Active Allocation

Dynamic Asset Allocation Conservative Fund (Class A)  (PACAX)

A globally diversified fund for preserving wealth

Dynamic Asset Allocation Conservative Fund received an  Overall Morningstar Rating™  of  
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Dynamic Asset Allocation Conservative Fund (PACAX)

Q1 2020 | Dynamic Asset Allocation Funds Q&A

  • Stocks tumble, bonds mixed as virus pandemic takes a toll on economic activity.
  • The Fed takes unprecedented measures to provide liquidity to fixed-income markets.
  • We expect to see elevated volatility and are maintaining our defensive positions.

How were market conditions in the first quarter?

The spread of the disease caused by the coronavirus (COVID-19) has sent global financial markets into a tailspin. Equity markets tumbled during the first quarter as investors braced for the economic fallout and governments worldwide raced to contain the outbreak. This steep reversal came after the S&P 500 Index and the Nasdaq Composite rose to record highs in mid-February, the United States and China signed a phase-one trade deal, and central banks lowered interest rates.

As fears over the outbreak rippled across the world, investors started to become more risk averse. The S&P 500 Index, a broad measure of stocks, declined 19.60% and the MSCI World Index dropped 21.05% during the period. The rate-sensitive Bloomberg Barclays U.S. Aggregate Bond Index gained 3.15% during the quarter. Fears of a global recession prompted a flight to safety as some investors snapped up U.S. Treasuries, sending the yield on 10-year notes plunging to 0.67 % on March 31.

Markets remained jittery at the end of quarter despite a series of measures taken by central banks, including the Federal Reserve. The Fed has slashed rates to near zero, extended terms on emergency loans to banks, relaunched a financial-crisis-era commercial paper tool, and thrown other lifelines across the bond markets. Policy makers aimed to protect the financial system and insulate the broader U.S. economy. Over the last two weeks of the quarter, dozens of central banks across Europe, Asia, and elsewhere also announced emergency stimulus measures.

The three Dynamic Asset Allocation funds declined during the quarter. The Conservative Fund, with its more fixed-income-centric investments, fell 5.13%. The more equity-centric Balanced Fund and Growth Fund dropped 13.09% and 18.06 %, respectively. The funds performed in line with their custom benchmarks.

What strategies affected performance?

All of the Dynamic Asset Allocation funds finished with negative returns for the quarter, reflecting the slide in global stocks. Our asset allocation decisions added value. The funds were underweight equity risk, which benefited the portfolios as equity markets sold off. In fixed income, the funds were underweight credit risk and slightly overweight interest-rate risk, both of which added value as credit spreads widened significantly and interest rates fell. These allocation decisions were especially beneficial to the portfolios during the height of market stress, when the S&P 500 lost over 33% from February 20 to March 23. Credit spreads widened to levels not seen since the financial crisis.

Our active implementation decisions detracted slightly from benchmark-relative performance. Security selection within equities was close to flat. There was slight weakness in our security selection in U.S. and international developed markets. In the Growth portfolio, this was offset by strength in emerging-market selections. Opportunistic fixed income, specifically a strategy focused on structured mortgage credit, underperformed. However, performance has begun to improve as liquidity returns to these markets.

What is the outlook for the remainder of 2020?

We are closely monitoring the spread of the coronavirus, the impact of collapsed oil prices, and economic and financial disruptions in the credit markets. The speed and depth of this downturn has surprised investors and global policy makers alike. Global central banks and governments are taking the appropriate monetary and fiscal policy measures, but the pace remains slow. The Fed has already delivered two large rate cuts in March, bringing the key rate to near zero, in addition to other stimulus measures.

We are also seeing governments make more efforts to support businesses and households. On March 27, the federal government enacted the largest economic relief package in U.S. history — a $2 trillion bill intended to rescue the coronavirus-battered economy. These measures take time to work their way through the system. The United States has now become the worldwide epicenter of the epidemic, surpassing China. Against this backdrop, we believe a period of contraction, probably a recession, is a likely scenario in the United States.

We will continue to monitor these economic and credit market risks. We expect to see elevated volatility, at least over the near term. We also could see markets move lower before they improve later in the year. Therefore, we are maintaining our defensive position and are not ready to add risk back to the portfolio. We will monitor stock markets and fixed-income markets to see when volatility subsides, and we can feel confident about adding securities at more attractive valuation levels. One of the primary considerations is the pace of transmission of the virus and its impact on the health-care system. Until we have better information on the spread of the virus and its impact around the world, we will be hesitant to dip our toes back into risk.

| Download the complete Q1 2020 fund Q&A

Highlights

Objective

The fund seeks total return consistent with preservation of capital.

