« Back | Press release: March 12, 2013

Putnam Investments CEO Robert L. Reynolds calls for innovations in product, portfolio strategy and risk management to address investors' evolving needs

Also Challenges Industry to Lead Dramatic Improvements in Retirement Policy

BOSTON, March 12, 2013 — Speaking at a conference in Florida today, Putnam Investments President and CEO Robert L. Reynolds called on the investment industry to usher in a new era of helping investors address a dynamic set of ongoing market challenges by breaking down the barriers of conventional wisdom and embracing a range of needed innovations to the marketplace.

Five years after the worst economic crisis to hit global capitalism in several generations and with investors still feeling the after-shocks, Reynolds urged asset managers, financial advisors and their clients to consider and apply a new set of investment strategies, driven by a modern view of portfolio construction, risk management and diversification.

"We find ourselves moving — ever-so-tentatively — into a financial future with seemingly only one certainty: it will likely be very different than the investment world in which we all grew up," explained Reynolds. "This suggests that conventional wisdom shaped by decades of high-return investing — first in equities from 1982 to 2000, then in fixed-income markets over most of this young century — needs to be re-examined, revised or even scrapped."

Reynolds address comes on the heels of Putnam's recently launched awareness building campaign, "New Ways of Thinking," that emphasizes the importance for financial advisors and investors to continually anticipate the evolution of the investment markets — and then act to seize new opportunities and mitigate unforeseen challenges.

In his remarks today, Reynolds pointed to the lower returns and increased volatility of core equity and bond markets over the past decade as the deepest sources of investors' angst. Moving forward, he stressed some new directions in investment thinking that could help asset managers and advisors serve clients trying to navigate an era of constrained fixed income returns and geopolitically-driven anxiety that often roils global equities.

In this often daunting environment, Reynolds suggested that investment providers and advisors could offer tremendous value to their clients by:

  • Seeking value beyond mainstream indices (in both equity and fixed income markets)
  • Looking beyond bonds to dividend stocks as a key source for income
  • Adopting strategies that may help curb volatility and deliver a smoother, more reliable sequence of returns
  • Pursuing "diversification of investment philosophy" by incorporating absolute return strategies in portfolios along with traditional benchmark-driven investments
  • Applying a stringent risk-allocation lens to assess the real "balance" in investment portfolios
  • Investing in low-beta stocks to seek less volatile, more precisely risk-adjusted returns
  • Applying Sharpe-ratio, or "high efficiency" metrics to judge securities and strategies

"The old conventions and rules of thumb we've learned to live by may no longer serve to position investors for longer-term success." Reynolds noted. "Amid higher volatility, rising tax rates, political uncertainties and near-zero interest rates, Abraham Lincoln's great adage, "We need to think anew — and act anew," is more relevant than ever. Investors, advisors, and asset management providers all should consider a new blend of traditional and alternative strategies to help reach critical financial goals in this new investment era."

Addressing Retirement Policy Challenges of a New Era
Reynolds also called on financial industry colleagues to take the lead on three key retirement policy changes that could dramatically lift America's retirement readiness by strengthening the workplace savings system:

  • Make the "full-auto" best practices endorsed by the Pension Protection Act of 2006 standard — perhaps even mandatory — for every workplace savings plan in America, featuring: auto-enrollment, annual re-enrollment, auto escalation, and automatic default to qualified target date or balanced funds
  • Support the extension of workplace savings coverage to all working Americans — so that everyone who pays mandated Social Security taxes also has an option to save for their own retirement
  • Lift the industry average 7% participant savings rate in today's workplace plans by 50% or more — to a new baseline of 10% plus — the level that Putnam's Lifetime Income Score shows is key to retirement readiness. "We don't serve anyone well, "Reynolds explained, "by allowing them to believe that saving 3% — or 5% — or even 7% — is enough to ensure retirement readiness. Let's tell people the truth."

In summing up the necessity of innovation and policy reform to strengthen the long-term prospects of the modern-day investor, Reynolds said "None of these changes — of mindset or approach — will be easy, but I believe that if we embrace new thinking and new solutions, we'll find it exciting, liberating — and rewarding."

