Putnam Multi-Asset Absolute Return Strategy

Transcription

1 Putnam Multi-Asset Absolute Return Strategy October 2016 A focus on risk-adjusted absolute returns This document is for institutional investors and investment professionals only and should not be distributed to or relied on upon by retail clients. It is only intended for use in jurisdictions where relevant investment vehicles are authorized for distribution or where no such authorization is required.

2 Putnam pursues an active approach to investment management Putnam Investments provides asset management to institutions worldwide. Our seasoned teams of experts work across asset classes and investment disciplines, giving us the intellectual depth and global reach needed to meet the complex challenges facing our clients today. For more than 75 years, we have honed a keen understanding of the factors that drive global markets. We have developed asset allocation strategies that seek to balance changing economic and market conditions with clients evolving investment objectives. We believe that active management can be both the key to beating the market and a prudent way to invest. Fundamental research drives our traditional and non-traditional investment strategies. In our view, this is the best way to maximize potential risk-adjusted investment returns in portfolios built upon our highest-conviction investment ideas. Nearly 200 investment professionals work at Putnam across portfolio management, research, and securities trading functions in a collaborative and results-oriented culture. With over $154 billion as of September 30, 2016, invested in equity, fixed income, global asset allocation, and alternative strategies, our size gives us a meaningful presence in the markets where we invest, while we remain nimble to respond to opportunities.

3 Putnam Multi-Asset Absolute Return Strategy returns in line with volatility Putnam Multi-Asset Absolute Return Strategy is an actively managed globally diversified strategy with an unconstrained approach for pursuing absolute returns of a relevant cash benchmark plus 7% per annum over a market cycle of at least three years.* We invest for risk-adjusted returns because we believe that seeking to reduce downside volatility without sacrificing return can materially improve compound long-term performance. We build the portfolio with dynamic allocations among four directional strategies (equities, credit, interest rates, and inflation) that target efficient beta exposure, as well as with several non-directional strategies that seek to generate uncorrelated alpha. The resulting portfolio can shift both the composition of risk and the total level of risk with the goal of maximizing risk-adjusted return potential. Putnam Multi-Asset Absolute Return Strategy can serve as a structural core strategy to help dampen overall volatility or as a complement to more traditional strategies. It allows investors to participate in potential gains from asset classes around the world with the ability to potentially moderate market volatility through comprehensive diversification. 1The return objective is based on managing the strategy to a level of tracking error commensurate with the target return. The target return and standard deviation would result in a portfolio with a Sharpe ratio of 1. The target range is based on return expectations over the next market cycle for the asset classes typically represented in the strategy, including global equities, global bonds, commodities, REITs, and currencies. The strategy pursues these targets through investment across global bonds, stocks, or alternative asset classes and can adjust as opportunities change. Targets are presented for the purpose of communicating the intended risk profile of the investment opportunities that Putnam will pursue and are not intended to be projections of performance. Target returns are based on a number of assumptions, are subject to significant revision, and may change materially with changes in underlying assumptions. Actual results could be materially different from the stated goals.

4 Institutions are exploring alternatives to reduce risk Driven by future liability streams, institutions today continue to pursue return objectives while seeking to limit drawdown risk. They remain motivated by the experience of the financial crisis in 2008 and the portfolio drawdowns caused by excessive reliance on the equity risk premium. Many institutions have favored one of two remedies: maintaining a return objective but adding a strategy to reduce portfolio volatility, or targeting a higher level of returns with the same amount of volatility. For both goals, the most common approach has involved refining the optimal portfolio allocations. However, many continue to rely on allocating to traditional asset classes. Figure 1 U.S. institutions have favored traditional asset allocations. 3.6% 4.4% 5.1% 43.7% 43.2% Equity Fixed income Private equity Real estate Hedge funds Source: Towers Watson, 2012 Asset Allocations in Fortune 1000 Pension Plans, November Note: Towers Watson study had a 2.9% allocation to an Other category, and a 3.5% allocation to Cash. For simplicity of analysis, the Other category was grouped with Equity, and Cash was grouped with Fixed income. A Towers Watson study, analyzing the 2012 asset allocations of 556 Fortune 1000 pension plans, revealed a focus on traditional asset classes. Though there is a small allocation to alternative asset classes, such as REITs, private equity, and hedge funds, the largest exposures are to common stocks and nominal bonds.

