Multi-Asset Absolute Return Fund Annual Report

116 Pages·2017·2.53 MB·English

by  Putnam Investments

Putnam Multi-Asset
Absolute Return
Fund
Annual report
10 | 31 | 22
Absolute return funds are
designed for a wide range of
investors and pursue positive
returns with less volatility over
time than more traditional funds.
FUND SYMBOL
CLASS A
PDMAX
Putnam Multi-Asset
Absolute Return
Fund
Annual report
10 |31 |22
Message from the Trustees 1
Interview with your fund’s portfolio manager 3
Your fund’s performance 9
Your fund’s expenses 12
Consider these risks before investing 14
Terms and definitions 15
Other information for shareholders 17
Important notice regarding Putnam’s privacy policy 18
Trustee approval of management contract 19
Audited financial statements 24
Report of Independent Registered Public Accounting Firm 25
Federal tax information 86
Shareholder meeting results 87
About the Trustees 88
Officers 90
Message from the Trustees
December 9, 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, and it may maintain
high interest rates in 2023 until inflation indicators move meaningfully lower.
While this environment is challenging, you can be confident that Putnam portfolio
managers are working for you. Our teams are actively 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
Performance history as of 10/31/22
Annualized total return (%) comparison
The fund — class A shares before sales charge Fund’s benchmark
Putnam Multi-Asset Absolute Return Fund (PDMAX) ICE BofA U.S. Treasury Bill Index
4.73
2.73
1.19 1.16
0.56 0.71 0.56 0.62
LIFE OF FUND 10 YEARS 5 YEARS 3 YEARS 1 YEAR
(since 12/23/08)
–1.62
–2.21
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 below and pages 9–11
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.
Recent broad market index and fund performance
Fund’s benchmark
(ICE BofA U.S. Treasury Bill Index) 0.62%
Putnam Multi-Asset Absolute Return Fund
(class A shares before sales charge) 4.73%
U.S. stocks
(S&P 500 Index) –14.61%
U.S. bonds
(Bloomberg U.S. Aggregate Bond Index) –15.68%
This comparison shows your fund’s performance in the context of broad market indexes for the 12 months
ended 10/31/22. See above and pages 9–11 for additional fund performance information. Index descriptions can
be found on page 16.
All Bloomberg indices are provided by Bloomberg Index Services Limited.
2 Multi-Asset Absolute Return Fund
Interview with your fund’s portfolio manager
Interview with your fund’s portfolio manager
Brett Goldstein discusses the investing
Performance history as of 10/31/22
environment and fund results for the 12 months
Annualized total return (%) comparison
ended October 31, 2022, as well as his outlook
The fund — class A shares before sales charge Fund’s benchmark
Putnam Multi-Asset Absolute Return Fund (PDMAX) ICE BofA U.S. Treasury Bill Index
for financial markets.
4.73
2.73
1.19 1.16
0.56 0.71 0.56 0.62
LIFE OF FUND 10 YEARS 5 YEARS 3 YEARS 1 YEAR
(since 12/23/08)
Brett, please describe market conditions
–1.62
–2.21 during the reporting period.
For much of the period, financial markets
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
were challenged by multiple, converging
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 risks in the macroeconomy. Rising inflation,
bar chart do not reflect a sales charge of 5.75%; had they, returns would have been lower. See below and pages 9–11 slowing global growth, and geopolitical
Brett S. Goldstein, CFA
for additional performance information. For a portion of the periods, the fund had expense limitations, without which
uncertainty weighed on investor sentiment.
returns would have been lower. To obtain the most recent month-end performance, visit putnam.com. Portfolio Manager
China’s zero-tolerance Covid-19 policy also
Brett is Co-Chief Investment Officer, caused periodic shutdowns, worsening supply
Recent broad market index and fund performance Global Asset Allocation. He has an M.P.S. chain bottlenecks.
in Statistics, a B.S. in Finance, and a B.S.
in Biometry and Statistics from Cornell Of these concerns, controlling inflation
Fund’s benchmark University. Brett has been in the investment remained a top priority of the U.S. Federal
(ICE BofA U.S. Treasury Bill Index) 0.62% industry since he joined Putnam in 2010.
Reserve. In November 2021, the Fed began to
Adrian H. Chan, CFA, James A. Fetch,
Putnam Multi-Asset Absolute Return Fund taper its $120-billion-per-month bond-buying
(class A shares before sales charge) 4.73% and Robert J. Schoen are also Portfolio
program, paving the way for higher interest
Managers of the fund.
rates in calendar 2022.
