Products May 26, 2022

Investment Product and Service Launches

Putnam Investments to develop suite of sustainable retirement target-date funds; PGIM Investments expands actively managed fixed income ETF lineup; Nationwide adds new solution to address market volatility; and more.

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Art by Jackson Epstein

Art by Jackson Epstein





Putnam Investments to Launch Three Active Equity Exchange-Traded Funds

Putnam Investments has announced that it will launch three actively managed, transparent exchange-traded funds in the coming months, pending completion of the normal regulatory filing process.

The new ETFs will each have a distinct investment focus. The Putnam BDC Income ETF will focus on business development companies, the Putnam BioRevolution ETF will focus on companies operating at the intersection of technology and biology in the “biology revolution,” and the Putnam Emerging Markets ex-China ETF will focus on emerging markets companies (excluding investments in China and Hong Kong).

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Building on the firm’s launch of its first four active ETFs last year, the new products will leverage existing investment expertise and capabilities within Putnam and are designed to provide the marketplace with access to three distinct strategies within an ETF format.

More specifically, the Putnam BDC Income ETF seeks current income by investing mainly in exchange-traded business development companies based in the U.S. and registered with the SEC. BDCs generally invest in, lend capital to, or provide services to privately held U.S. companies or thinly traded U.S. public companies.

The Putnam BioRevolution ETF seeks long-term capital appreciation by investing mainly in common stocks of companies of any size, utilizing a focus on those that Putnam believes offer the opportunity to capitalize on a convergence of technological developments in the life sciences sector.

Finally, the Putnam Emerging Markets ex-China ETF seeks long-term capital appreciation by investing mainly in common stocks of emerging market companies. Emerging markets include countries in the MSCI Emerging Markets ex China Index, or those Putnam considers to be emerging markets based on an evaluation of their level of economic development or the size and experience of their securities markets. The ETF will exclude companies domiciled in, or whose stocks are listed for trading on an exchange in, China or in Hong Kong.

Carlo Forcione, head of product and strategy at Putnam Investments, says the ETFs are an extension of Putnam’s equity investment capabilities that apply traditional fundamental research, currently employed in an array of products offered by our firm across retail mutual funds, ETFs, separately managed accounts, collective investment trusts, private funds and non-U.S. funds.

PGIM Investments Expands Actively Managed Fixed Income ETF Lineup

PGIM Investments continues to build out its actively managed fixed income ETF lineup with the launch of the PGIM Floating Rate Income ETF.

The new ETF seeks to maximize current income by investing primarily in senior floating rate loans and it is managed by PGIM Fixed Income.

The PGIM Floating Rate Income ETF’s investment strategy mirrors the PGIM Floating Rate Income Fund. Both funds are managed by Brian Juliano, Parag Pandya, Robert Cignarella, Ian Johnston and Robert Meyer.

According to PGIM Investments, floating rate loans may benefit from rising interest rates as the coupon they pay resets based on short-term interest rate movements. The firm says its analysis indicates floating rate loans have historically outperformed the broader U.S. bond market 12 to 18 months after previous Fed rate hike cycles began.

“We’ve seen increased demand for floating rate strategies as investors look to protect against rising rates. In our view, actively managed credit selection will be a differentiating factor between managers in volatile markets, and we are thrilled to offer PGIM Fixed Income’s time-tested strategy as an ETF,” says Stuart Parker, president and CEO of PGIM Investments.

Putnam Investments to Create Suite of Sustainable Retirement Target-Date Funds

Putnam Investments has announced that the firm will reposition its Putnam RetirementReady Funds target-date series as the Putnam Sustainable Retirement Funds.

According to the firm’s announcement of the plan, the Putnam Sustainable Retirement Funds will offer vintages ranging every five years, from 2025 to 2065, along with a maturity fund. The TDF suite will invest in active exchange-traded funds advised by Putnam. The new ESG-focused target-date series is expected to be available in the coming months.

“Putnam Sustainable Retirement Funds will combine our commitment to two of our firm’s key focus areas in the marketplace—sustainable investing and helping individuals prepare for retirement,” says Robert Reynolds, president and CEO, Putnam Investments. “We are excited to offer access to sustainable investment strategies within a target-date format, which continues to be a preferred investment vehicle for millions of working Americans saving for retirement.”

Reynolds says this development will see Putnam continue to operate the separate Putnam Retirement Advantage TDF suite. He says Putnam has been building out its sustainable investing efforts and related investment offerings since 2017. The firm launched two ESG-focused mutual funds a year later and introduced its first sustainable portfolios in an active ETF format in May 2021.

Nationwide Adds New Solution to Address Market Volatility

To address growing concerns about market volatility, Nationwide has added new index options to one of its indexed universal life insurance products, the Nationwide IUL Accumulator II 2020.

The new indices offer consumers more choices for growth potential even in choppy markets, according to the firm. Each index takes a unique approach to limiting the impact of market volatility—one selects investments based on the business cycle while the other focuses on removing the potential for human bias.

Frist, the J.P. Morgan Mercury Index is a global multi-asset index with an equity allocation based on the current stage of the business cycle, along with diversified fixed income and volatility based commodities allocations rebalanced dynamically based on market conditions.

Second, the BNP Paribas Global H-Factor Index is an index that helps keep volatility low and provides more stable and consistent returns through a methodology that identifies and removes overpriced stocks with a high probability of losing value due to human behavior.

The new volatility control indices help limit the impact of market volatility and are available to protect new and existing Nationwide IUL Accumulator II 2020 policyholders.