5 Reliance on traditional asset classes served investors well in recent decades, as rising equity markets accompanied by falling interest rates created a favorable environment. With the memory of the market events of 2008 still relatively fresh, however, institutions may question whether diversification across traditional asset classes will be sufficient for them to meet their future funding needs. Putnam suggests that to create more efficient portfolios for meeting investment objectives, institutional investors may want to consider incorporating more benchmark-agnostic alternatives known as absolute return strategies. Figure 2 European institutions have taken steps to reduce the impact of the equity risk premium by adding alternatives. 2% 3% 9% 52% 13% 21% Domestic equity Non-domestic equity Fixed income Real estate Cash Alternatives Source: Mercer; Asset Allocation Survey, European Institutional Marketplace Overview In Europe, a recent Mercer survey of pan-european asset allocation shows a steadily decreasing reliance on equities and an increase in the use of alternatives. Institutional investors desire to reduce the equity premium while pursuing diversified sources of alpha is likely to persist.

6 Putnam pursues greater efficiency with absolute return The Global Asset Allocation team at Putnam has directed extensive research efforts to developing strategies that seek to improve risk-adjusted returns of multiasset portfolios. We believe a powerful method of improving portfolio efficiency comes from adding a new layer of diversification with absolute return strategies. In our investment research and practice, we find that absolute return strategies, which we define as unconstrained, benchmark- agnostic strategies that focus on more efficient returns with less systematic risk (beta), can help improve the overall efficiency of an investment plan. Our research indicates that moving beyond beta strategies that are tied to asset class benchmarks and adding absolute return strategies to a portfolio of traditional asset classes can lead to a dramatic shift in the efficiency of portfolios as highlighted on the efficient frontier. Adding absolute return to a portfolio allocation can directly address the goal of institutional investors to reduce portfolio risk with diversified sources of alpha. Figure 3 Allocations to benchmark-agnostic absolute return strategies shift the efficient frontier more than allocations to traditional asset classes. Comparison of efficient frontiers historical data 1985 to present Efficient frontier 1: U.S. stocks and U.S. bonds Efficient frontier 2: Add commodities Efficient frontier 3: Add international bonds, international stocks and small-cap stocks Efficient frontier 4: Add 20% allocation to absolute return Average annual excess return 8% 7% 6% 5% 4% 3% 2% 4% 6% 8% 10% 12% Average annual standard deviation 6% 5% 4% 3% 3% 4% 5% 6% Sources: Putnam Investments, Evestment. Data as of December 31, U.S. large-cap stocks are represented by the S&P 500 Index, U.S. small-cap stocks are represented by the Russell 2000 Index, international equities are represented by the MSCI EAFE, U.S. bonds are represented by the Ibbotson Associates U.S. Intermediate Government Bond Index, international bonds are represented by the Citi WGBI x U.S., commodities are represented by GSCI, and absolute return is represented by the HFN Multi-Strategy Index. Indices are unmanaged and do not incur expenses. You cannot invest directly in an index. Past performance is not a guarantee of future results.

7 After identifying the potential for absolute return strategies to improve risk-adjusted returns, we wanted to look closely at what an absolute return strategy could achieve as an allocation within a portfolio context. We tested two scenarios based on the traditional asset allocation outlined in the 2013 Towers Watson study. In the first, we maintained the historical rate of return and sought to achieve lower volatility. In the second scenario, we sought to increase returns without a significant boost in volatility. Figure 4 Allocating to absolute return strategies can enhance the ability to pursue return or volatility goals. Scenario 1 Applying absolute return strategies to maintain return with lower volatility 72% reduction in equity exposure 32% reduction in volatility, same return 48% increase in Sharpe ratio Scenario 2 Applying absolute return strategies to increase return, while maintaining volatility 68% reduction in equity exposure 26% improvement in return, same volatility 27% increase in Sharpe ratio Equity Fixed income Private equity Real estate Absolute return strategies 12% 12% 11% 17% 48% 19% 16% 16% 24% 25% Hypothetical excess return March 31, 1986 June 30, % 6.36% Standard deviation 5.28% 7.85% Sharpe ratio Sources: Towers Watson, Putnam Investments, and Evestment. Absolute return strategies were applied to the average defined benefit plan s allocation as defined by the Towers Watson study 2012, Asset Allocation in Fortune 1000 Pension Plans, November Asset classes are represented by: equity, S&P 500 Index; fixed income, Bloomberg Barclays Intermediate Treasury Index; private equity, Cambridge Associates U.S. Private Equity Index; real estate, FTSE EPRA/NAREIT U.S. Index; absolute return strategies, HFN Multi-Strategy Index. Indices are unmanaged and do not incur expenses. You cannot invest directly in an index. Past performance is not a guarantee of future results. For illustrative purposes only. The above simulated performance does not reflect actual client trading or the impact of material economic and market factors on Putnam s decision-making process for a Putnam client account. The scenarios are based on numerous assumptions, which are based on the current view of Putnam and could change without notice or prove to be incorrect. Different assumptions would produce different results. Performance results were prepared with the benefit of hindsight. Hypothetical returns are shown before fees, transaction costs, and taxes. Management fees would reduce returns, and therefore the probabilities shown. Additional advisory fees, transaction costs, and other potential expenses are not considered and would also reduce returns. Actual results experienced by clients may vary significantly from the hypothetical illustrations shown.

