Webcast | Constructing an all-weather glide path | May 14, 2020

Retirement Advantage 2040 Fund (Class R6)  (PBAMX)

Comprehensively managed portfolios diversified to align with your retirement horizon

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Q2 2020 | Retirement Advantage Trusts Q&A

  • Equity and bond markets prove resilient even as COVID-19 takes a toll on economic growth.
  • Risks on the horizon include growth, corporate earnings, and a second wave of the virus.
  • We will continue to take a tactical approach and adjust the fund’s investments as needed.

How were market conditions in the second quarter?

Global financial markets proved to be surprisingly resilient during the second quarter. The coronavirus pandemic and the collapse in oil prices had sent equity and fixed-income markets into a tailspin during the first few months of the year. Bouncing from their lows in March, the S&P 500 Index, a broad measure of stocks, rose 20.54% and the MSCI World Index (ND) gained 19.36% during the period. The market’s resilience has also benefited bondholders. The rate-sensitive Bloomberg Barclays U.S. Aggregate Bond Index advanced 2.90% during the quarter.

Investors, however, are bracing for a global recession and a second wave of the coronavirus outbreak. A flight-to-safety trade has pushed the yields on U.S. Treasuries lower. The yield on the 10-year Treasury note ended the quarter at 0.66% compared with 0.70% on March 31. The Fed cut interest rates to near zero in mid-March, and unleashed a torrent of bond-buying programs to help stabilize the markets. These actions have increased liquidity in the bond markets and, in turn, stabilized spreads. The U.S. Congress has also pumped trillions of stimulus dollars into the economy. Central banks across Europe, Asia, and other regions have also rolled out COVID-19 stimulus measures.

What were some strategies that affected performance?

All of the Retirement Advantage Funds had positive returns for the quarter, reflecting global equity market strength. During the quarter, we continued to actively adjust our allocation mix. On balance, the strategies were slightly underweight equity risk and interest-rate risk and overweight credit risk. Overall, these asset allocation decisions detracted a bit. The funds were slightly underweight equity risk entering the period, having benefited significantly in the first quarter from defensive positioning. This underweight was a small detractor early in the second quarter as equity markets rebounded sharply from the lows in late March. Equity risk was moved back to neutral in mid-April. In fixed income, the funds were slightly underweight rate risk and overweight credit risk. Still, neither of these positions had a significant impact on quarterly performance.

Our active implementation decisions added to benchmark-relative performance. Security selection within equities was positive. We saw strength across U.S. large-cap equity strategies in stock selected with both quantitative and fundamental processes adding value. In portfolios further from retirement, we continued to see strong performance from emerging-market equity selection. Opportunistic fixed income, specifically a strategy focused on structured mortgage credit, was also additive, and made back a large portion of first-quarter weakness.

What role did the glide path play in performance?

The glide path of Retirement Advantage strategies is an important feature that distinguishes Putnam from its peers. Our glide path is more aggressive — with a higher stock market weight — than the average for our peer group for funds serving people retiring in the 2050s or 2060s. Our glide path becomes more conservative relative to peers for funds serving investors nearing retirement in the 2020s. As one would expect, portfolios with larger equity allocations, designed for investors further from retirement, delivered the highest quarterly returns.

An important part of our Retirement Advantage philosophy is the emphasis we place on controlling volatility and drawdowns for participants approaching retirement, when balances are largest, time horizons are shortest, and sequence-of-returns risk is the greatest. We were pleased with the downside protection our near-retirement portfolios provided during the first-quarter bear market. As expected, those portfolios did not rebound as strongly in the second quarter. In portfolios further from retirement, where we start with a higher equity allocation than industry average, we saw strong quarterly performance due in large part to the equity market strength described previously.

What is the outlook for the remainder of 2020?

Markets rebounded in the second quarter as governments and central banks introduced very significant stimulus measures to reduce the damage caused by the economic shutdown. However, the biggest risk on the horizon is the impact of a coronavirus resurgence on economic growth, corporate earnings growth, and cash flows. Many investors are wary as numerous uncertainties and challenges remain. In equities, we believe that a second wave may not cause a meaningful pullback because investors are prepared. Typically, bad news must be unexpected in order to have a severe negative impact, and historically, equity markets have tended to shrug off second waves of pandemics.

In corporate credit, both investment-grade and high-yield advanced and spreads tightened, mirroring the strength seen across equity markets. We believe credit markets will continue to improve as the Fed stands as a backstop to spread widening with the purchase of investment-grade corporates. Interest rates remained range bound. Fed Chair Jerome Powell signaled in June that the central bank plans to keep rates near zero for “as long as it takes to provide some relief and stability.” Therefore, we expect short-term rates to remain near record lows this year.

Against this backdrop, we continue to have conviction in our investment strategies based on their strong long-term results. As for asset allocation, we will continue to take a tactical approach, adjusting the fund’s exposure across various markets as conditions warrant. We will continue to monitor equity and fixed-income markets, and add securities when we see more attractive valuation levels.

Highlights

Objective

Retirement Advantage Funds seek to maximize returns while maintaining a level of risk appropriate for a person planning to retire on or about the calendar year designated in each fund's name.

Strategy and process

  • Tailored to retirement: Each fund's target date reflects when investors are expected to retire and determines the portfolio's asset allocation.
  • Unique glide path: Allocations are structured to pursue performance and downside protection near retirement.
  • Comprehensively managed: Putnam's seasoned Global Asset Allocation team implements all steps of the investment process - the glide path, tactical allocations, and security selection.

