Dynamic Asset Allocation Balanced Fund Annual Report

123 Pages·2017·2.13 MB·English

by  Putnam Investments

Putnam Dynamic
Asset Allocation
Balanced Fund
Annual report
9 | 30 | 22
Asset allocation funds invest
in a mix of many different types
of investments to help weather
changing market environments.
FUND SYMBOL
CLASS A
PABAX
Putnam Dynamic
Asset Allocation
Balanced Fund
Annual report
9 |30 |22
Message from the Trustees 1
About the fund 2
Interview with your fund’s portfolio manager 6
Your fund’s performance 11
Your fund’s expenses 13
Consider these risks before investing 15
Terms and definitions 16
Other information for shareholders 18
Important notice regarding Putnam’s privacy policy 19
Trustee approval of management contract 20
Audited financial statements 25
Report of Independent Registered Public Accounting Firm 26
Federal tax information 133
Shareholder meeting results 134
About the Trustees 135
Officers 137
Message from the Trustees
November 11, 2022
Dear Fellow Shareholder:
Financial markets are reminding us that the journey to long-term returns often
involves weathering periods of heightened volatility. This year, stocks and bonds have
experienced losses, and U.S. gross domestic product has declined slightly. Persistent
inflation has caused the U.S. Federal Reserve to raise interest rates to contain price
pressures, an effort that may continue into 2023. At the same time, we are encouraged
by recent economic data that suggests inflation rates are improving.
While this challenging environment is a test of patience, you can be confident that
Putnam portfolio managers are actively working for you. As the prices of many stocks
and bonds move lower, our teams are researching new and attractive investment
opportunities for your fund while assessing risks.
We also would like to announce changes to the Board of Trustees. In July 2022, we
welcomed Jennifer Williams Murphy and Marie Pillai as new Trustees. Both have a wealth
of investment advisory and executive management experience. We also want to thank
our Trustees who retired from the Board on June 30, 2022. Paul Joskow served with us
since 1997, and Ravi Akhoury joined the Board in 2009. We wish them well.
Thank you for investing with Putnam.
Respectfully yours,
Robert L. Reynolds Kenneth R. Leibler
President and Chief Executive Officer Chair, Board of Trustees
Putnam Investments
About the fund
A diversified portfolio pursuing
a balance of growth and income
Putnam Dynamic Asset Allocation Balanced Fund is designed for investors seeking
total return. The fund’s target mix of 60% stocks and 40% bonds has been developed
to pursue this goal while moderating investment volatility.
The managers believe that spreading fund holdings across a variety of asset classes
can help to smooth performance compared with the more extreme market ups and
downs that can happen when investing in only one type of asset.
Active global research guides our portfolio decisions.
Today, trends can spread quickly from one part of the world to affect markets everywhere.
The portfolio managers of Putnam’s Global Asset Allocation group have extensive
experience analyzing how opportunities and risks are connected across borders.
They follow a disciplined process to adjust the portfolio as market conditions change.
Robert J. Schoen Brett S. Goldstein, CFA
Co-Chief Investment Officer, Co-Chief Investment Officer,
Global Asset Allocation Global Asset Allocation
Industry since 1990 Industry since 2010
At Putnam since 1997 At Putnam since 2010
Adrian H. Chan, CFA James A. Fetch
Portfolio Manager Head of Portfolio Construction
Industry since 2003 Industry since 1994
At Putnam since 2003 At Putnam since 1994
2 Dynamic Asset Allocation Balanced Fund
Diversification can help to reduce volatility over time.
With today’s market volatility, investors should consider evaluating the effectiveness
of a portfolio over a full market cycle. Recent history has demonstrated that a more
diversified portfolio can have less volatility than an all-stock allocation in the long run.
