Overcoming Regulatory Problems
Between 2004 and 2007 Putnam had a series of problems with the Security and Exchange Commission (SEC). SEC charges included fraud, nondisclosure of marketing payments and improper trading. Mutual fund investors and institutions withdrew over $30 billion of assets from Putnam accounts over a six-month period. Charges were settled, and the firm had to pay more than $150 million in damages. Fifteen employees were fired, and a number of them were required to pay fines. Two former managing directors were banned from the industry for one year.Near the end of the turmoil in 2007, Putnam Investments was acquired by Great-West Lifeco, a subsidiary of the Canadian financial conglomerate Power Financial Corporation (TSE: PWF.TO). Power Financial has a global presence and was specifically looking for an opportunity to expand its business in the United States. Power Financial set about rebuilding and restructuring Putnam, so it brought in a new management team to drastically change the firm's culture
Management
Robert Reynolds was hired in 2008 as the president and chief executive officer of Putnam Investments. Prior to 2008, Mr. Reynolds served as vice chairman and chief operations officer of Fidelity Investments, where he had a sterling reputation as an innovator and people-centric manager. Mr. Reynolds also serves as president and CEO of Great-West Financial, an insurance company, which is also a U.S. subsidiary of Great-West Lifeco.The company’s chief financial officer, chief investment officer and head of global investment strategies all left high-level positions at Fidelity Investments to join Mr. Reynolds at Putnam. The other five executive team members all have 10- to 20-year histories at the firm.
Mutual Funds
Putnam Funds' first mutual fund was the George Putnam Fund of Boston. Now called the George Putnam Balanced Fund (PGEOX), it has an annualized total return since inception of 8.61%.While balance was the company watchword for most of its history, the fund family now offers investment funds covering broad and specialized asset classes. The only thing the firm does not offer is a fund with investment returns that outpace its peers and comparative indexes.
Performance
Putnam Investments has no funds that receive overall Morningstar ratings of five stars. It does have 10 funds that receive one-star ratings. The majority of Putnam mutual funds receive ratings of two or three stars. This shows that most of its funds are average or below average in the respective asset classes. Putnam funds are offered in a number of share classes. Most of the share classes have sales charges, 12b-1 fees or other expense charges that are necessary to fund brokerage commissions. These charges and expenses reduce returns significantly. Class A shares can be purchased through Fidelity Investments with the front-end sales loads waived.Putnam’s top-performing fund is Putnam Global Health Care Fund Class A (PHSTX) which has an annualized total return of 15.61% over the five-year period ending Jan. 31, 2016. The fund has an expense ratio of 1.1%. The return and the expense ratio are both below average for health care sector funds.
Putnam’s worst-performing fund is the Putnam Global Energy Fund Class A (PGEAX) with an annualized total return of -12.22% over five years.
If an investor’s 401k plan only offers Putnam funds, it is possible to build a portfolio of four or five respectable funds. Investors with a choice should carefully compare other available investments against the Putnam funds.