Fund price

Yesterday’s close 52-week high 52-week low
Net asset value $10.31
-0.48% | $-0.05
$10.73
09/02/20
$7.46
03/23/20
(Optional)

Fund facts as of 08/31/20

Total net assets
$4.34M
Turnover (fiscal year end)
--
Dividend frequency
Annually
Number of holdings
3
Fiscal year-end
August
CUSIP / Fund code
74686J666 / 7505
Inception date
12/31/19
Class R6  
Category
Target Date
Open to new investors
Ticker
PBAMX

Management team

Chief Investment Officer, Global Asset Allocation
Co-Head of Global Asset Allocation
Co-Head of Global Asset Allocation
Portfolio Manager


Literature

Fund documents

Prospectus (PDF)
SAI (PDF)
Fact Sheet (R6 share) (PDF)
Brochure (PDF)

Performance

  • Total return (%) as of 06/30/20

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

Annualized performance 1 yr. 3 yrs. 5 yrs.
Before sales charge -- -- --
After sales charge N/A N/A N/A
S&P Target Date To 2040 Index 1.31%5.33%5.93%

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 Strategic Intermediate 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 08/31/20 4.35% -
YTD as of 09/17/20 3.10% -

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

Putnam Dynamic Asset Allocation Growth Fund 90.80%
Putnam Dynamic Asset Allocation Balanced Fund 6.68%
Putnam Short Term Investment Fund Class G 2.47%



Percentages based on market value. Portfolio composition will vary over time. Due to rounding, percentages may not equal 100%.

Money market funds are not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other governmental agency. Although the fund seeks to maintain a constant share price of $1.00, it is possible to lose money by investing in this fund.

Fund characteristics will vary over time.

Due to rounding, percentages may not equal 100%.

Consider these risks before investing: 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. Lower-rated bonds may offer higher yields in return for more risk. Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk and the risk that they may increase in value less when interest rates decline and decline in value more when interest rates rise. Money market options are not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other governmental agency. Although the funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in these funds. 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). Interest-rate risk is greater for longer-term bonds, and credit risk is greater for below-investment- grade bonds. Risks associated with derivatives include increased investment exposure (which may be considered leverage) and, in the case of over-the-counter instruments, the potential inability to terminate or sell derivative positions and the potential failure of the other party to the instrument to meet its obligations. Unlike bonds, funds that invest in bonds have fees and expenses. You can lose money by investing in the funds.


Expenses

Expense ratio

Class A Class C Class R Class R3 Class R4 Class R5 Class R6 Class Y
Total expense ratio 2.58% 3.33% 2.98% 2.73% 2.48% 2.33% 2.23% 2.33%
What you pay† 0.80% 1.55% 1.20% 0.95% 0.70% 0.55% 0.45% 0.55%

† The fund's expense ratio is taken from the most recent prospectus and is subject to change. What you pay reflects Putnam Management's decision to contractually limit expenses through 12/30/23

Sales charge

 Breakpoint Class A Class C Class R Class R3 Class R4 Class R5 Class R6 Class Y
$0-$49,999 5.75% / 5.00% -- -- -- -- -- -- --
$50,000-$99,999 4.50% / 3.75% -- -- -- -- -- -- --
$100,000-$249,999 3.50% / 2.75% -- -- -- -- -- -- --
$250,000-$499,999 2.50% / 2.00% -- -- -- -- -- -- --
$500,000-$999,999 2.00% / 1.75% -- -- -- -- -- -- --
$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 C Class R Class R3 Class R4 Class R5 Class R6 Class Y
0 to 9 mts. 1.00% 1.00% -- -- -- -- -- --
9 to 12 mts. 1.00% 1.00% -- -- -- -- -- --
2 yrs. 0.00% 0.00% -- -- -- -- -- --
3 yrs. 0.00% 0.00% -- -- -- -- -- --
4 yrs. 0.00% 0.00% -- -- -- -- -- --
5 yrs. 0.00% 0.00% -- -- -- -- -- --
6 yrs. 0.00% 0.00% -- -- -- -- -- --
7+ yrs. 0.00% 0.00% -- -- -- -- -- --

Trail commissions

  Class A Class C Class R Class R3 Class R4 Class R5 Class R6 Class Y
  0.25% 1.00% 0.50% 0.00% 0.00% 0.00% 0.00% 0.00%
  NA NA NA NA NA NA NA NA
  NA NA NA NA NA NA NA NA

The S&P Target Date To Index Series is designed to represent a small, style-specific derived consensus of asset class exposure and glide path for a specified list of target retirement dates. You cannot invest directly in an index.

Consider these risks before investing: 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. Lower-rated bonds may offer higher yields in return for more risk. Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk and the risk that they may increase in value less when interest rates decline and decline in value more when interest rates rise. Money market options are not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other governmental agency. Although the funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in these funds. 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). Interest-rate risk is greater for longer-term bonds, and credit risk is greater for below-investment- grade bonds. Risks associated with derivatives include increased investment exposure (which may be considered leverage) and, in the case of over-the-counter instruments, the potential inability to terminate or sell derivative positions and the potential failure of the other party to the instrument to meet its obligations. Unlike bonds, funds that invest in bonds have fees and expenses. You can lose money by investing in the funds.