Putnam Mortgage Recovery Fund

Quick facts


Closed-end interval mutual fund
(Separate account also available)

Minimum investment

  • $10 million initial investment
  • $10,000 subsequent investments

Management fee



No borrowing of cash or securities for investment purposes

Investment universe

  • Residential mortgage-backed securities (RMBS)
  • Commercial mortgage-backed securities (CMBS)
  • Collateralized mortgage obligations (CMOs)
  • Asset-backed securities (ABS)
  • Agency mortgage-backed securities (MBS)
  • Derivatives (swaps, swaptions, futures, etc.)

Portfolio strategy

  • The fund’s primary alpha sources are expected to be RMBS and CMOs, which should allow the managers to pursue a strategy that is relatively agnostic to the direction and timing of a potential recovery in the U.S. housing market.
  • CMBS are expected to provide an additional source of alpha and diversification.
  • 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, diversification, and liquidity.
  • MBS and various types of derivatives are expected to be used to hedge undesired interest-rate risk and volatility that are embedded in the CMO strategy in order for the managers to isolate prepayment risk.

Investment opportunity

  • Since 2008, almost $1 trillion of non-agency RMBS have been downgraded from AAA to CCC.
  • In our view, negative net supply in non-agency RMBS and CMBS points to favorable supply/demand technicals.
  • We believe this highly idiosyncratic market will continue to reward security selection.
  • Liquidity premium that currently exists in the securitized markets can be beneficial for long-term investors.

Massive shifts in ratings quality creates potential opportunity

Below-investment-grade non-agency RMBS now similar in size to U.S. high-yield market


Unaudited. For informational purposes only.
Sources: Intex, Bank of America, as of 12/31/12. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss. It is possible to lose money in a diversified portfolio.