Effective June 1, 2019, the fund’s name changed from Putnam Short Duration Income Fund.

Active Income

Ultra Short Duration Income Fund (Class A)  (PSDTX)

Seeking capital preservation and a higher rate of current income

Q2 2020 | Ultra Short Duration Income Fund Q&A

  • Bond markets held up well during the second quarter, supported by Fed programs.
  • Corporate credit was the main contributor to fund performance as spreads tightened dramatically.
  • We believe returns on short-term securities will remain attractive for conservative investors or those seeking safe havens.

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. Since 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 second quarter. The market’s resilience has also benefited bondholders. The Bloomberg Barclays U.S. Aggregate Bond Index gained 2.90% during the quarter. The ICE BofA 1–3 Year U.S. Corporate Index advanced 4.39% for the period.

Investors, however, are bracing for a global recession and a second wave of the coronavirus outbreak. The Fed purchase program and a flight-to-quality trade have 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 market for high-yield and investment-grade corporate bonds recovered as spreads, or the risk premiums investors demand to hold these securities over U.S. Treasuries, narrowed during the period.

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 also rolled out COVID-19 stimulus measures.

How did the fund perform? What were the drivers of performance during the quarter?

The fund outperformed its benchmark, the ICE BofA U.S. Treasury Bill Index, during the period. The fund rose 2.36% versus a gain of 0.02% for the benchmark index for the three months ended June 30, 2020.

Corporate credit was the main contributor to the fund’s performance as spreads tightened dramatically during the quarter. The fund is primarily invested in investment-grade corporate bonds and commercial paper [CP], so corporate spread movements tend to have the largest impact on the fund’s performance. The spread on the Bloomberg Barclays 1–3 Year Corporate Index tightened by 188 basis points during the quarter, as spreads retraced most of the widening that took place in March. Meanwhile, the three-month London Interbank Offered Rate [LIBOR] ended the quarter at 0.30%, 115 bps lower than at the end of March.

The snapback in corporate credit was fueled by government stimulus, both fiscal and monetary, along with hopes of a sharp economic recovery as businesses began to reopen across the country and globe. The multitude of facilities established by the Federal Reserve kicked into gear as asset purchases began across a variety of sectors.

In addition, the fund’s allocation to securitized sectors like non-agency residential mortgage-backed securities [RMBS] contributed to performance, as spreads in the sector retraced much of the widening that took place in March. We limit our allocation to securitized sectors to a maximum of 10% of the portfolio. Finally, positive duration positioning proved beneficial as U.S. rates remained range-bound, ending the quarter in close proximity to where they began.

What is your near-term outlook for fixed-income markets?

The second quarter saw a massive reversal in both market sentiment and price levels across asset classes. As the quarter came to a close, coronavirus cases began to reaccelerate, particularly in parts of the country that were first to reopen. As a result, other plans to reopen parts of the economy have been put on hold. It remains to be seen if any of the phased openings will need to be rolled back. Although the markets seem to be shrugging off this concern, significant uncertainty remains. As we head into the second half of 2020, the coronavirus will continue to dominate headlines. Investors will be focused on second-quarter earnings to determine the full impact on corporate balance sheets.

Despite uncertainty surrounding the pandemic, Putnam’s fixed income team has a positive outlook on the fixed income markets. The Fed continues to understand the importance of the funding markets to the broader fixed-income landscape, and we are pleased with their ongoing response to stem the liquidity-driven pressures. We believe the Fed’s facilities, including the money market liquidity facility, the commercial paper funding facility, and the corporate credit facilities, will continue to serve as a backstop for the financial markets. Overall, we believe the low utilization of the Fed facilities so far is an indicator of a relatively healthy market environment. Lastly, we expect short-term interest rates to remain near record lows this year because the Fed has indicated no desire to raise or cut rates for the foreseeable future.

What are the fund’s strategies going forward?

From a strategy perspective, we made several decisions in the second quarter that had a positive effect on the fund’s performance. We are confident about the fund’s positioning as we head into the third quarter. The fund is targeting a duration of 0.30–0.35 years, approximately a tenth of a year longer than earlier in 2020. We also increased our allocation to fixed-rate corporates, particularly 1- to 3-year maturities, to lock in yield and add duration. Additionally, we are maintaining a high balance of short-maturity commercial paper for liquidity, although low yields in the very front end of the curve remain a challenge.

