Dynamic Asset Allocation Conservative Fund Annual Report

117 Pages·2015·9.77 MB·English

by  Putnam Investments

Putnam Dynamic
Asset Allocation
Conservative Fund
Annual report
9 | 30 | 22
Asset allocation funds invest
in a mix of many different types
of investments to help weather
changing market environments.
FUND SYMBOL
CLASS A
PACAX
Putnam Dynamic
Asset Allocation
Conservative Fund
Annual report
9 |30 |22
Message from the Trustees 1
About the fund 2
Interview with your fund’s portfolio manager 5
Your fund’s performance 10
Your fund’s expenses 12
Consider these risks before investing 14
Terms and definitions 15
Other information for shareholders 17
Important notice regarding Putnam’s privacy policy 18
Trustee approval of management contract 19
Audited financial statements 24
Report of Independent Registered Public Accounting Firm 25
Federal tax information 131
Shareholder meeting results 132
About the Trustees 133
Officers 135
Message from the Trustees
November 11, 2022
Dear Fellow Shareholder:
Financial markets are reminding us that the journey to long-term returns often
involves weathering periods of heightened volatility. This year, stocks and bonds have
experienced losses, and U.S. gross domestic product has declined slightly. Persistent
inflation has caused the U.S. Federal Reserve to raise interest rates to contain price
pressures, an effort that may continue into 2023. At the same time, we are encouraged
by recent economic data that suggests inflation rates are improving.
While this challenging environment is a test of patience, you can be confident that
Putnam portfolio managers are actively working for you. As the prices of many stocks
and bonds move lower, our teams are researching new and attractive investment
opportunities for your fund while assessing risks.
We also would like to announce changes to the Board of Trustees. In July 2022, we
welcomed Jennifer Williams Murphy and Marie Pillai as new Trustees. Both have a wealth
of investment advisory and executive management experience. We also want to thank
our Trustees who retired from the Board on June 30, 2022. Paul Joskow served with us
since 1997, and Ravi Akhoury joined the Board in 2009. We wish them well.
Thank you for investing with Putnam.
Respectfully yours,
Robert L. Reynolds Kenneth R. Leibler
President and Chief Executive Officer Chair, Board of Trustees
Putnam Investments
About the fund
A diversified portfolio to help
investors preserve wealth
Putnam Dynamic Asset Allocation Conservative Fund is designed for investors
seeking total return consistent with p reservation of capital. The fund’s target
mix of 70% bonds and 30% stocks has been developed to pursue this goal while
moderating investment volatility.
The managers believe that spreading fund holdings across a variety of asset classes
can help to smooth performance compared with the more extreme market ups and
downs that can happen when investing in only one type of asset.
Active global research guides our portfolio decisions.
Today, trends can spread quickly from one part of the world to affect markets everywhere.
The portfolio managers of Putnam’s Global Asset Allocation group have extensive
experience analyzing how opportunities and risks are connected across borders.
They follow a disciplined process to adjust the portfolio as market conditions change.
Robert J. Schoen Brett S. Goldstein, CFA
Co-Chief Investment Officer, Co-Chief Investment Officer,
Global Asset Allocation Global Asset Allocation
Industry since 1990 Industry since 2010
At Putnam since 1997 At Putnam since 2010
Adrian H. Chan, CFA James A. Fetch
Portfolio Manager Head of Portfolio Construction
Industry since 2003 Industry since 1994
At Putnam since 2003 At Putnam since 1994
2 Dynamic Asset Allocation Conservative Fund
Diversification can help to reduce volatility over time.
With today’s market volatility, investors should consider evaluating the effectiveness
of a portfolio over a full market cycle. Recent history has demonstrated that a more
diversified portfolio can outperform in the long run.
CUMULATIVE RETURNS: 12/31/99–9/30/22
25/75 Portfolio 30/70 Portfolio Bloomberg U.S. Aggregate Bond Index total return
275%
250% Bloomberg U.S. Aggregate Bd
225%
30/70 Portfolio
200%
175%
25/75 Portfolio
150%
125%
100%
75%
50%
25%
0%
-25%
12/99 12/01 12/03 12/05 12/07 12/09 12/11 12/13 12/15 12/17 12/19 12/21 9/22
Note: 25/75 ➟ 25% S&P 500 Index, 75% Bloomberg U.S. Aggregate Bond Index; 30/70 ➟ 30% S&P 500 Index,
70% Bloomberg U.S. Aggregate Bond Index. Past performance is not indicative of future results. Other asset
allocations may have had different returns during those time periods.
All Bloomberg indices are provided by Bloomberg Index Services Limited.
Diversification does not guarantee a profit or ensure against loss. It is possible to lose money in a diversified portfolio.