8 Specialized teams conduct systematic analysis of global markets and portfolios Putnam s Global Asset Allocation team is a long-tenured group of investors specializing in multi-asset strategies. The senior members of the portfolio management team average 21 years of investment experience and have together managed multi-asset portfolios at Putnam for 15 years. During this period, we have consistently refined the disciplined investment process with new ways of thinking. The absolute return investment process aims to produce a dynamic portfolio with lower equity sensitivity and beta. Figure 5 Specialized teams focus on market opportunities, global macro, portfolio construction, and risk management. Global Macro Jason R. Vaillancourt, CFA Ryan J. Beaudoin, CFA Equity Robert J. Kea, CFA Robert J. Schoen James A. Fetch Adrian H. Chan, CFA Ryan J. Beaudoin, CFA Brett E. Risser Rates Robert J. Kea, CFA James A. Fetch Ryan J. Beaudoin, CFA Credit Jason R. Vaillancourt, CFA Ryan J. Beaudoin, CFA Portfolio Construction and Risk Management Global Macro team identifies key themes in current market environment and collaborates with Asset Class teams to construct directional and nondirectional views Asset Class teams identify directional and non-directional opportunities and make recommendations for composition and implementation of risk Portfolio Construction and Risk Management teams verify recommendations and allocate risk Inflation Jason R. Vaillancourt, CFA Brett S. Goldstein, CFA Portfolio Construction and Risk Management James A. Fetch Robert J. Schoen Brett S. Goldstein, CFA

9 Annual outlook. Our asset class teams focus on four different risks equity, interest rates, inflation, and credit and are tasked with forming a view on excess return potential and expected volatility for their respective asset classes. The Global Macro team is responsible for presenting all pertinent information that may impact asset classes. Similarly, the Portfolio Construction & Risk team produces assumptions on ex-ante volatility and cross-asset correlations. This serves as a template for investment decisions. Quarterly reviews. The Global Asset Allocation team updates this risk template on a quarterly basis to revisit investment themes, evaluate existing portfolio positions and inspect our views on volatility and cross-asset correlations. This is also the most common point for portfolio repositioning as we assess our expectations versus realized outcomes. Weekly meetings. The full team also conducts a series of five different weekly meetings to allow for a more detailed inspection of the portfolio. Included in this meeting cadence are formal discussions around portfolio performance and attribution, new idea generation, and a complete portfolio review including an inspection of our investment thesis for each asset class and position. The concluding meeting focuses on final portfolio construction and risk assessment. Figure 6 Thorough analysis of opportunities and risk is implemented through a disciplined calendar of meetings. Tuesday Annually Quarterly Monday Analyze performance and portfolio attribution Examine proprietary research Wednesday #1 Calculate excess return and volatility forecasts by asset class Establish operating thesis of each asset class/debate position Thursday Review/ update capital and risk allocations Wednesday #2 Update asset class forecasts Review all available asset classes/ strategies for allocation Precise timing may vary.