Furthermore, we continue to structure the portfolio with a barbell approach, emphasizing positions at separate points on the yield curve: investing in lower-tier investment-grade securities [BBB or equivalent] maturing in 1 year or less and in upper-tier investment-grade securities [A or AA rated] maturing in a range of 1 and 3.5 years. Despite ongoing changes in the market environment, capital preservation remains the primary objective of the fund.

Highlights

Objective

The fund seeks as high a rate of current income as we believe is consistent with preservation of capital and maintenance of liquidity.

Strategy and process

  • A broader opportunity set: The fund invests in a diversified portfolio composed of short duration, investment-grade money market and other fixed-income securities.
  • Active risk management: In today's complex bond market, the fund's experienced managers actively manage risk with the goal of superior risk-adjusted performance over time.
  • Higher income potential: Access to a wider range of income opportunities means the fund may offer higher income potential than other short-term investments.

Fund price

Yesterday’s close 52-week high 52-week low
Net asset value $10.08
0.00% | $0.00
$10.08
07/13/20
$9.80
03/24/20
(Optional)

Fund facts as of 06/30/20

Total net assets
$15,784.02M
Turnover (fiscal year end)
27%
Dividend frequency (view rate)
Monthly
Number of issuers
370
Fiscal year-end
July
CUSIP / Fund code
74676P755 / 0078
Inception date
10/17/11
Category
Taxable Income
Open to new investors
Ticker
PSDTX

Management team

Portfolio Manager
Co-Head of Fixed Income
Portfolio Manager



Performance

Consistency of positive performance over five years

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

Performance shown above 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 see below.

1.57%

Best 5-year annualized return

(for period ending 06/30/20)


0.66%

Worst 5-year annualized return

(for period ending 12/31/16)


0.99%

Average 5-year annualized return


  • 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. Life (inception: 10/17/11 )
Before sales charge 2.08% 2.07% 1.57% 1.16%
After sales charge 2.08% 2.07% 1.57% 1.16%
ICE BofA U.S. Treasury Bill Index 1.71%1.80%1.22%--

Class A shares do not carry an initial charge or, generally, a contingent deferred sales charge. Redemptions of shares that had been exchanged from another fund may be subject to a CDSC. See disclosure below.

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 07/31/20 0.15% 0.15%
YTD as of 07/31/20 1.10% 1.10%

Yield

Distribution rate before sales charge
as of 07/31/20
0.46%
Distribution rate after sales charge
as of 07/31/20
0.46%
30-day SEC yield with subsidy
as of 06/30/20 (after sales charge)
0.74%
30-day SEC yield without subsidy
as of 06/30/20 (after sales charge)
0.66%

Risk-adjusted performance as of 06/30/20

Sharpe ratio (3 yrs.) 0.32
Information ratio (3 yrs.) 0.18

Volatility as of 06/30/20

Standard deviation (3 yrs.) 1.35%
Beta -3.20
R-squared 0.33

Morningstar Ratings as of 06/30/20

Time period Funds in category Morningstar Rating
Overall 164
3 yrs. 164
5 yrs. 124
Morningstar category: Ultrashort Bond

Distributions

Accrual days 33
Accrual start date 07/01/20
Accrual end date 08/02/20
Payable date 07/31/20
Income $0.00523092
Extra taxable income --
Dividend frequency Monthly

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.


Holdings

Putnam Short Term Investment Fund 2.06%
Bank of America 1.35%
Credit Suisse 1.24%
Canadian Imperial Bank of Commerce 1.23%
Citigroup 1.22%
Bank of Montreal 1.20%
Sumitomo Mitsui Financial 1.16%
Toyota 1.16%
Morgan Stanley 1.15%
Svenska Handelsbanken 1.13%
Top 10 issuers, percent of portfolio 12.90%


Full holdings

(PDF)

Portfolio composition as of 06/30/20

Investment-grade corporate bonds 56.30%
Commercial paper 22.31%
Residential MBS (non-agency) 6.31%
Certificates of deposit 5.53%
Short-term asset-backed securities 3.71%
Asset-backed securities (ABS) 2.70%
Net cash 2.06%
U.S. Treasury/agency 0.59%
Repurchase agreements 0.48%
Agency CMO 0.01%

Fixed income statistics as of 06/30/20

Average effective maturity 0.93 yrs.
Average effective duration 0.32 yrs.
Average yield to maturity 0.89%
Average coupon 1.34%

Quality rating as of 06/30/20

A-1+ 5.04%
A-1 9.57%
A-2 12.84%
A-3 1.46%
AAA 10.35%
AA 16.39%
A 30.90%
BBB 11.06%
Not Rated 0.33%
Net cash 2.06%

Fund characteristics will vary over time.