Dynamic Asset Allocation Conservative Fund 3
Performance history as of 9/30/22
Annualized total return (%) comparison
The fund — class A shares Fund’s primary Fund’s secondary Fund’s Lipper
before sales charge benchmark benchmark peer group median
Putnam Dynamic Asset Bloomberg U.S. Putnam Conservative Mixed-Asset
Allocation Conservative Aggregate Bond Index Blended Benchmark* Target Allocation
Fund (PACAX) Conservative Funds
5.04 4.35 4.78 3.48 3.95 2.94 2.27
0.89 0.93 1.21
LIFE OF FUND† 10 YEARS 5 YEARS 3 YEARS 1 YEAR
(since 2/7/94) –0.27 –0.80 –0.04–0.52
–3.26
–14.60
–16.17 –15.62–15.44
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares.
Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the
bar chart do not reflect a sales charge of 5.75%; had they, returns would have been lower. See below and pages 10–12
for additional performance information. For a portion of the periods, the fund had expense limitations, without which
returns would have been lower. To obtain the most recent month-end performance, visit putnam.com.
All Bloomberg indices are provided by Bloomberg Index Services Limited.
Lipper peer group median is provided by Lipper, a Refinitiv company.
* Putnam Conservative Blended Benchmark is a blended benchmark administered by Putnam Management and
comprises 65% the Bloomberg U.S. Aggregate Bond Index, 25% the Russell 3000 Index, 5% the MSCI EAFE Index (ND), and
5% the JPMorgan Developed High Yield Index.
† The fund’s secondary benchmark, the Putnam Conservative Blended Benchmark, was introduced on 12/31/94, which
post-dates the inception of the fund’s class A shares.
Recent broad market index and fund performance
Cash
0.62%
(ICE BofA U.S. 3-Month Treasury Bill Index)
Fund’s primary benchmark
–14.60%
(Bloomberg U.S. Aggregate Bond Index)
U.S. stocks
–15.47%
(S&P 500 Index)
Fund’s secondary benchmark
–15.62%
(Putnam Conservative Blended Benchmark)
Putnam Dynamic Asset Allocation Conservative Fund
–16.17%
(class A shares before sales charge)
This comparison shows your fund’s performance in the context of broad market indexes for the 12 months
ended 9/30/22. See above and pages 10–12 for additional fund performance information. Index descriptions can
be found on pages 16–17.
All Bloomberg indices are provided by Bloomberg Index Services Limited.
4 Dynamic Asset Allocation Conservative Fund
Interview with your fund’s portfolio manager
Performance history as of 9/30/22 Interview with your fund’s portfolio manager
Annualized total return (%) comparison
Brett Goldstein discusses the investing
The fund — class A shares Fund’s primary Fund’s secondary Fund’s Lipper
before sales charge benchmark benchmark peer group median
environment and fund results for the 12 months
Putnam Dynamic Asset Bloomberg U.S. Putnam Conservative Mixed-Asset
Allocation Conservative Aggregate Bond Index Blended Benchmark* Target Allocation
Fund (PACAX) Conservative Funds ended September 30, 2022, as well as his
5.04 4.35 4.78 3.48 3.95 2.94 2.27 outlook for financial markets.
0.89 0.93 1.21
LIFE OF FUND† 10 YEARS 5 YEARS 3 YEARS 1 YEAR
(since 2/7/94) –0.27 –0.80 –0.04–0.52
–3.26
–14.60
–16.17 –15.62–15.44
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares.
Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the Brett, please describe investing conditions
bar chart do not reflect a sales charge of 5.75%; had they, returns would have been lower. See below and pages 10–12 for the 12-month reporting period.
for additional performance information. For a portion of the periods, the fund had expense limitations, without which
returns would have been lower. To obtain the most recent month-end performance, visit putnam.com. Investors faced multiple headwinds during
All Bloomberg indices are provided by Bloomberg Index Services Limited. the period. Supply chain bottlenecks, slowing
Lipper peer group median is provided by Lipper, a Refinitiv company. global growth, high inflation, and the Russia-
* Putnam Conservative Blended Benchmark is a blended benchmark administered by Putnam Management and Ukraine War weighed on investor sentiment. Of
Brett S. Goldstein, CFA
comprises 65% the Bloomberg U.S. Aggregate Bond Index, 25% the Russell 3000 Index, 5% the MSCI EAFE Index (ND), and these concerns, controlling inflation remained
5% the JPMorgan Developed High Yield Index. Portfolio Manager
a top priority of the U.S. Federal Reserve. In
† The fund’s secondary benchmark, the Putnam Conservative Blended Benchmark, was introduced on 12/31/94, which
post-dates the inception of the fund’s class A shares. Brett is Co-Chief Investment Officer, November 2021, the Fed began tapering its
Global Asset Allocation. He has an M.P.S. $120 billion-per-month bond-buying program,
in Statistics, a B.S. in Finance, and a B.S.
signaling it would raise interest rates in
in Biometry and Statistics from Cornell
Recent broad market index and fund performance University. Brett has been in the investment calendar 2022.
industry since he joined Putnam in 2010.