Strategy and process

  • Global benchmark: The fund starts with a globally diversified benchmark with more efficient exposures relative to a typical 30/70 benchmark.
  • Tactical flexibility: The managers have the ability to tilt overall equity and fixed-income allocations +/-15% and shift exposures within each asset class.
  • Active implementation: Managers proactively research and determine the most efficient implementation for each asset class.

Fund price

Net asset value
(yesterday’s close)		 $11.03
0.36% | $0.04
52-week high $11.09 (02/14/20)
52-week low $9.74 (03/20/20)
(Optional)

Yield

Distribution rate before sales charge
as of 07/02/20		 2.07%
Distribution rate after sales charge
as of 07/02/20		 1.95%
30-day SEC yield as of 06/30/20
(after sales charge)		 0.97%

Consistency of positive performance over five years

Performance represents 5-year returns in rolling quarter-end periods since inception.

Performance shown does not reflect the effects of any sales charges. Note that returns of 0.00% are counted as positive periods. For complete fund performance, please click on the performance tab.

12.52%

Best 5-year annualized return

(for period ending 03/31/14)

-1.78%

Worst 5-year annualized return

(for period ending 03/31/09)

5.50%

Average 5-year annualized return

Fund facts as of 06/30/20

Total net assets
$1,075.56M
Turnover (fiscal year end)
173%
Dividend frequency (view rate)
Monthly
Number of holdings
1969
Fiscal year-end
September
CUSIP / Fund code
746444504 / 0042
Inception date
02/07/94
Category
Asset Allocation
Open to new investors
Ticker
PACAX

Management team

Robert J. Schoen

Chief Investment Officer, Global Asset Allocation

James A. Fetch

Co-Head of Global Asset Allocation

Jason R. Vaillancourt, CFA

Co-Head of Global Asset Allocation

Brett S. Goldstein, CFA

Portfolio Manager

Manager commentary | Q2 2020

Markets are not yet in the clear

Jason Vaillancourt, Co-Head of Global Asset Allocation, CFA, talks about the fiscal response to the pandemic and factors influencing asset allocation positioning.

Literature

Actively targeting inflation risk for retirement savers
We explain why a dynamic approach to hedging inflation risk in a target-date fund may be a better way to protect a retirement nest egg.
Market volatility returns to "old" normal
Our outlook for stock market volatility sees the levels reached in 2018 continuing, in part because these levels were close to the long-term norm.

Performance

  • Total return (%) as of 06/30/20

  • Annual performance as of 06/30/20

Annualized Total return (%) as of 06/30/20

Annualized performance 1 yr. 3 yrs. 5 yrs. 10 yrs.
Before sales charge 5.03% 4.54% 4.32% 6.15%
After sales charge -1.01% 2.50% 3.09% 5.52%
Bloomberg Barclays U.S. Aggregate Bond Index 8.74%5.32%4.30%3.82%
Putnam Conservative Blended Benchmark 7.46%6.47%5.88%6.71%

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary, and you may have a gain or loss when you sell your shares. Performance assumes reinvestment of distributions and does not account for taxes. Returns before sales charge do not reflect the current maximum sales charges as indicated below. Had the sales charge been reflected, returns would be lower. Returns at public offering price (after sales charge) for class A and class M shares reflect the current maximum initial sales charges of 5.75% and 3.50% for equity funds and 4.00% and 3.25% for income funds (2.25% for class A of Putnam Floating Rate Income Fund, Short-Term Municipal Income, Short Duration Bond Fund, and Fixed Income Absolute Return Fund), respectively. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter (except for Putnam Floating Rate Income Fund, Putnam Short Duration Bond Fund, Putnam Fixed Income Absolute Return Fund, and Putnam Short-Term Municipal Income Fund, which is 1% in the first year, declining to 0.5% in the second year, and is eliminated thereafter). Class C shares reflect a 1% CDSC the first year that is eliminated thereafter. Performance for class B, C, M, N, R, and Y shares prior to their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and, except for class Y shares, the higher operating expenses for such shares (with the exception of Putnam Tax-Free High Yield Fund and Putnam AMT-Free Municipal Fund, which are based on the historical performance of class B shares). Performance for class A, C, R6, and Y shares of Putnam Mortgage Opportunities Fund before their inception is derived from the historical performance of class I shares, which have been adjusted for the applicable sales charge (or CDSC) and the higher operating expenses for such shares. Returns at public offering price (after sales charge) for class N shares reflect the current maximum initial sales charge of 1.50%. Class R5/R6 shares, available to qualified employee-benefit plans only, are sold without an initial sales charge and have no CDSC. Class Y shares are generally only available for corporate and institutional clients and have no initial sales charge. Performance for class R5/R6 shares before their inception are derived from the historical performance of class Y shares, which have not been adjusted for the lower expenses; had they, returns would have been higher. Class A shares of Putnam money market funds have no initial sales charge. For a portion of the period, some funds had expenses limitations or had been sold on a limited basis with limited assets and expenses, without which returns would be lower.

