Putnam Investments has launched the Putnam Short Duration Income Fund, a fixed-income fund that aims to combine the capital preservation appeal of a money market fund with the higher yield of an ultra-short bond fund.
However, unlike ultra-short bond funds, this fund will seek to have lower volatility, and, therefore, it will not be benchmarked against traditional indexes but primarily against the BofA Merrill Lynch U.S. Treasury Bill Index instead. At Putnam puts it, the fund will not be a top performer but a higher-performing alternative to money market funds and other cash management solutions.
“We are aiming to provide excess yield over a market cycle of a three-year horizon, while offering the liquidity of a money fund,” said Michael Salm, one of four portfolio managers of the fund. “The fund combines the benefits of transparency with a conservative risk/return profile and income.”
Salm also noted that the debt problems that the U.S., Europe and other developed nations are facing will continue to put pressure on capital markets, resulting in volatility for the foreseeable future. "These volatilty storms aren't going away because the government is tapped out on its fiscal and monetary policy" tools, Salm said. "The problem with ultra-short bond funds is more volatility, which is why we are aiming to provide yield through a risk lens."
Like a typical money market fund, the Putnam Short Duration Income Fund will invest in certificates of deposit, repurchase agreements, U.S. government securities and other conservative instruments. Like an ultra-short bond fund, it will expand into asset- and mortgage-backed securities, investment-grade corporate paper, sovereign debt, derivatives and private placements.
While there are a handful of other funds on the market that are bridging these two worlds, “no one is declaring it is a new category,” said Jeffrey R. Carney, head of global marketing and products at Putnam. With $11 trillion on the sidelines, $2.3 trillion of which is in money funds, Carney believes the new fund will find wide acceptance among retail and institutional investors alike.
Robert L. Reynolds, president and chief executive officer of Putnam, called the fund “a unique offering that addresses investors’ demand for higher yields and understandable concern about market risk. We expect the Putnam Short Duration Income Fund to be a powerful offering for years to come.”
The fund also has a check-writing feature and a minimum investment of $500. Its A Shares will cost 40 basis points, and its Y Shares, 30 basis points.
Nearly half of Putnam’s $121 billion in assets under management, $65 billion, is in fixed income, $5 billion of which is invested in money market funds.
-- This article first appeared on Money Management Executive.