U.S. stocks
(S&P 500 Index) –14.61%
After a relatively calm start to the new year,
U.S. bonds Russia’s invasion of Ukraine on February 24
(Bloomberg U.S. Aggregate Bond Index) –15.68%
caused a flight to safety. Energy and food inse-
curity in Europe drove commodity prices higher,
This comparison shows your fund’s performance in the context of broad market indexes for the 12 months
stoking inflation. For the first time since 2018,
ended 10/31/22. See above and pages 9–11 for additional fund performance information. Index descriptions can
the Fed raised interest rates, adding 0.25% to
be found on page 16.
borrowing costs at its March 2022 meeting.
All Bloomberg indices are provided by Bloomberg Index Services Limited.
Markets began to price in several additional
interest-rate hikes anticipated from the Fed in
calendar 2022.
Multi-Asset Absolute Return Fund 3
Portfolio composition
Agency pass-throughs 18.9%
U.S. stocks 12.9%
Commodities 7.2%
Agency collateralized
5.5%
mortgage obligations
International stocks 1.8%
Commercial mortgage-
1.3%
backed securities
Non-agency residential
1.3%
mortgage-backed securities
Emerging market bonds 1.0%
Asset-backed securities 0.5%
Emerging market stocks –0.7%
U.S. Treasuries/agency –9.9%
Cash and net other assets 60.2%
Allocations are shown as a percentage of the fund’s net assets as of 10/31/22. 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 use of different classifications of securities for
presentation purposes, and rounding. Allocations may not total 100% because the chart includes the notional value
of certain derivatives (the economic value for purposes of calculating periodic payment obligations), in addition to
the market value of securities. Holdings and allocations may vary over time.
Negative weights may result from timing differences between trade settlement dates of securities, such as to-be-
announced (TBA) commitments, or from the use of derivatives.
In June 2022, U.S. inflation peaked to a 40-year bonds returned –15.68%, as measured by the
high. Investors grew cautious that more aggres- Bloomberg U.S. Aggregate Bond Index.
sive monetary tightening would tip the U.S.
Credit spreads widened as interest rates rose.
economy into a recession. Shortly after the close
[Spreads are the yield advantage credit-sensitive
of the period, the Fed made its fourth interest-rate
bonds offer over comparable-maturity U.S.
hike of 0.75% this year. The federal funds rate
Treasuries. Bond prices rise as yield spreads
climbed from 0.00%–0.25% at the start of the
tighten and decline as spreads widen.] The
period to 3.75%–4.00% as of November 2, 2022.
yield on the benchmark 10-year U.S. Treasury
In this risk-averse environment, stocks and climbed from 1.55% at the start of the period
bonds posted losses. U.S. stocks, as measured to 4.10% by period-end. Short-term yields rose
by the S&P 500 Index, returned –14.61% for the even more, causing the yield curve to flatten and
period. Non-U.S. stocks in developed markets, later invert, a sign of an incoming recession.
as measured by the MSCI EAFE Index [ND], fared
worse, returning –23.00%. Investment-grade
4 Multi-Asset Absolute Return Fund
Before we discuss results, can you describe level of risk, depending on market conditions
the fund’s strategies? and the prevailing opportunity set.
The fund pursues roughly equivalent risk and The nondirectional portion of the portfolio
total return characteristics by dynamically allo- consists of long/short market neutral strategies
cating assets using directional [market sensitive] with a goal to provide flexible uncorrelated
and nondirectional [market neutral] strategies. sources of alpha.
The directional portion of the portfolio consists
How did the fund perform for the
of two components. The first is a risk-balanced
portfolio of stocks and bonds designed to reporting period?
capture long-term market returns. The second The fund’s class A shares returned 4.73%, outper-
is a dynamic asset allocation overlay that forming the benchmark ICE BofA U.S. Treasury
reflects tactical views. This overlay consists of Bill Index, which returned 0.62% for the period.
tactical long and short positions to equities,
interest rates, and commodities based on the What strategies influenced fund
team’s expectations for each asset class. The performance during the reporting period?