10 Directional strategies dynamically allocate four risks Putnam Multi-Asset Absolute Return Strategy combines a beta portfolio, which dynamically allocates among four directional risks equities, credit, interest rates, and inflation with an alpha portfolio that pursues non-correlated, non-directional strategies. Allocations to the four directional strategies are driven by our top-down forecasts of risk-adjusted performance. We implement long positions to favor the types of risk that our analysis shows have the most attractive Sharpe ratio expectations. Short positions are implemented when the expectation for risk and return are unattractive. Additionally, the strategy may not have exposure to an asset class if we consider it imprudent. The allocations derive from ex-ante forecasts for excess return and volatility. These Sharpe ratio ranges, outlined in Figure 8, dictate the amount of risk allocated to the directional portion of the overall portfolio. Consistent with our quarterly review process, the forward three-month assessment has the greatest impact on the ex-ante forecasts, which are updated weekly. Figure 7 Risks are allocated to directional and non-directional strategies. Directional Efficient diversified beta (long, short, zero) Dynamic risk allocation Equity Credit Rates Inflation Non-directional Flexible uncorrelated alpha Opportunistic market neutral strategies Multi-Asset Absolute Return Portfolio Nondirectional Equity Selection Alpha Fixed Income Selection Alpha Fixed Income Sector Alpha Regional Equity L/S Regional Fixed Income L/S Commodity Alpha Currency Alpha Alternative Beta For illustrative purposes only. Ranges may change from time to time without notice.

11 Figure 8 Anticipated Sharpe ratios guide allocations. 3-month Sharpe ratio recommendation breakpoints Very attractive Sharpe 2.9 Attractive 1.5 Sharpe < 2.9 Moderately attractive 0.2 Sharpe <1.5 Unattractive -1.3 Sharpe < 0.2 Very unattractive Sharpe -1.3 Ranges may change from time to time without notice.

12 Non-directional strategies aim to contribute uncorrelated alpha The non-directional strategies provide additional diversification. Generally structured as pairwise trades, these components seek to capture alpha within their respective asset classes. Long/short equity, fixed income, commodity, and currency alpha strategies, for example, are pairings of positive and negative, or short positions. They may focus on individual securities, groups of securities or sectors, and different indices, currencies, commodities, or segments of the futures curves. The team also employs long/ short positions that are top-down driven, and may involve countries or groups of countries. In addition, we use alternative beta strategies market-neutral strategies through which the managers seek non-traditional sources of risk premia. Non-directional strategies are based on forecasts for risk-adjusted returns, along with our investment views on liquidity and counterparty risks. Pairwise trades may be beta or dollar neutral, as we think appropriate. Currently, we use eight separate non-directional sleeves in the portfolio, and undertake a consistent research effort to uncover additional (or different) strategies. Figure 9 Non-directional strategies target multiple alpha sources. Non-directional Flexible uncorrelated alpha Opportunistic market neutral strategies Strategies may change from time to time without notice. Equity Selection Alpha Fixed Income Selection Alpha Fixed Income Sector Alpha Regional Equity L/S Regional Fixed Income L/S Commodity Alpha Currency Alpha Alternative Beta Over time, we can dynamically adjust the total level of risk in the portfolio, and the composition of portfolio risk among the many different strategies, with the goal of maximizing risk-adjusted return potential.

13 Figure 10 Non-directional sources of alpha: Classification, examples, and definitions. Key Example Definition Equity Selection Alpha Short forensic accounting/ Long U.S. Midcap Short RIMM/Long NASDAQ Long/short or beta/market neutral equity strategies that focus on individual securities, basket of securities, and/or sectors Fixed Income Selection Alpha RMBS, CMO, CMBS, term structure Long/short and/or opportunistic alpha strategies within the more unique areas of the fixed income market, such as the securitized mortgage market Fixed Income Sector Alpha Regional Equity Long/Short Regional Fixed Income Long/Short Commodity Alpha Long Mortgage Credit/ Short Corporate Credit Long U.S. Equity/ Short European Equity Long German Bunds/ Short French OATs Long Australian AGB/ Short U.S. Treasuries Long CMCI/Short GSCI Commodity Curve Alpha Long/short selections strategies either within a particular fixed income sector or between sectors Top-down equity long/short trades. Could be between two different countries or basket of countries Top-down fixed income long/short trades. Could be between two different countries or basket of countries Long/short trades focused on commodity markets. Could be between two different indices, sub-sectors, or different parts of the futures curve Currency Alpha Long Australian dollar/short euro Long/short individual and/or baskets of currencies Alternative Beta Short VIX/Long S&P 500 Liquidity Arbitrage Seek different sources of market beta or risk premium, constructed in a way that is market neutral Investment examples are intended to help illustrate the investment process and should not be considered a recommendation to purchase or sell any security. It should not be assumed that an investment in the above example will be profitable. The examples identified and described do not represent all of the securities purchased, sold, or recommended for client accounts. As with any investment, there is a potential for profit as well as the possibility of loss.