Due to rounding, percentages may not equal 100%.

Consider these risks before investing: Putnam Ultra Short Duration Income Fund is not a money market fund. The effects of inflation may erode the value of your investment over time. 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. The fund may have to invest the proceeds from prepaid investments, including mortgage-backed investments, in other investments with less attractive terms and yields. 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, geography, industry or sector. These and other factors may lead to increased volatility and reduced liquidity in the fund's portfolio holdings. 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 generally greater for longer-term bonds, and credit risk is generally greater for below-investment-grade bonds. Credit risk is generally greater for debt not backed by the full faith and credit of the U.S. government. 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 derivatives 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. 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.

Credit qualities are shown as a percentage of net assets as of the date indicated above. A bond rated BBB or higher (A-3/SP-3 or higher, for short-term debt) is considered investment grade. This chart reflects the highest security rating provided by one or more of Standard & Poor’s, Moody’s, and Fitch. Ratings may vary over time. Net cash, if any, represent the market value weights of cash and derivatives and may show a negative market value as a result of the timing of trade versus settlement date transactions. The fund itself has not been rated by an independent rating agency.

Country allocation as of 06/30/20

United States 65.21%
Canada 6.85%
United Kingdom 5.40%
France 4.70%
Netherlands 3.35%
Australia 2.83%
Japan 2.83%
Cash and net other assets 2.06%
Sweden 1.88%
 
Other
4.89%
Spain 1.19%
Norway 0.98%
Germany 0.94%
South Korea 0.87%
Switzerland 0.72%
Finland 0.12%
Bermuda 0.05%
Denmark 0.02%

Expenses

Expense ratio

Class A Class B Class C Class N Class R Class R6 Class Y
Total expense ratio 0.48% 0.88% 0.88% 0.63% 0.88% 0.37% 0.38%
What you pay† 0.40% 0.80% 0.80% 0.55% 0.80% 0.29% 0.30%

† 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 11/30/20

Sales charge

Investment Breakpoint Class A Class B Class C Class N Class R Class R6 Class Y
$0-$49,999 -- -- -- 1.50% -- -- --
$50,000-$99,999 -- -- -- 1.25% -- -- --
$100,000-$249,999 -- -- -- 1.00% -- -- --
$250,000-$499,999 -- -- -- 0.00% -- -- --
$500,000-$999,999 -- -- -- 0.00% -- -- --
$1M-$4M -- -- -- 0.00% -- -- --
$4M-$50M -- -- -- 0.00% -- -- --
$50M+ -- -- -- 0.00% -- -- --

CDSC †

Putnam Ultra Short Duration Income Fund has no redemption fees except under certain circumstances.

  Class A Class B Class C Class N (sales for $250,000+) Class R Class R6 Class Y
0 to 9 mts. 1.00% 5.00% 1.00% 0.25% -- -- --
9 to 12 mts. 1.00% 5.00% 1.00% 0.00% -- -- --
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% -- -- -- --
† A deferred sales charge on class A, B and C shares may apply to certain redemptions of shares purchased by exchange from another Putnam fund. A deferred sales charge on class M shares may apply to redemptions of shares from certain rollover accounts.

The ICE BofA U.S. Treasury Bill Index is an unmanaged index that tracks the performance of U.S. dollar denominated U.S. Treasury Bills publicly issued in the U.S. domestic market. Qualifying securities must have a remaining term of at least one month to final maturity and a minimum amount outstanding of $1 billion. You cannot invest directly in an index.

Consider these risks before investing: Putnam Ultra Short Duration Income Fund is not a money market fund. The effects of inflation may erode the value of your investment over time. 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. The fund may have to invest the proceeds from prepaid investments, including mortgage-backed investments, in other investments with less attractive terms and yields. 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, geography, industry or sector. These and other factors may lead to increased volatility and reduced liquidity in the fund's portfolio holdings. 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 generally greater for longer-term bonds, and credit risk is generally greater for below-investment-grade bonds. Credit risk is generally greater for debt not backed by the full faith and credit of the U.S. government. 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 derivatives 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. 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.

Credit qualities are shown as a percentage of net assets as of the date indicated above. A bond rated BBB or higher (A-3/SP-3 or higher, for short-term debt) is considered investment grade. This chart reflects the highest security rating provided by one or more of Standard & Poor’s, Moody’s, and Fitch. Ratings may vary over time. Net cash, if any, represent the market value weights of cash and derivatives and may show a negative market value as a result of the timing of trade versus settlement date transactions. The fund itself has not been rated by an independent rating agency.