Performance snapshot

  Before sales charge After sales charge
1 mt. as of 06/30/20 1.28% -4.54%
YTD as of 07/02/20 2.66% -3.24%

Yield

Distribution rate before sales charge
as of 07/02/20		 2.07%
Distribution rate after sales charge
as of 07/02/20		 1.95%
30-day SEC yield as of 06/30/20
(after sales charge)		 0.97%

Risk-adjusted performance as of 05/31/20

Sharpe ratio (3 yrs.) 0.41

Volatility as of 05/31/20

Standard deviation (3 yrs.) 5.94%

Lipper rankings as of 05/31/20

Time period Rank/Funds in category Percentile ranking
1 yr. 43/310 14%
3 yrs. 83/299 28%
5 yrs. 71/264 27%
10 yrs. 35/187 19%
Lipper category: Mixed-Asset Trgt Alloc Con Fds

Morningstar Ratings™ as of 05/31/20

Time period Funds in category Morningstar Rating™
Overall 511
3 yrs. 511
5 yrs. 424
10 yrs. 275
Morningstar category: Allocation--30% to 50% Equity

Distributions

Record/Ex dividend date 06/18/20
Payable date 06/22/20
Income $0.019
Extra income --
Short-term cap. gain --
Long-term cap. gain --

Lipper rankings are based on total return without sales charge relative to all share classes of funds with similar objectives as determined by Lipper. Past performance is not indicative of future results.

The Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

The up-market capture ratio is used to evaluate how well an investment manager performed relative to an index during periods when that index has risen. The ratio is calculated by dividing the manager’s returns by the returns of the index during the up-market, and multiplying that factor by 100. The down-market capture ratio is used to evaluate how well an investment manager performed relative to an index during periods when that index has dropped. The ratio is calculated by dividing the manager’s returns by the returns of the index during the down-market and multiplying that factor by 100.

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Holdings

Gnma Gii30 Tba 03.5000 06/01/2050 3.49%
Fnma Fn30 Tba Umbs 04.0000 07/01/2050 2.91%
Fhlmc Fr30 Zs4750 Umbs 03.0000 01/01/2048 2.65%
Fnma Fn15 Tba Umbs 03.0000 06/01/2035 2.28%
Fnma Fn30 Tba Umbs 02.5000 07/01/2050 2.24%
GNMAGii30 TBA 03.5000 07/01/2050 2.19%
Apple Inc Sedol 2046251 1.82%
Microsoft Corp Sedol 2588173 1.68%
Amazon.Com Inc Sedol 2000019 1.60%
Fnma Fn30 Ma3563 Umbs 04.0000 01/01/2049 1.34%
Top 10 holdings, percent of portfolio 22.20%

Portfolio composition as of 05/31/20

U.S. Investment-grade bonds 62.38%
U.S. large-cap equity 20.43%
U.S. High-yield bonds 5.40%
International equity 4.77%
U.S. money markets 3.85%
U.S. small- and mid-cap equity 3.17%

Fixed income statistics as of 05/31/20

Average effective maturity 8.99 yrs.
Average effective duration 3.56 yrs.

Fund characteristics will vary over time.

Due to rounding, percentages may not equal 100%.

Consider these risks before investing: Allocation of assets among asset classes may hurt performance. The value of investments in the fund’s portfolio may fall or fail to rise over extended periods of time for a variety of reasons, including general economic, political or financial market conditions, investor sentiment and market perceptions, government actions, geopolitical events or changes, and factors related to a specific issuer, asset class, geography, industry or sector. These and other factors may lead to increased volatility and reduced liquidity in the fund’s portfolio holdings. International investing involves currency, economic, and political risks. Emerging-market securities carry illiquidity and volatility risks. Investments in small and/or midsize companies increase the risk of greater price fluctuations. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. Funds that invest in government securities are not guaranteed. Mortgage-backed investments, unlike traditional debt investments, are also subject to prepayment risk, which means that they may increase in value less than other bonds when interest rates decline and decline in value more than other bonds when interest rates rise. Bond investments are subject to interest-rate risk (the risk of bond prices falling if interest rates rise) and credit risk (the risk of an issuer defaulting on interest or principal payments). Default risk is generally higher for non-qualified mortgages. Interest-rate risk is generally greater for longer-term bonds, and credit risk is generally greater for below-investment-grade bonds. Unlike bonds, funds that invest in bonds have fees and expenses. The use of derivatives may increase these risks by increasing investment exposure (which may be considered leverage) or, in the case of over-the-counter instruments, because of the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. Our investment techniques, analyses, and judgments may not produce the outcome we intend. The investments we select for the fund may not perform as well as other securities that we do not select for the fund. We, or the fund's other service providers, may experience disruptions or operating errors that could have a negative effect on the fund. You can lose money by investing in the fund.