14 Multi-Asset Absolute Return Strategy seeks to reduce risk with diversified sources of alpha The Global Asset Allocation team has generated alpha from non-directional or pairwise positions, which has helped contribute to the low equity beta of the strategy. These quantitative characteristics can potentially help institutional investors access a return stream with very low sensitivity to global equities and, as such, directly address an important concern institutional investors face the ability to de-risk a portfolio, yet find diversified sources of alpha returns. Figure 11 Multi-Asset Absolute Return Strategy [MAARS] has produced efficient risk-adjusted return, since inception. Composite rolling 3-year annualized return and volatility vs. T-bills since inception, January 31, 2009 Since inception (net, annualized) Return: 5.55% Volatility: 4.80% Sharpe ratio: 1.12 MAARS annualized return (gross of fees) MAARS annualized return (net of fees) T-bills + 7% MAARS annualized volatility September 30, 2016 Data as of September 30, Composite performance is shown in U.S. dollars and includes the reinvestment of dividends and interest. Past performance is not a guarantee of future results. An investment in Multi-Asset Absolute Return Strategy could lose value.

15 Figure 12 Annual and cumulative performance attribution shows timely and balanced contributions from directional and non-directional strategies. Putnam Multi-Asset Absolute Return Strategy performance attribution YTD Since inception (cumulative) Equity 4.54% 0.97% 2.45% 2.22% 5.84% 4.68% -0.83% 0.55% 25.05% Credit 1.94% 0.89% 1.09% 2.28% 1.94% 0.03% -1.78% 0.69% 8.61% Rates 0.03% -0.13% 0.30% 0.45% -0.65% 0.54% 0.83% 2.88% 5.35% Inflation 1.11% 0.08% -0.22% 0.14% -0.51% 0.20% -0.71% 0.18% 0.23% Non-directional 8.52% 3.34% -1.70% 4.17% 0.74% 1.85% 2.10% -1.33% 21.42% Total 16.14% 5.15% 1.91% 9.26% 7.35% 7.30% -0.39% 2.96% 60.66% Data as of September 30, Inception date is January 31, A representative account is used to estimate the portfolio attribution. Past performance is not a guarantee of future results. Since inception is from December 23, 2008, the inception date for the representative account. Figure 13 Risk analysis demonstrates the potential advantage of Multi-Asset Absolute Return Strategy over traditional benchmarks since inception. MAARS (gross of fees) 15.11% MAARS (net of fees) 12.24% T-bill (BofA ML) Global equities (MSCI WORLD) 6.43% 5.55% 0.17% 2.93% 4.80% 4.80% 0.05% 5.86% Global bonds (Citigroup WGBI) Return Volatility Sharpe Data as of September 30, Past performance is not a guarantee of future results. An investment in Multi-Asset Absolute Return Strategy could lose value. Indices are unmanaged and do not incur expenses. You cannot invest directly in an index.

16 Figure 14 Multi-Asset Absolute Return Strategy has performed well in periods of significant drawdown. 5% 0% -5% -10% -15% -20% Cumulative return January 6, 2009 May 6, 2009 MSCI max drawdown 26% MAARS max drawdown 4% -25% Jan 2009 Feb 2009 Mar 2009 Apr 2009 May 2009 Cumulative return April 15, 2010 October 25, % MSCI max drawdown 16% MAARS max drawdown 2% 0% -5% -10% -15% -20% -25% Apr 2010 May 2010 Jun 2010 Jul 2010 Aug 2010 Sep 2010 Oct 2010 Cumulative return May 2, 2011 September 14, % MSCI max drawdown 21% MAARS max drawdown 8% 0% -5% -10% -15% -20% -25% May 2011 Jul 2011 Sep 2011 Nov 2011 Jan 2012 Mar 2012 May 2012 Jul 2012 Sep 2012 Cumulative return May 21, 2015 March 31, % MSCI max drawdown 18% MAARS max drawdown 8% 0% -5% -10% -15% -20% -25% May 2015 June 2015 July 2015 Aug Sept 2015 Oct 2015 Nov 2015 Dec 2015 Jan 2016 Feb 2016 Mar 2016 Returns are presented for a representative account net of fees and include the reinvestment of dividends and interest. Past performance is not a guarantee of future results. The above data is intended to supplement the composite presentation located at the end of this brochure. MSCI data reflects the four largest drawdowns since MAARS inception, January 31, 2009.