team manages both the composition and total
Overall, directional strategies detracted from
fund performance. The equity portion of the
Top 10 holdings
HOLDING (PERCENTAGE OF FUND’S NET ASSETS) SECURITY TYPE SECTOR
Citigroup Global Markets Holdings, Inc. sr. notes Commodity-linked notes Commodities
Ser. N, compound SOFR, 3/27/23 (Indexed to the Citi
Commodities F3 vs F0 - 4x Leveraged Index multiplied
by 3) (2.0%)
Energy Select Sector SPDR Fund (1.9%) Investment companies Energy
BofA Finance, LLC 144A sr. unsec. unsub. notes, Commodity-linked notes Commodities
compound SOFR less 0.05%, 3/7/23 (Indexed to the
BofA Merrill Lynch Commodity MLBX4SX6 Excess Return
Strategy multiplied by 3) (1.7%)
Consumer Staples Select Sector SPDR Fund (1.6%) Investment companies Consumer staples
Citigroup Global Markets Holdings, Inc. sr. notes Commodity-linked notes Commodities
Ser. N, zero %, 3/7/23 (Indexed to the S&P GSCI Light
Energy Excess Return Index multiplied by 3) (1.6%)
Technology Select Sector SPDR Fund (1.5%) Investment companies Technology
Utility Select Sector SPDR Fund (1.5%) Investment companies Utilities and power
Citigroup Global Markets Holdings, Inc. 144A sr. Commodity-linked notes Commodities
notes, zero %, 11/28/22 (Indexed to the Citi Cross-Asset
Trend 10% Vol Index multiplied by 3) (1.4%)
Materials Select Sector SPDR Fund (1.4%) Investment companies Basic materials
Real Estate Select Sector SPDR Fund (1.4%) Investment companies Real estate
This table shows the fund’s top 10 individual holdings and the percentage of the fund’s net assets that each
represented as of 10/31/22. Short-term investments, to-be-announced (TBA) commitments, and derivatives, if any,
are excluded. Holdings may vary over time.
Multi-Asset Absolute Return Fund 5
risk-balanced portfolio finished negative, while portfolio held a net long position to interest-rate
tactical equity positioning led to a small gain. In risk, which resulted in a negative contribution
the first quarter of calendar 2022, the portfolio from directional interest-rate exposure. A
benefited from short-term modest long and modest tactical long position to commodity
short positions implemented to take advantage risk, implemented in March 2022, resulted in a
of stock market volatility. loss. This position ranged from modest long to
long through period-end.
A modest long position to equities in the second
quarter of calendar 2022 offset some of these Overall, nondirectional strategies boosted
gains. During this time, stocks moved into fund performance. Our equity selection alpha
correction territory [a decline of 10% or more strategy was the largest positive contributor.
from a recent high]. The portfolio benefited Within this strategy, our global equity long/
from a short position in August and September short, sector selection, and quantitative
as stocks sank to year-to-date lows. This emerging market equity strategies were top
position contributed to a loss in October as performers. Our alternative beta strategy also
stocks rebounded from their recent lows. The lifted results, as our volatility carry and cross-
portfolio held a net long position to equity risk, asset trend strategies showed strength. Our
which resulted in a negative c ontribution from fixed income selection alpha strategy was also
directional equity exposure. additive, largely due to a strategy focused on
structured mortgage credit. Our commodity
The fixed income portion of the risk-balanced
alpha strategy also finished the period with
portfolio finished the period negative. A modest
positive results. Fixed income sector alpha
tactical short position to interest-rate risk had
experienced a gain, driven by a strategy that
a nominal impact on fund results. We removed
shorts U.S. real yields.
this tactical position in early February 2022. The
Portfolio composition comparison
as of 4/30/22 4.9%
Agency pass-throughs
as of 10/31/22 18.9%
25.7%
U.S. stocks
12.9%
7.4%
Commodities
7.2%
6.1%
Agency collateralized
mortgage obligations 5.5%
0.9%
International stocks
1.8%
This chart shows how the fund’s top weightings have changed over the past six months. Allocations are shown as
a percentage of the fund’s net assets. 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. Current period summary information
may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative
securities, any interest accruals, the use of different classifications of securities for presentation purposes, and
rounding. Holdings and allocations may vary over time.
