Putnam, a large Boston-based money manager with $110 billion in assets, plans to move from 10 to 50 percent of the assets currently in its target date mutual funds into four different absolute return funds.
The move serves as a confirmation of the hazards that sequence of returns risk presents to near retirees and those who are recently retired.
As recently reported by Bloomberg, target date funds have come under increasing regulatory scrutiny as funds that are intended to serve investors retiring as early as 2010 lost up to 41 percent last year. Putnam’s own “RetirementReady 2010” fund lost 27 percent last year.
Absolute return funds are intended to reduce volatility and reduce exposure to large losses such as those experienced in 2008. Of course, the trade-off involves a reduction in upside potential.
According to Putnam’s CEO:
“We wanted to avoid the attack on the nest egg that changes the way retirement looks”
Earlier this year, San Francisco based Charles Schwab made similar moves to reduce the equity exposure in its target date funds for near retirees.
Source: Bloomberg
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Anonymous replied on Permalink
Absolute Return Funds
Could absolute return funds simply be a marketing vehicle for the asset accumulation industry?
How does an absolute return fund actually provide a guarantee?
tom replied on Permalink
Absolute Return Funds
Absolute return funds do not provide guarantees in the traditional sense of using insurance, providing a guaranteed minimum rate of return, levels of income, etc.
They do hedge extensively and seek to reduce market volatility. Unlike long-only funds that gauge their performance "relative" to a benchmark such as the S&P, absolute return funds that are, in a sense and in theory, independent of broader market movements.