17 Putnam Multi-Asset Absolute Return Strategy provides institutional investors access to the seasoned investment judgment of Putnam s Global Asset Allocation team. Our multi-asset strategy is a benchmark-agnostic, globally focused portfolio that seeks to outperform T-bills (BofA ML) plus 7% per annum with commensurate levels of volatility. Additionally, including a multi-asset absolute return strategy in portfolio construction can potentially help enhance the efficiency of an institutional portfolio. Putnam Investments Multi-Asset Absolute Return Strategy Composite Date Gross of Fees Return (%) Net of Fees Return (%) Annual Benchmark Return (%) Three-year Standard Deviation of Composite ¹ (%) Three-year Standard Deviation of Benchmark ¹ (%) Standard Deviation of Account Returns ² (%) Composite Assets (millions) Total Firm Assets (millions) ³ , , , , , , , , , * 15.85* 0.31* , The period from inception, January 31, 2009, to December 31, 2009, is not annualized. Number of Accounts 1 The three-year, annualized ex-post standard deviation of monthly composite and benchmark returns represents a measure of total investment risk (volatility) and calculates the variance of a distribution of returns. Data is not presented for periods with less than 36 months of composite returns. 2 The standard deviation of comparable performance over time is a measure of volatility. Composite dispersion is measured by the standard deviation across equal weighted portfolios represented within the composite for the full year. Standard deviation is N/A for composites with five or fewer accounts for the full year. 3 Total Firm Assets prior to 2011 do not include Guaranteed Investment Contract ( GIC ) assets. Firm Overview Putnam Investments claims compliance with the Global Investment Performance Standards (GIPS ) and has prepared and presented this report in compliance with the GIPS standards. Putnam Investments has been independently verified for the periods ended December 31, 2000, through December 31, Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation. The verification reports are available upon request. Putnam Investments (the Firm ) is defined as a broad-based investment management organization that provides financial services to institutions and individuals through separately managed accounts, pooled funds, and mutual funds. Except for a minority stake owned by employees, the Firm is a wholly owned subsidiary of Great-West Lifeco Inc. Investment management is provided by four wholly owned subsidiaries of the Firm: The Putnam Advisory Company, LLC; Putnam Investment Management, LLC; Putnam Fiduciary Trust Company; and Putnam Investments Limited. A list of the Firm s composite descriptions is available upon request. Composition of Composite The Putnam Investments Multi-Asset Absolute Return Strategy Composite (the Composite ) seeks to earn a positive total return above Treasury Bills by 700 basis points on an annualized basis over a reasonable period of time (generally at least three years or more) regardless of market conditions. The strategy pursues a consistent absolute return by combining two independent investment strategies a directional (beta) component, which provides broad exposure to investment markets, and a non-directional (alpha) component, which seeks returns from active trading. The Composite comprises all fully discretionary accounts managed by Putnam in this style. The Composite s benchmark is the BofA Merrill Lynch U.S. Treasury Bill Index. Accounts in the Composite may use other cash benchmarks. The Composite creation date was March 17, The Composite was formerly called the Absolute Return 700 Composite.