CUMULATIVE RETURNS: 12/31/99–9/30/22
25/75 Portfolio 60/40 Portfolio S&P 500 Index total return
400%
375%
S&P500
350%
325%
300% 40/60 Portfolio
275%
250%
25/75 Portfolio
225%
200%
175%
150%
125%
100%
75%
50%
25%
0%
-25%
-50%
12/99 12/01 12/03 12/05 12/07 12/09 12/11 12/13 12/15 12/17 12/19 12/21 9/22
Note: 25/75 ➟ 25% S&P 500 Index, 75% Bloomberg U.S. Aggregate Bond Index; 60/40 ➟ 60% S&P 500 Index, 40%
Bloomberg U.S. Aggregate Bond Index. Past performance is not indicative of future results. Other asset allocations
may have had different returns during those time periods.
All Bloomberg indices are provided by Bloomberg Index Services Limited.
Diversification does not guarantee a profit or ensure against loss. It is possible to lose money in a diversified portfolio.
Dynamic Asset Allocation Balanced Fund 3
Performance history as of 9/30/22
Annualized total return (%) comparison
The fund — class A shares Fund’s primary Fund’s secondary Fund’s Lipper peer
before sales charge benchmark benchmark group median
Putnam Dynamic Asset Russell 3000 Index Putnam Balanced Mixed-Asset
Allocation Balanced Blended Benchmark* Target Allocation
Fund (PABAX) Moderate Funds
11.39
9.34 8.62 7.70
6.42 6.36 6.05 6.73
4.78 4.49
2.92 2.69 1.92 2.80 1.40
LIFE OF FUND† 10 YEARS 5 YEARS 3 YEARS 1 YEAR
(since 2/7/94)
–16.86 –16.89–16.36
–17.63
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares.
Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the
bar chart do not reflect a sales charge of 5.75%; had they, returns would have been lower. See page 5 and pages 11–13
for additional performance information. For a portion of the periods, the fund had expense limitations, without which
returns would have been lower. To obtain the most recent month-end performance, visit putnam.com.
All Bloomberg indices are provided by Bloomberg Index Services Limited.
Lipper peer group median is provided by Lipper, a Refinitiv company.
* Putnam Balanced Blended Benchmark is a blended benchmark administered by Putnam Management and comprises
50% the Russell 3000 Index, 35% the Bloomberg U.S. Aggregate Bond Index, 10% the MSCI EAFE Index (ND), and 5% the
JPMorgan Developed High Yield Index.
† The fund’s secondary benchmark, the Putnam Balanced Blended Benchmark, was introduced on 12/31/94, which
post-dates the inception of the fund’s class A shares.
4 Dynamic Asset Allocation Balanced Fund
Performance history as of 9/30/22
Annualized total return (%) comparison Recent broad market index and fund performance
The fund — class A shares Fund’s primary Fund’s secondary Fund’s Lipper peer
Cash
before sales charge benchmark benchmark group median 0.62%
(ICE BofA U.S. 3-Month Treasury Bill Index)
Putnam Dynamic Asset Russell 3000 Index Putnam Balanced Mixed-Asset
Allocation Balanced Blended Benchmark* Target Allocation U.S. bonds
–14.60%
Fund (PABAX) Moderate Funds (Bloomberg U.S. Aggregate Bond Index)
11.39
U.S. stocks
6.42 9.34 6.36 6.05 6.73 8.62 7.70 (S&P 500 Index) –15.47%
4.78 4.49
2.92 2.69 1.92 2.80 1.40 Putnam Dynamic Asset Allocation Balanced Fund
–16.86%
(class A shares before sales charge)
LIFE OF FUND† 10 YEARS 5 YEARS 3 YEARS 1 YEAR
(since 2/7/94)
Fund’s secondary benchmark
–16.89%
(Putnam Balanced Blended Benchmark)
Fund’s primary benchmark
–17.63%
(Russell 3000 Index)
–16.86 –16.89–16.36
–17.63
This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended
9/30/22. See page 4 and pages 11–13 for additional fund performance information. Index descriptions can be found
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
on page 17.
Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares.
Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the All Bloomberg indices are provided by Bloomberg Index Services Limited.
bar chart do not reflect a sales charge of 5.75%; had they, returns would have been lower. See page 5 and pages 11–13
for additional performance information. For a portion of the periods, the fund had expense limitations, without which
returns would have been lower. To obtain the most recent month-end performance, visit putnam.com.
All Bloomberg indices are provided by Bloomberg Index Services Limited.
Lipper peer group median is provided by Lipper, a Refinitiv company.
* Putnam Balanced Blended Benchmark is a blended benchmark administered by Putnam Management and comprises
50% the Russell 3000 Index, 35% the Bloomberg U.S. Aggregate Bond Index, 10% the MSCI EAFE Index (ND), and 5% the
JPMorgan Developed High Yield Index.
† The fund’s secondary benchmark, the Putnam Balanced Blended Benchmark, was introduced on 12/31/94, which
post-dates the inception of the fund’s class A shares.
Dynamic Asset Allocation Balanced Fund 5
Interview with your fund’s portfolio manager
Interview with your fund’s portfolio manager
Brett Goldstein discusses the investing
environment and fund results for the 12 months
ended September 30, 2022, as well as his
outlook for financial markets.
Brett, please describe investing conditions
for the 12-month reporting period.
Investors faced multiple headwinds during
the period. Supply chain bottlenecks, slowing
global growth, high inflation, and the Russia-
Ukraine War weighed on investor sentiment. Of
Brett S. Goldstein, CFA
these concerns, controlling inflation remained
Portfolio Manager
a top priority of the U.S. Federal Reserve. In
Brett is Co-Chief Investment Officer, November 2021, the Fed began tapering its
Global Asset Allocation. He has an M.P.S. $120 billion-per-month bond-buying program,
in Statistics, a B.S. in Finance, and a B.S.
signaling it would raise interest rates in
in Biometry and Statistics from Cornell
University. Brett has been in the investment calendar 2022.
industry since he joined Putnam in 2010.
After a relatively calm start to the new year,
Adrian H. Chan, CFA, James A. Fetch,
Russia’s invasion of Ukraine on February 24
and Robert J. Schoen are also Portfolio
caused a flight to safety. Investors shed
Managers of the fund.
growth-oriented stocks in favor of value-oriented,
cyclical stocks. Yields on U.S. Treasuries rose and
commodity prices soared. Inflation concerns
spread globally. For the first time since 2018, the
Fed increased interest rates, adding 0.25% to
borrowing costs at its March 2022 meeting. The
Fed pledged to make additional interest-rate
hikes at its six remaining policy meetings in
calendar 2022.
Between May and September, the Fed raised
interest rates four more times. The federal funds
rate moved from 0.00%–0.25% at the start of the
6 Dynamic Asset Allocation Balanced Fund
Portfolio composition
U.S. investment-grade bonds 36.1%
U.S. large-cap equity 35.2
International equity 9.9
U.S. small- and mid-cap equity 7.0
U.S. money markets 5.2
U.S. high-yield bonds 4.9
Commodities 1.7
Allocations are shown as a percentage of the fund’s net assets as of 9/30/22. Cash and net other assets, if any,
represent the market value weights of cash, derivatives, short-term securities, and other unclassified assets in the
portfolio. Summary information may differ from the portfolio schedule included in the financial statements due to
the inclusion of derivative securities, any interest accruals, the exclusion of as-of trades, if any, the use of different
classifications of securities for presentation purposes, and rounding. Holdings and allocations may vary over time.
