Mortgage Opportunities Fund

The portfolio seeks to maximize total return consistent with what Putnam believes to be prudent risk.
The Fund is not currently offered for sale outside the United States.
Mortgage Opportunities Fund

Product highlights

Inception date

April 7, 2015

Benchmark

ICE BofA U.S. Treasury Bill Index

Total strategy assets†

$368.9M (As of October 31, 2023)

  • Our differentiated approach to risk allocation allows for active management of credit, prepayment, and liquidity risks in pursuit of alpha.
  • The portfolio's primary alpha sources are expected to be RMBS, CMBS, and CMOs, which should allow the managers to pursue a strategy that is relatively agnostic regarding the direction of the U.S. housing market.
  • MBS and various types of derivatives are expected to be used to hedge undesired interest-rate risk and volatility embedded in the CMO strategy, enabling the managers to focus on prepayment risks.
  • ABS are expected to play a minor role in the strategy; if used, the sector would also be expected to provide a source of alpha and diversification.

Investment opportunity

  • Securitized sectors offer more effective portfolio diversification potential than seemingly diversified allocations to equities, corporate credit, and emerging markets.
  • Private investors have an opportunity to become providers of capital to securitized sector, as traditional players (government agencies, banks) are seeing their roles diminish due to new regulation and legislation.
  • We believe this highly idiosyncratic market may continue to reward security selection.
  • The liquidity premium that currently exists in the securitized markets can be beneficial for long-term investors.
  • The range of yields across the portfolio's investment universe is currently attractive versus other high-yielding fixed-income sectors, including high-yield corporate bonds, bank loans, and emerging-market debt.

Investment team

Our portfolio managers are supported by a talented and seasoned team of seven mortgage specialists skilled in fundamental and quantitative research, and benefit from the insights of over 80 professionals in Putnam's Fixed Income group.

Performance

Total return (%) as of September 30, 2023

  Q3 1 Year 3 Years 5 Years Since inception
Mortgage Opportunities Fund 2.08% 7.23% 4.59% 2.18% 3.08%
ICE BofA U.S. Treasury Bill Index 1.32% 4.52% 1.67% 1.73% 1.32%

Month-end performance (as of Oct 31, 2023)

PMOTX ICE BofA U.S. Treasury Bill Index
1Mo 0.50% 0.45%
QTD 0.50% 0.45%
YTD 4.83% 4.09%
1 Year 7.20% 4.83%
3 Years 4.55% 1.82%
5 Years 2.44% 1.78%
Since inception 3.11% 1.36%

Yield

Distribution rate
as of 11/27/23 		7.34%
30-day SEC yield with subsidy
as of 10/31/23 		7.43%
30-day SEC yield without subsidy
as of 10/31/23 		7.19%

Key characteristics (as of Oct 31, 2023)

Effective duration 0.16 yrs

Literature

Related topics
Putnam Fixed-Income Outlook
Prospectus
Annual report
SAI

Strategy
Strategy profile

Holdings

Fnma Fn30 Tba Umbs 06.0000 11/01/2053 38.77%
Fnma Fn30 Tba Umbs 06.5000 11/01/2053 12.12%
Fnma Fn30 Tba Umbs 02.5000 11/01/2053 5.19%
Fnma Fn30 Tba Umbs 07.0000 11/01/2053 4.93%
Fnma Fn30 Tba Umbs 05.0000 11/01/2053 4.00%
Fnma Fn30 Tba Umbs 03.0000 11/01/2053 3.47%
Gnma Gii30 Tba 05.5000 11/01/2053 3.37%
Gnma Gii30 Tba 04.5000 11/01/2053 1.96%
Fnma Fn30 Tba Umbs 04.5000 11/01/2053 1.94%
Gnma Gii30 Tba 04.0000 11/01/2053 1.43%
Top 10 holdings, percent of portfolio 77.17%

Sector exposure as of Oct 31, 2023

Cash investments Non-cash investments Total portfolio
Weight (%) Spread duration (yrs.) Weight (%) Spread duration (yrs.) Weight (%) Spread duration (yrs.)
Agency pass-through 0.01 0.00 75.35 3.72 75.35 3.72
Agency CMO 34.01 1.48 0.00 0.00 34.01 1.48
Commercial MBS 28.43 0.74 0.46 0.02 28.88 0.76
Residential MBS (non-agency) 19.92 0.67 0.00 0.00 19.92 0.67
Net cash 17.13 0.00 0.00 0.00 17.13 0.00
Asset-backed securities (ABS) 0.50 0.00 0.00 0.00 0.50 0.00
Interest rate swaps 0.00 0.00 0.00 -3.07 0.00 -3.07
U.S. Treasury/agency 0.00 0.00 0.00 -5.00 0.00 -5.00

Expenses

Expense ratio

Total expense ratio 0.68%
What you pay† 0.48%

Important disclosures

XBRL (ZIP)

Consider these risks before investing: The value of bonds in the fund's portfolio may fall or fail to rise over extended periods of time for a variety of reasons, including general financial market conditions, changing market perceptions of the risk of default, changes in government intervention in the financial and housing markets, and factors related to a specific issuer, industry, geography (such as a region of the United States), or sector (such as the housing or real estate markets). These factors may also lead to periods of high volatility and reduced liquidity in the relevant markets. 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. 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. The fund's investments in mortgage-backed securities and asset-backed securities, and in certain other securities and derivatives, may be or become illiquid. The fund's concentration in an industry group composed of privately issued mortgage-backed securities and mortgage-backed securities issued or guaranteed by the U.S. government or its agencies or instrumentalities may make the fund's net asset value more susceptible to economic, market, political, and other developments affecting the housing or real estate markets. 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. Our use of short selling may result in losses if the securities appreciate in value. You can lose money by investing in the fund.

Periods less than one year are not annualized.

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 a loss when you sell your shares. Performance assumes reinvestment of distributions and does not account for taxes. Class I shares have no initial sales charge or CDSC. For a portion of the periods, the fund may have had expense limitations, without which returns would have been lower. The short-term results of a relatively new fund are not necessarily indicative of its long-term prospects.

ICE BofAML 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.

Holdings will vary over time. This is not an offer to sell or a recommendation to buy any individual security.

Spread duration is displayed in years and reflects the contribution by sector to the portfolio's total spread duration with the exception of the Treasury and Interest-rate swap sectors where effective duration is displayed. Spread duration estimates the price sensitivity of a specific sector or asset class to a 100 basis-point movement, 1%, (either widening or narrowing) in its yield spread relative to Treasuries. Effective duration provides a measure of a portfolio's interest-rate sensitivity. The longer a portfolio's duration, the more sensitive the portfolio is to shifts in the interest rates. Allocations may not total 100% of net assets because the table includes the notional value of derivatives (the economic value for purposes of calculating periodic payment obligations), in addition to the market value of securities.

This fund is distributed by Putnam Retail.

† 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 Sep 30, 2024