18 The return objective is based on managing the strategy to a level of tracking error commensurate with the target return. The target return and standard deviation would result in a portfolio with a Sharpe ratio of 1. The target range is based on return expectations over the next market cycle for the asset classes typically represented in the strategy, including global equities, global bonds, commodities, REITS, and currencies. The strategy pursues these targets through investment across global bonds, stocks, or alternative asset classes and can adjust as opportunities change. Target returns represent results of statistical modeling and are provided for informational purposes only. Targets are presented for the purpose of communicating the intended risk profile of the investment opportunities that Putnam will pursue and are not intended to be projections of performance. Target returns are based on a number of assumptions, are subject to significant revision, and may change materially with changes in underlying observations. Risk Considerations Our allocation of assets among permitted asset categories may hurt performance. The prices of stocks and bonds in your portfolio may fall or fail to rise over extended periods of time for a variety of reasons, including both general financial market conditions and factors related to a specific issuer or industry. Our active trading strategy may lose money or not earn a return sufficient to cover associated trading and other costs. This strategy may use futures, forwards, swaps, and other derivative instruments on equity, fixed income, and commodity indices and currencies to gain exposure to various markets. Commodities trading involves substantial risk of loss. There are additional risks involved with trading securities in a margin account, including the fact that you can lose more funds than you deposit in the margin account. Derivatives involve special costs and risks, such as the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. Some derivatives are leveraged, which means that they provide a portfolio with investment exposure greater than the value of your portfolio s investment in the derivatives. As a result, these derivatives may magnify or otherwise increase investment losses to a portfolio. Strategies that use leverage to gain exposure to various markets may not be suitable for all investors. Any use of leverage exposes the strategy to risk of loss. In some cases, the risk may be substantial. This strategy may also sell securities short and may engage in securities lending. Selling short is a strategy employed by aggressive investors attempting to benefit from the expected price deterioration of a security and can lead to extraordinary losses. When engaging in the short sale of securities, the Firm will sell borrowed shares with the intent of repurchasing the shares at a lower price before returning the shares to the lender. A portfolio that engages in short sales may incur losses if the securities appreciate in value prior to repurchase. Also, such portfolios may experience greater volatility due to potential leverage. The loss involved in a short position is theoretically unlimited. Bond investments are subject to interest-rate risk and credit risk. Mortgage-backed securities are subject to prepayment risk. International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. REITs involve the risks of real estate investing, including declining property values. Commodities involve the risks of changes in market, political, regulatory, and natural conditions. Investments in small and/or midsize companies increase the risk of greater price fluctuations. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. The strategy may not achieve its goal, and it is not intended to be a complete investment program. The strategy s effort to produce lower-volatility returns may not be successful and may make it more difficult at time for the strategy to achieve its targeted return. In addition, under certain market conditions, the strategy may accept greater volatility than would typically be the case, in order to seek its targeted return. No assurance can be given that the investment objective or target return will be achieved or that an investor will receive a return of all or part of his or her investment. As with any investment, there is a potential for profit as well as the possibility of loss. This strategy may not be suitable for all investors. It is important to understand that you can lose money by investing in this strategy. Calculation of Composite Returns are presented in U.S. dollars ( USD ). Benchmark, Putnam account and Putnam mutual fund valuation sources and timing may sometimes differ, causing dispersion within the composite and between the composite and the benchmark. The results of the Composite for all periods shown include the reinvestment of dividends and other earnings. The Firm values securities using market quotations, fair value prices from pricing services and/or broker quotations. In limited circumstances, the Firm will value securities based solely on its own analysis, this may include using model prices based on third-party data or, for private equity securities, a fair valuation process whereby a special Valuation committee will review the nature of each deal, the model currently used to value each deal, and any critical underlying assumptions in order to determine fair value. Fair valuations based on internal resources are made in accordance with the Putnam Funds Pricing Procedures and are subject to the oversight of the Firm s Valuation Committee. Please note that, in limited cases, the inputs used to value the security are unobservable and reflect the source s own assumptions. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request.

19 Benchmark Disclosure The Bank of America (BofA) Merrill Lynch U.S. Treasury Bill Index is an unmanaged index that tracks the performance of U.S. dollar-denominated U.S. Treasury bills publicly issued in the U.S. domestic market. Qualifying securities must have a remaining term of at least one month to final maturity and a minimum amount outstanding of $1 billion. Indexes are unmanaged and do not incur expenses. You cannot invest directly in an index. Gross and Net of Fees Disclosure Gross of Fee Returns are net of transactions costs but do not include the deduction of management fees and other expenses that may be incurred in managing an investment account. A portfolio s return will be reduced by management and other fees. The impact of management fees can be material. For instance, assume that $1 million is invested in a Putnam Investments account, and this account achieves a 10% compounded annual return, gross of fees, for 10 years. If a management fee of 0.50% was charged each year for the 10-year period, the annual return would be 9.5% and the ending dollar value would be $2,478,200, net of fees, as opposed to $2,593,700, gross of fees. The actual fee rates are stated in advisory contracts with clients. For composites that contain U.S. mutual funds and UCITS funds, gross-of-fee performance is calculated by applying the prorated monthly percentage of the total net annual expense ratio (as published in the fund s annual report) to the monthly return on net asset value per share. Annual expense ratios for the current year may be based on the prior year s financial statements. Returns may be adjusted based upon each year s audited annual report. Net of fee returns are calculated using a model fee ( Model Net Fee ). For the applicable time periods, net of fees returns reflect either the deduction of the highest management fee that is paid by a portfolio in the Composite during the performance period, applied on a monthly basis or the deduction of the highest applicable management fee in effect during the performance period that would be charged based on the fee schedule appropriate to this mandate, without the benefit of breakpoints, applied on a monthly basis, whichever is higher. Net of fee calculation methodology may change over time. For composites that include commingled funds that pay a performance fee and that calculate performance using the highest fee paid by an account in the composite, performance based fee adjustments are included in net of fee returns. For commingled funds, the fee is typically updated for the most recent fiscal year end after the portfolio has been audited. Returns may be adjusted based upon each year s audited annual report. Please be advised that the Composite may include other investment products or share classes of funds that are subject to management fees, including performance fees, that are inapplicable to you but that could have been in excess of the Model Net Fee. Therefore, the actual performance of all the portfolios in the composite on a net-of-fees basis will be different, and may be higher or lower, than the Model Net Fee performance. Composites that include certain commingled portfolios may also assess a performance fee to underlying investors which could result in the underlying investors paying a higher total management fee than the highest stated management fee below. However, Model Net Fee performance is intended to provide the most appropriate example of the impact management fees would have by applying management fees relevant to you to the gross performance of the Composite. Actual investment advisory fees incurred by clients are typically negotiated on an individual basis and may vary depending upon, among other things, the applicable fee schedule and portfolio size. Fee Schedule The standard fee schedule is based on the market value of an account s assets under management and is stated on an annual basis. Separate account management fees are subject to change and are for investment management services only. Standard management fee is: 0.75% of assets on the first $50 million, 0.70% of assets on the next $50 million, 0.60% of assets on the next $150 million, 0.50% of assets on the next $250 million, and 0.25% for assets over $500 million. Past performance is not a guarantee of future performance. No assurance can be given as to future performance.