Compliance May 25, 2022

SEC Votes to Propose Updated Fund Name Rules, ESG Disclosures for RIAs

Wednesday was a busy day for the U.S. Securities and Exchange Commission, which voted to propose two separate regulations that will impact investment managers and registered investment advisers—and which sources say are likely to generate substantial public comment and debate.

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The U.S. Securities and Exchange Commission convened for a public hearing Wednesday afternoon, during which the commissioners voted to propose two different regulations, the first focused on fund naming rules and the second on new mandatory disclosures by registered investment advisers related to environmental, social and governance investment practices.

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The first regulation is referred to as “ESG Disclosures for Investment Advisers and Investment Companies.” According to the SEC’s fact sheet about the proposal, ESG strategies have existed for decades, but investor interest in these strategies has rapidly increased in recent years, with significant inflows of capital to ESG-related investment products and advisory services.

As the fact sheet points out, asset managers have responded to this increased demand by creating and marketing ESG products. In practice, the SEC says, the ways that different funds and advisers define ESG can vary widely. Similarly, there are significant differences in the data, criteria and strategies used as part of ESG strategies.

According to the majority of the SEC commissioners, the lack of disclosure requirements and a common disclosure framework tailored to ESG investing make it harder for investors who seek to understand which investments or investment policies are associated with a particular ESG strategy. In the absence of informative disclosures, the SEC says, a fund or adviser disclosure could exaggerate its actual consideration of ESG factors.

“The proposed rule and form amendments are designed to provide consistent standards for ESG disclosures, allowing investors to make more informed decisions as they compare various ESG investments,” the fact sheet states. “The proposal’s framework for ESG-related strategy disclosure is designed to allow investors to determine whether a fund’s or adviser’s ESG marketing statements translate into concrete and specific measures taken to address ESG goals and portfolio allocation. The proposal also requires certain environmentally focused funds to disclose information regarding the greenhouse gas emissions associated with their portfolio.”

According to the fact sheet, the proposed changes would apply to registered investment companies, business development companies, registered investment advisers and certain unregistered advisers. They would enhance disclosure by requiring additional specific disclosure requirements regarding ESG strategies in fund prospectuses, annual reports and adviser brochures; by implementing a “layered, tabular disclosure approach” for ESG funds to allow investors to compare ESG funds at a glance; and by generally requiring certain environmentally focused funds to disclose the greenhouse gas emissions associated with their portfolio investments.

Separately, the SEC also voted Wednesday afternoon to propose amendments to its fund “Names Rule,” and in doing so it also published a fact sheet regarding the amendments.

As detailed in the fact sheet, the name of a registered investment company or business development company communicates information about the fund to investors and is an important marketing tool for the fund. As such, the Names Rule helps ensure that a fund’s name accurately reflects the fund’s investments and risks.

“As the fund industry has developed and practices regarding Names Rule compliance have continued to evolve over the past two decades since the rule was adopted, improvements to the Names Rule would help ensure that it continues to meet its purpose,” the fact sheet states.

The proposal specifically seeks to modernize the “80 percent Investment Policy Requirement.” This part of the broader Names Rule currently requires funds with certain names to adopt a policy to invest 80% of their assets in  investments suggested by that name. The proposal would expand this requirement to apply to any fund name with terms suggesting that the fund focuses on investments that have, or investments whose issuers have, particular characteristics. This would include, for example, fund names with terms such as “growth” or “value” and those indicating that the fund’s investment decisions incorporate one or more environmental, social, or governance factors.

Further, to address the rule’s application to derivatives investments, the proposal would require a fund to use a derivatives instrument’s notional amount, rather than its market value, for the purpose of determining the fund’s compliance with its 80% investment policy.

Technically speaking, this second proposal would impact the SEC’s Rule 35d-1 under the Investment Company Act of 1940. According to the majority of SEC Commissioners, the proposed amendments would further serve the SEC’s mission of investor protection by improving and expanding the current requirement for certain funds to adopt a policy to invest at least 80% of their assets in accordance with the investment focus the fund’s name suggests; by providing new enhanced disclosure and reporting requirements; and by updating the rule’s current notice requirements and establishing recordkeeping requirements.

According to the fact sheet, the proposal would specify the particular circumstances under which a fund may depart from its 80% investment policy, such as sudden changes in market value of underlying investments, including specific time frames for returning to 80%. Further, the proposal would prohibit a registered closed-end fund or business development company whose shares are not listed on a national securities exchange from changing its 80% investment policy without a shareholder vote.

“This prohibition would ensure these investors could vote on a change in investment policy given their limited options to exit their investments if the change were made,” the fact sheet states.

Moreover, the proposal would include a number of amendments to provide enhanced information to investors and the Commission about how fund names track their investments. The proposal would require fund prospectus disclosure that defines the terms used in a fund’s name. To this end, the proposal also includes amendments to Form N-PORT to require greater transparency on how the fund’s investments match the fund’s investment focus.

The proposal would, furthermore, require funds to keep certain records regarding how they comply with the rule or why they think they are not subject to it.

Finally, under the proposal, a fund that considers ESG factors alongside, but not more centrally than, other non-ESG factors in its investment decisions would not be permitted to use ESG or similar terminology in its name. Doing so would be defined to be materially deceptive or misleading. For such “integration funds,” as the SEC refers to them, ESG factors are generally no more significant than other factors in the investment selection process, such that ESG factors may not be determinative in deciding to include or exclude any particular investment in the portfolio.

The proposal would retain the current rule’s requirement that, unless the 80% investment policy is a fundamental policy of the fund, notice must be provided to fund shareholders of any change in the fund’s 80% investment policy. The proposal would update the rule’s notice requirement to expressly address funds that use electronic delivery methods to provide information to their shareholders.

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