Awareness-Building Campaign

In February, Putnam announced the launch of an awareness-building campaign, entitled, "New Ways of Thinking," to provide insight on the challenges facing financial advisors and investors today and beyond. Expected to continue throughout 2013, the effort further seeks to encourage the marketplace to consider new ways of thinking about investing, which could include taking a more targeted approach to desired levels of risk and return, pursuing the best ideas — wherever they may be, allocating risk — not just assets, and finding new drivers of return. In addition to new print, direct marketing and online advertising, the firm will be developing content-rich thought leadership through business seminars, industry events, and white papers on an array of topics, such as the marriage of traditional and alternative products, benefits of Sharpe ratio investing, active risk management, and more.

New Thinking at Putnam

Reynolds noted that over the last several years, Putnam has developed and introduced a series of investment offerings that seek to create a "shock-absorber effect" to help fulfill a diverse range of client financial goals — including accumulating and withdrawing income for retirement, preparing for higher education costs, building a financial legacy, and more. In many of the new products that the firm has brought to market, according to Reynolds, it has sought to manage multiple risk factors that investors need to balance, including unprecedented market volatility, inflation, taxes, the clients' own increasing longevity and their concerns about lifelong income shortfalls.

About Putnam Investments

Founded in 1937, Putnam Investments is a leading global money management firm with over 75 years of investment experience. At the end of January 2013, Putnam had $133 billion in assets under management. Putnam has offices in Boston, London, Frankfurt, Amsterdam, Tokyo, Beijing, Singapore and Sydney. For more information, visit http://www.putnam.com.

Putnam mutual funds are distributed by Putnam Retail Management.

Putnam Investments Media Contacts:

Jon Goldstein — 617-760-1127 (office), 516-946-5598 (cell), [email protected] Laura McNamara — 617-760-1108 (office), 617-850-2727 (cell), [email protected]

IMPORTANT: The projections, or other information generated by the Lifetime Income Score regarding the likelihood of various investment outcomes, are hypothetical in nature. They do not reflect actual investment results and are not guarantees of future results. The results may vary with each use and over time.

The Putnam Lifetime Income ScoreSM represents an estimate of the percentage of current income that an individual might need to replace from savings in order to fund retirement expenses. This income estimate is based the individual's amount of current savings as well as future contributions to savings (as provided by participants in the survey) and includes investments in 401(k) plans, IRAs, taxable accounts, variable annuities, cash value of life insurance, and income from defined benefit pension plans. It also includes future wage growth from present age (e.g., 45) to the retirement age of 65 (1% greater than the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)) as well an estimate for future Social Security benefits.

The Lifetime Income Score estimate is derived from the present value discounting of the future cash flows associated with an individual's retirement savings and expenses. It incorporates the uncertainty around investment returns (consistent with historical return volatility) as well as the mortality uncertainty that creates a retirement horizon of indeterminate length. Specifically, the Lifetime Income Score procedure begins with the selection of a present value discount rate based on the individual's current retirement asset allocation (stocks, bonds, and cash). A rate is determined from historical returns such that 90% of the empirical observations of the returns associated with the asset allocation are greater than the selected discount rate. This rate is then used for all discounting of the survival probability-weighted cash flows to derive a present value of a retirement plan. Alternative spending levels in retirement are examined in conjunction with this discounting process until the present value of cash flows is exactly zero. The spending level that generates a zero retirement plan present value is the income estimate selected as the basis for the Lifetime Income Score. In other words, it is an income level that is consistent with a 90% confidence in funding retirement. It is viewed as a "sustainable" spending level and one that is an appropriate benchmark for retirement planning.

The survey is not a prediction, and results may be higher or lower based on actual market returns.

The Putnam Lifetime Income Survey, with research methodology provided by the Putnam Institute, was conducted online by Brightwork Partners and completed in January 2013. The survey of 4.089 working adults age 18 to 65 was weighted to U.S. Census parameters for all working adults.

Request a prospectus, or a summary prospectus if available, from your financial representative or by calling Putnam at 1-800-225-1581. The prospectus includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing.

Putnam Retail Management