After a relatively calm start to the new year,
Cash
0.62% Adrian H. Chan, CFA, James A. Fetch,
(ICE BofA U.S. 3-Month Treasury Bill Index) Russia’s invasion of Ukraine on February 24
and Robert J. Schoen are also Portfolio
caused a flight to safety. Investors shed
Fund’s primary benchmark Managers of the fund.
–14.60% growth-oriented stocks in favor of value-
(Bloomberg U.S. Aggregate Bond Index)
oriented, cyclical stocks. Yields on U.S.
U.S. stocks –15.47% Treasuries rose and commodity prices soared.
(S&P 500 Index)
Inflation concerns spread globally. For the first
Fund’s secondary benchmark time since 2018, the Fed increased interest
–15.62%
(Putnam Conservative Blended Benchmark) rates, adding 0.25% to borrowing costs at its
March 2022 meeting. The Fed pledged to make
Putnam Dynamic Asset Allocation Conservative Fund
–16.17%
(class A shares before sales charge) additional interest-rate hikes at its six remaining
policy meetings in calendar 2022.
This comparison shows your fund’s performance in the context of broad market indexes for the 12 months
Between May and September, the Fed raised
ended 9/30/22. See above and pages 10–12 for additional fund performance information. Index descriptions can
be found on pages 16–17. interest rates four more times. The federal funds
All Bloomberg indices are provided by Bloomberg Index Services Limited. rate moved from 0.00%–0.25% at the start of the
Dynamic Asset Allocation Conservative Fund 5
Portfolio composition
U.S. investment-grade bonds 66.8%
U.S. large-cap equity 15.7
U.S. high-yield bonds 5.0
International equity 4.3
U.S. money markets 4.1
U.S. small- and mid-cap equity 2.4
Commodities 1.7
Allocations are shown as a percentage of the fund’s net assets as of 9/30/22. Cash and net other assets, if any,
represent the market value weights of cash, derivatives, short-term securities, and other unclassified assets in the
portfolio. Summary information may differ from the portfolio schedule included in the financial statements due to
the inclusion of derivative securities, any interest accruals, the exclusion of as-of trades, if any, the use of different
classifications of securities for presentation purposes, and rounding. Holdings and allocations may vary over time.
Top 10 holdings
HOLDING (PERCENTAGE OF FUND’S NET ASSETS) SECURITY TYPE SECTOR/INDUSTRY
Apple, Inc. (2.4%) Common stocks Technology/Computers
Microsoft Corp. (2.0%) Common stocks Technology/Software
Amazon.com, Inc. (1.2%) Common stocks Consumer cyclicals/Retail
U.S. government
Government National Mortgage Association
guaranteed mortgage Government/Agency
Pass-Through Certificates 3.00%, 7/20/50 (1.0%)
obligations
Alphabet, Inc. (0.9%) Common stocks Technology/Technology services
Federal National Mortgage Association U.S. government agency
Government/Agency
Pass-Through Certificates 2.50%, 12/1/50 (0.9%) mortgage obligations
Federal Home Loan Mortgage Corporation U.S. government agency
Government/Agency
Pass-Through Certificates 3.00%, 1/1/48 (0.8%) mortgage obligations
U.S. government
Government National Mortgage Association
guaranteed mortgage Government/Agency
Pass-Through Certificates 3.00%, 10/20/50 (0.8%)
obligations
Tesla, Inc. (0.6%) Common stocks Consumer cyclicals/Automotive
Government National Mortgage Association U.S. government agency
Government/Agency
Pass-Through Certificates 3.00%, 8/20/50 (0.6%) mortgage obligations
This table shows the fund’s top 10 individual holdings and the percentage of the fund’s net assets that each
represented as of 9/30/22. Short-term investments, to-be-announced (TBA) commitments, and derivatives, if any, are
excluded. Holdings may vary over time.
6 Dynamic Asset Allocation Conservative Fund
period to 3.00%–3.25% by period-end. Many To reduce inflation, the Fed
investors feared that more hawkish Fed policies
will need to raise interest rates
would tip the U.S. economy into a recession.
faster and more than the market
Stocks and bonds posted losses for the anticipates, in our view.
12-month reporting period. U.S. stocks, as
measured by the S&P 500 Index, returned Brett Goldstein
–15.47%. Non-U.S. stocks in developed
markets, as measured by the MSCI EAFE Index first quarter of calendar 2022 added value, as
[ND], fared worse, returning –25.13%. High- the fund benefited from short-term over- and
yield bonds returned –13.08%, as measured underweight positions, which took advantage
by the JPMorgan Developed High Yield Index. of equity market volatility. A modest overweight
Investment-grade bonds returned –14.60%, position in the second quarter of calendar 2022
as measured by the Bloomberg U.S. Aggregate offset some of these gains as stocks moved into
Bond Index. correction territory [a decline of 10% or more
from a recent high]. Underweight positioning in
Credit spreads widened as interest rates rose.
