment tools.”

To properly assess this (or any) fund would require more than the cursory look I took.  Nevertheless, it seems like the odds are against the fund delivering as promised over time (“regardless of market conditions”) and I hate to see advisors and investors lured by a marketing construct that makes it appear that you can just dial in whatever you want from the market.  (Chart:  Bloomberg terminal.  The total returns are shown from inception through 6/7 for each fund and T-bills, essentially an up-to-date version of the graphic that appears in the Putnam ad I referenced.)