The Putnam Dynamic Risk Allocation Fund (Class A: PDREX) is designed to actively balance the sources of portfolio risk across multiple asset classes, with flexibility to respond dynamically to changing economic conditions and market valuations, in pursuit of consistent levels of total return. The fund will make use of a risk parity approach that Putnam has utilized extensively for institutional clients.
Putnam says the new fund is unlike a traditional balanced fund where the majority of the risk comes from the equity allocation; it diversifies across a wide range of global markets reducing reliance on equities, to pursue a total return that is more consistent over different market conditions. By comparison, in a traditional asset allocation portfolio or balanced fund (60% equity/40% fixed income as defined by Lipper), the equity portion contributes nearly 90% of the portfolio risk.
In addition to risk analysis at the individual securities level, the new Putnam fund will have an intense “risk lens” at the asset allocation level. The fund will be attempting to create more consistent performance over time by boosting exposure to less volatile and/or less correlated asset classes and diversifying its exposure to risk.
“Greater risk diversification across less volatile assets is essential for preservation and long-term growth of investment capital – and pursuing these objectives through a focused ‘risk’ lens can be a critical success factor,” said Robert L. Reynolds, President and Chief Executive Officer, Putnam Investments.
Another distinguishing characteristic of the Putnam Dynamic Risk Allocation Fund is that the portfolio is not static: utilizing the Putnam Global Asset Allocation team, the portfolio weightings will be dynamically adjusted in response to changing market conditions, providing the potential to further enhance performance and manage risk.
The Dynamic Risk Allocation Fund is managed by Putnam’s Global Asset Allocation team, led by Jeffrey L. Knight, Head of Global Asset Allocation. The team’s specialists have more than 17 years of experience in managing multi-asset portfolios for both the institutional and retail marketplaces, including more than five years of managing portfolios employing a risk-parity approach.