Top 10 holdings
HOLDING (PERCENTAGE OF FUND’S NET ASSETS) SECURITY TYPE SECTOR/INDUSTRY
Apple, Inc. (3.4%) Common stocks Technology/Computers
Microsoft Corp. (2.9%) Common stocks Technology/Soft ware
Amazon.com, Inc. (1.7%) Common stocks Consumer cyclicals/Retail
Alphabet, Inc. (1.3%) Common stocks Technology/Technology services
Tesla, Inc. (0.9%) Common stocks Consumer cyclicals/Automotive
Merck & Co., Inc. (0.8%) Common stocks Health care/Pharmaceuticals
Procter & Gamble Co. (The) (0.8%) Common stocks Consumer staples/Consumer goods
Coca-Cola Co. (The) (0.7%) Common stocks Consumer staples/Beverage
Eli Lilly and Co. (0.7%) Common stocks Health care/Pharmaceuticals
Exxon Mobil Corp. (0.7%) Common stocks Energy/Oil and gas
This table shows the fund’s top 10 individual holdings and the percentage of the fund’s net assets that each
represented as of 9/30/22. Short-term investments, to-be-announced (TBA) commitments, and derivatives, if any, are
excluded. Holdings may vary over time.
Dynamic Asset Allocation Balanced Fund 7
period to 3.00%–3.25% by period-end. Many position in the second quarter of calendar 2022
investors feared that a more hawkish Fed would offset some of these gains as stocks moved into
tip the U.S. economy into a recession. correction territory [a decline of 10% or more
from a recent high]. Underweight positioning in
Stocks and bonds posted losses for the
August and September 2022 benefited results
12-month reporting period. U.S. stocks, as
as stocks sank to annual lows.
measured by the S&P 500 Index, returned
–15.47%. Non-U.S. stocks in developed In fixed income, the portfolio experienced a
markets, as measured by the MSCI EAFE Index small gain from a modest underweight position
[ND], fared worse, returning –25.13%. High- to interest-rate risk, as yields rose sharply
yield bonds returned –13.08%, as measured with the Fed’s move toward tighter policy.
by the JPMorgan Developed High Yield Index. We changed this position to neutral at the
Investment-grade bonds returned –14.60%, beginning of February 2022.
as measured by the Bloomberg U.S. Aggregate
The portfolio posted a loss from an out-of-
Bond Index.
benchmark, modestly long position to
Credit spreads widened as interest rates rose. commodity risk, implemented at the beginning
[Spreads are the yield advantage credit-sensitive of March 2022. The position ranged from
bonds offer over comparable-maturity U.S. modestly long to long over the remainder of
Treasuries. Bond prices rise as yield spreads the period.
tighten and decline as spreads widen.] The
Overall, security selection decisions boosted
yield on the benchmark 10-year U.S. Treasury
performance. Our quantitative U.S. large-cap
climbed from 1.52% at the start of the period to
core equity strategy performed strongly, while
3.83% by period-end. Short-term yields rose even
our quantitative international equity strategy
more, causing the yield curve to flatten or invert
contributed a small gain. In quantitative
at times.
strategies, our team analyzes stock market
history to identify characteristics of stocks
How did the fund perform for the 12 months
[factors] that have excess risk-adjusted returns.
ended September 30, 2022?
Over the period, our valuation factors drove
The fund returned –16.86%, outperforming its performance. Our fundamental U.S. large-cap
primary benchmark, the Russell 3000 Index, growth and opportunistic fixed income
which returned –17.63%. The fund also outper- strategies finished negative for the period. Our
formed the custom Putnam Balanced Blended fundamental U.S. large-cap value strategy was a
Benchmark, which returned –16.89%. notable positive contributor.
What strategies impacted fund performance As the fund starts a new fiscal year,
relative to the custom benchmark during the how is it positioned relative to the
reporting period? custom benchmark?
Overall, our dynamic asset allocation decisions The fund is positioned defensively relative
slightly aided performance. We adjusted the to the custom benchmark as of October 1,
portfolio’s tactical allocation mix several times 2022. The portfolio has an underweight
during the period. The largest boost to fund position to equity risk and a neutral position to
performance came from our equity allocation interest-rate risk. Tactically, the portfolio has
decisions. Equity positioning in the first quarter an out-of-benchmark, modestly long position
of calendar 2022 added value, as the fund to commodity risk. Toward period-end, we
benefited from short-term over- and under- decreased our commodity position from long to
weight positions, which took advantage of modestly long.
equity market volatility. A modest overweight
8 Dynamic Asset Allocation Balanced Fund