August and September 2022 benefited results
[Spreads are the yield advantage credit-
as stocks sank to annual lows.
sensitive bonds offer over comparable-maturity
U.S. Treasuries. Bond prices rise as yield spreads In fixed income, the portfolio experienced a
tighten and decline as spreads widen.] The small gain from a modest underweight position
yield on the benchmark 10-year U.S. Treasury to interest-rate risk, as yields rose sharply
climbed from 1.52% at the start of the period with the Fed’s move toward tighter policy.
to 3.83% by period-end. Short-term yields rose We changed this position to neutral at the
even more, causing the yield curve to flatten or beginning of February 2022.
invert at times.
The portfolio posted a loss from an out-of-
benchmark, modestly long position to
How did the fund perform for the 12 months
commodity risk, implemented at the beginning
ended September 30, 2022?
of March 2022. The position ranged from
The fund returned –16.17%, underperforming modestly long to long over the remainder of
its primary benchmark, the Bloomberg U.S. the period.
Aggregate Bond Index, which returned –14.60%.
Overall, security selection decisions boosted
The fund also underperformed the custom
performance. Our quantitative U.S. large-cap
Putnam Conservative Blended Benchmark,
core equity strategy performed strongly, while
which returned –15.62%.
our quantitative international equity strategy
contributed a small gain. In quantitative strat-
What strategies impacted fund performance
egies, our team analyzes stock market history
relative to the custom benchmark during the
to identify characteristics of stocks [factors]
reporting period?
that have excess risk-adjusted returns. Over
Overall, our dynamic asset allocation decisions
the period, our valuation factors drove perfor-
slightly aided performance. We adjusted
mance. Our fundamental U.S. large-cap growth
the portfolio’s tactical allocation mix several
and opportunistic fixed income strategies
times during the period. The largest boost
finished negative for the period. Our funda-
to fund performance came from our equity
mental U.S. large-cap value strategy was a
allocation decisions. Equity positioning in the
notable positive contributor.
Dynamic Asset Allocation Conservative Fund 7
As the fund starts a new fiscal year, higher interest rates and the lack of improve-
how is it positioned relative to the ment in labor-market tightness. A brief equity
custom benchmark? rally in July 2022 was not justified by economic
activity, in our view. Our breadth thrust signals
The fund is positioned defensively relative
[a technical indicator that determines market
to the custom benchmark as of October 1,
momentum] have not confirmed the start of a
2022. The portfolio has an underweight
new bullish trend.
position to equity risk and a neutral position to
interest-rate risk. Tactically, the portfolio has Our near-term outlook for rate-sensitive fixed
an out-of-benchmark, modestly long position income is neutral. To reduce inflation, the
to commodity risk. Toward period-end, we Fed will need to raise interest rates faster and
decreased our commodity position from long to more than the market anticipates, in our view.
modestly long. We believe this will have a negative impact
on duration exposure. However, this view is
What is your outlook for financial markets? tempered by deteriorating economic data
Volatility has been a major constant across and heightened recession risk, which could be
markets year to date. Rising inflation, supply a catalyst for interest rates to move lower, in
chain disruptions, monetary policy tightening, our view.
and the war in Ukraine have weighed down
Our view on commodities is slightly bullish.
most asset classes. Looking ahead, we expect
A strengthening U.S. dollar, rising real yields
market volatility to persist and investor
[adjusted for the impact of inflation], and a
sentiment to waver given many uncertainties
looming recession could be headwinds for
and fears of recession.
commodities, in our view. However, over
Our near-term outlook for equities is bearish. the medium term, we believe that supply
We believe the equity market has yet to bottom. constraints are a reason to be bullish on the
This view is supported by the Fed’s bias toward asset class.
Portfolio composition comparison
U.S. investment- as of 3/31/22 63.6%
grade bonds as of 9/30/22 66.8%
22.2%
U.S. large-cap equity
15.7%
5.1%
U.S. high-yield bonds
5.0%
4.3%
International equity
4.3%
2.4%
U.S. small- and
mid-cap equity 2.4%
This chart shows how the fund’s top weightings have changed over the past six months. Allocations are shown as
a percentage of the fund’s net assets. Current period summary information may differ from the portfolio schedule
included in the financial statements due to the inclusion of derivative securities, any interest accruals, the exclusion of
as-of trades, if any, the use of different classifications of securities for presentation purposes, and rounding. Holdings
and allocations may vary over time.
8 Dynamic Asset Allocation Conservative Fund