6 Multi-Asset Absolute Return Fund
To reduce inflation, the Fed will
need to increase interest rates
ABOUT DERIVATIVES
faster and more than the market
Derivatives are an increasingly common type
anticipates, in our view.
of investment instrument, the performance
Brett Goldstein of which is derived from an underlying
security, index, currency, or other area of the
capital markets. Derivatives employed by the
How were derivatives used during the fund’s managers generally serve one of two
reporting period? main purposes: to implement a strategy
that may be difficult or more expensive
Futures were used to help manage the fund’s
to invest in through traditional securities,
exposure to market risk, hedge prepayment
or to hedge unwanted risk associated with
and interest-rate risks, gain exposure to interest a particular position.
rates, and equitize cash. Total return swaps
For example, the fund’s managers might
were used to hedge sector exposure; manage
use currency forward contracts to capitalize
exposure to specific sectors, industries, and
on an anticipated change in exchange rates
securities; and gain exposure to a basket of between two currencies. This approach would
securities, specific markets, countries, sectors, require a significantly smaller outlay of capital
and industries. We also used interest-rate than purchasing traditional bonds denomi-
nated in the underlying currencies. In another
swaps to hedge interest-rate and prepayment
example, the managers may identify a bond
risks, and gain exposure to interest rates. Credit
that they believe is undervalued relative
default contracts were used to help hedge
to its risk of default, but may seek to reduce
credit and market risks, and gain exposure to the interest-rate risk of that bond by using
individual names and baskets of securities. interest-rate swaps, a derivative through which
two parties “swap” payments based on the
movement of certain rates. In other examples,
How is the fund positioned as of
the managers may use options and futures
November 1, 2022?
contracts to hedge against a variety of risks
The portfolio is positioned slightly bearish as by establishing a combination of long and
of period-end. Within our dynamic allocation short exposures to specific equity markets
or sectors.
overlay, we have a short position to equity risk
and a modest long position to commodity Like any other investment, derivatives may
risk. We do not have any tactical exposure to not appreciate in value and may lose money.
interest-rate risk. Overall, the portfolio has a Derivatives may amplify traditional invest-
ment risks through the creation of leverage
net long position to equity risk, interest-rate
and may be less liquid than traditional
risk, and commodity risk. Portfolio risk is
securities. And because derivatives typically
roughly balanced between the directional represent contractual agreements between
and non-directional portions of the portfolio. two financial institutions, derivatives entail
Directional risk mostly comes from commodity “counterparty risk,” which is the risk that the
exposure. Most of the nondirectional risk comes other party is unable or unwilling to pay.
Putnam monitors the counterparty risks
from our equity selection alpha strategies.
we assume. For example, Putnam often enters
into collateral agreements that require the
What is your outlook for the economy and counterparties to post collateral on a regular
the fund? basis to cover their obligations to the fund.
Counterparty risk for exchange-traded futures
Volatility has been a major constant across
and centrally cleared swaps is mitigated
markets year to date. Rising inflation, supply
by the daily exchange of margin and other
chain disruptions, monetary policy tightening,
safeguards against default through their
respective clearinghouses.
Multi-Asset Absolute Return Fund 7
and the war in Ukraine have weighed down Our view on commodities is slightly bullish. A
most asset classes. Looking ahead, we expect strengthening U.S. dollar, rising real yields, and
market volatility to persist and investor building recessionary forces are headwinds
sentiment to waver given many uncertainties for commodities, in our view. However, in the
and fears of recession. medium term, we believe supply constraints are
a reason to be bullish.
Our near-term outlook for equities is bearish.
We think the equity market has yet to bottom Against this backdrop, we continue to have
given the Fed’s hiking bias and the lack of conviction in our investment strategies given
improvement in labor market tightness. Our our ability to adapt the portfolios to changing
breadth thrust signals [a technical indicator that market conditions.
determines market momentum] also have not
confirmed the start of a new bullish trend. Thank you, Brett, for your time and
insights today.
Our near-term outlook for rate-sensitive fixed
income is neutral. To reduce inflation, the The views expressed in this report are exclusively
Fed will need to increase interest rates faster those of Putnam Management and are subject to
and more than the market anticipates, in our change. They are not meant as investment advice.
view. This has a negative impact on duration
Please note that the holdings discussed in this
exposure. However, this view is tempered report may not have been held by the fund for the
by what we perceive to be deteriorating entire period. Portfolio composition is subject to
economic data and heightened recession risk, review in accordance with the fund’s investment
which could be a catalyst for interest rates to strategy and may vary in the future. Current and
future portfolio holdings are subject to risk.
move lower.
8 Multi-Asset Absolute Return Fund