20 This material is prepared for use with institutional investors and investment professionals. References to specific securities, asset classes and/or financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations or investment advice. This material does not take into account any investor s particular investment objectives, strategies, tax status or investment horizon. The views and strategies described herein may not be suitable for all investors. Investors should consult a financial advisor for advice suited to their individual financial needs. Representative account data in this presentation is for illustrative purposes only. Generally the representative account is selected based on the account that has the longest track record or that is most representative of the intended strategy, taking into consideration the account with the least investment restrictions or the size of the account. Representative accounts may change over time. Representative account data may differ from composite data and is intended to supplement the Composite presentation. This presentation contains supplemental information, which can include hypothetical data, portfolio characteristics, historical risk and return analysis. The supplemental information is designed to provide the proper context in which to better understand the performance results. Unless otherwise noted, Putnam is the source of all data. Putnam Investments cannot guarantee the accuracy or completeness of any statements or data contained in the presentation. Predictions, opinions and other information contained in this presentation are subject to change. Any forward-looking statements speak only as of the date they are made, and Putnam assumes no duty to update them. Forward-looking statements are subject to numerous assumptions, risks and uncertainties. Actual results could differ materially from those anticipated. While Putnam Investments seeks to achieve the portfolio s stated objective, there is no guarantee the objective will be achieved. All investments involve risk, and investment recommendations will not always be profitable. Putnam Investments does not guarantee any minimum level of investment performance or the success of any investment strategy. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results. This presentation or any portion hereof may not be reprinted, sold or redistributed in whole or in part without the express written consent of Putnam Investments. The information provided relates to Putnam Investments and its affiliates, which include The Putnam Advisory Company, LLC and Putnam Investments Limited. Issued in the United Kingdom by Putnam Investments Limited. Putnam Investments Limited is authorized and regulated by the Financial Conduct Authority (FCA). For the activities carried out in Germany, the German branch of Putnam Investments Limited is also subject to the limited regulatory supervision of the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - BaFin). Putnam Investments Limited is also permitted to provide cross-border investment services to certain EEA member states. In Europe, this material is directed exclusively at professional clients and eligible counterparties (as defined under the FCA Rules, or the German Securities Trading Act (Wertpapierhandelsgesetz) or other applicable law) who are knowledgeable and experienced in investment matters. Any investments to which this material relates are available only to or will be engaged in only with such persons, and any other persons (including retail clients) should not act or rely on this material. Furthermore this material is only intended for the recipient receiving it directly from Putnam Investments Limited and should not be forwarded to, or relied upon by, the recipient s underlying clients. Prepared for use with wholesale investors in Australia by Putnam Investments Australia Pty Limited, ABN, , AFSL No This material has been prepared without taking account of an investor s objectives, financial situation and needs. Before deciding to invest, investors should consider whether the investment is appropriate for them. Prepared for use in Canada by Putnam Investments Canada, ULC (o/a Putnam Management in Manitoba). Where permitted, advisory services are provided in Canada by Putnam Investments Canada, ULC (o/a Putnam Management in Manitoba) and its affiliate, The Putnam Advisory Company, LLC. Putnam Investments One Post Office Square Boston, MA putnam.com IN /16