Expenses

Expense ratio

 Class A Class B Class C Class R Class R5 Class R6 Class Y
Total expense ratio 1.00% 1.75% 1.75% 1.25% 0.71% 0.64% 0.75%
What you pay 1.00% 1.75% 1.75% 1.25% 0.71% 0.64% 0.75%

Sales charge

 Breakpoint Class A Class B Class C Class R Class R5 Class R6 Class Y
$0-$49,999 5.75% / 5.00% 0.00% / 4.00% 0.00% / 1.00% -- -- -- --
$50,000-$99,999 4.50% / 3.75% 0.00% / 4.00% 0.00% / 1.00% -- -- -- --
$100,000-$249,999 3.50% / 2.75% -- 0.00% / 1.00% -- -- -- --
$250,000-$499,999 2.50% / 2.00% -- 0.00% / 1.00% -- -- -- --
$500,000-$999,999 2.00% / 1.75% -- 0.00% / 1.00% -- -- -- --
$1M-$4M 0.00% / 1.00% -- -- -- -- -- --
$4M-$50M 0.00% / 0.50% -- -- -- -- -- --
$50M+ 0.00% / 0.25% -- -- -- -- -- --

CDSC

  Class A (sales for $1,000,000+) Class B Class C Class R Class R5 Class R6 Class Y
0 to 9 mts. 1.00% 5.00% 1.00% -- -- -- --
9 to 12 mts. 1.00% 5.00% 1.00% -- -- -- --
2 yrs. 0.00% 4.00% 0.00% -- -- -- --
3 yrs. 0.00% 3.00% 0.00% -- -- -- --
4 yrs. 0.00% 3.00% 0.00% -- -- -- --
5 yrs. 0.00% 2.00% 0.00% -- -- -- --
6 yrs. 0.00% 1.00% 0.00% -- -- -- --
7+ yrs. 0.00% 0.00% 0.00% -- -- -- --

Trail commissions

  Class A Class B Class C Class R Class R5 Class R6 Class Y
  0.25% 0.25% 1.00% 0.50% 0.00% 0.00% 0.00%
  NA NA NA NA NA NA NA
  NA NA NA NA NA NA NA

For sales and trail commission information on purchases over $1 million and participant-directed qualified retirement plans, see a Putnam fund prospectus and the statement of additional information.

The Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities. The Putnam Conservative Blended Benchmark is a benchmark administered by Putnam Management, comprising 65% the Bloomberg Barclays U.S. Aggregate Bond Index, 25% the Russell 3000 Index, 5% the MSCI EAFE Index (ND), and 5% the JPMorgan Developed High Yield Index. You cannot invest directly in an index.

Consider these risks before investing: Allocation of assets among asset classes may hurt performance. The value of investments in the fund’s portfolio may fall or fail to rise over extended periods of time for a variety of reasons, including general economic, political or financial market conditions, investor sentiment and market perceptions, government actions, geopolitical events or changes, and factors related to a specific issuer, asset class, geography, industry or sector. These and other factors may lead to increased volatility and reduced liquidity in the fund’s portfolio holdings. International investing involves currency, economic, and political risks. Emerging-market securities carry illiquidity and volatility risks. Investments in small and/or midsize companies increase the risk of greater price fluctuations. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. Funds that invest in government securities are not guaranteed. Mortgage-backed investments, unlike traditional debt investments, are also subject to prepayment risk, which means that they may increase in value less than other bonds when interest rates decline and decline in value more than other bonds when interest rates rise. Bond investments are subject to interest-rate risk (the risk of bond prices falling if interest rates rise) and credit risk (the risk of an issuer defaulting on interest or principal payments). Default risk is generally higher for non-qualified mortgages. Interest-rate risk is generally greater for longer-term bonds, and credit risk is generally greater for below-investment-grade bonds. Unlike bonds, funds that invest in bonds have fees and expenses. The use of derivatives may increase these risks by increasing investment exposure (which may be considered leverage) or, in the case of over-the-counter instruments, because of the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. Our investment techniques, analyses, and judgments may not produce the outcome we intend. The investments we select for the fund may not perform as well as other securities that we do not select for the fund. We, or the fund's other service providers, may experience disruptions or operating errors that could have a negative effect on the fund. You can lose money by investing in the fund.