Dynamic Asset Allocation Growth Fund Annual Report - Putnam

125 Pages·2015·10.62 MB·English

by  Putnam Investments

Putnam Dynamic
Asset Allocation
Growth 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
PAEAX
Putnam Dynamic
Asset Allocation
Growth Fund
Annual report
9 |30 |22
Message from the Trustees 1
About the fund 2
Interview with your fund’s portfolio manager 6
Your fund’s performance 11
Your fund’s expenses 13
Consider these risks before investing 15
Terms and definitions 16
Other information for shareholders 19
Important notice regarding Putnam’s privacy policy 20
Trustee approval of management contract 21
Audited financial statements 26
Report of Independent Registered Public Accounting Firm 27
Federal tax information 136
Shareholder meeting results 137
About the Trustees 138
Officers 140
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
pursuing growth worldwide
Putnam Dynamic Asset Allocation Growth Fund is designed for investors seeking
capital appreciation. The fund’s target mix of 80% stocks and 20% bonds 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 Growth 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 a diversified portfolio
can perform competitively with an all-stock allocation in the long run.
CUMULATIVE RETURNS: 12/31/99–9/30/22
25/75 Portfolio 80/20 Portfolio S&P 500 Index total return
400%
375%
S&P500
350%
325%
300% 80/20 Portfolio
275%
250%
25/75 Portfolio
225%
200%
175%
150%
125%
100%
75%
50%
25%
0%
-25%
-50%
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; 80/20 ➟ 80% S&P 500 Index,
20% 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 Growth 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 Russell 3000 Index Putnam Growth Mixed-Asset Target
Allocation Growth Fund Blended Allocation Growth
(PAEAX) Benchmark* Funds
11.39
7.12 9.34 7.13 7.25 7.91 6.47 8.62 7.70
5.19
3.50 3.83 3.07 3.95 2.89
LIFE OF FUND† 10 YEARS 5 YEARS 3 YEARS 1 YEAR
(since 2/8/94)
–18.53–17.63–18.48–17.48
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 page 5 and pages 11–13
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 Growth Blended Benchmark is a blended benchmark administered by Putnam Management and comprises
60% the Russell 3000 Index, 15% the MSCI EAFE Index (ND), 15% the Bloomberg U.S. Aggregate Bond Index, 5% the
JPMorgan Developed High Yield Index, and 5% the MSCI Emerging Markets Index (GD).
† The fund’s secondary benchmark, the Putnam Growth Blended Benchmark, was introduced on 12/31/94, which
post-dates the inception of the fund’s class A shares.
4 Dynamic Asset Allocation Growth Fund
Performance history as of 9/30/22
Annualized total return (%) comparison Recent broad market index and fund performance
The fund — class A shares Fund’s primary Fund’s secondary Fund’s Lipper
Cash
before sales charge benchmark benchmark peer group median 0.62%
(ICE BofA U.S. 3-Month Treasury Bill Index)
Putnam Dynamic Asset Russell 3000 Index Putnam Growth Mixed-Asset Target
Allocation Growth Fund Blended Allocation Growth U.S. bonds
–14.60%
(PAEAX) Benchmark* Funds (Bloomberg U.S. Aggregate Bond Index)
11.39 U.S. stocks
7.12 9.34 7.13 7.25 7.91 6.47 8.62 7.70 (S&P 500 Index) –15.47%
5.19
3.50 3.83 3.07 3.95 2.89
Fund’s primary benchmark
–17.63%
(Russell 3000 Index)
LIFE OF FUND† 10 YEARS 5 YEARS 3 YEARS 1 YEAR
(since 2/8/94)
Fund’s secondary benchmark
–18.48%
(Putnam Growth Blended Benchmark)
Putnam Dynamic Asset Allocation Growth Fund
–18.53%
(class A shares before sales charge)
–18.53–17.63–18.48–17.48
This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. 9/30/22. See page 4 and pages 11–13 for additional fund performance information. Index descriptions can be found
Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. on pages 17–18.
Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the
All Bloomberg indices are provided by Bloomberg Index Services Limited.
bar chart do not reflect a sales charge of 5.75%; had they, returns would have been lower. See page 5 and pages 11–13
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 Growth Blended Benchmark is a blended benchmark administered by Putnam Management and comprises
60% the Russell 3000 Index, 15% the MSCI EAFE Index (ND), 15% the Bloomberg U.S. Aggregate Bond Index, 5% the
JPMorgan Developed High Yield Index, and 5% the MSCI Emerging Markets Index (GD).
† The fund’s secondary benchmark, the Putnam Growth Blended Benchmark, was introduced on 12/31/94, which
post-dates the inception of the fund’s class A shares.
Dynamic Asset Allocation Growth Fund 5
Interview with your fund’s portfolio manager
Interview with your fund’s portfolio manager
Brett Goldstein discusses the investing
environment and fund results for the 12 months
ended September 30, 2022, as well as his
outlook for financial markets.
Brett, please describe investing conditions
for the 12-month reporting period.
Investors faced multiple headwinds during
the period. Supply chain bottlenecks, slowing
global growth, high inflation, and the Russia-
Ukraine War weighed on investor sentiment. Of
Brett S. Goldstein, CFA
these concerns, controlling inflation remained
Portfolio Manager
a top priority of the U.S. Federal Reserve. In
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
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,
Adrian H. Chan, CFA, James A. Fetch,
Russia’s invasion of Ukraine on February 24
and Robert J. Schoen are also Portfolio
caused a flight to safety. Investors shed
Managers of the fund.
growth-oriented stocks in favor of value-
oriented, cyclical stocks. Yields on U.S.
Treasuries rose and commodity prices soared.
Inflation concerns spread globally. For the first
time since 2018, the Fed increased interest
rates, adding 0.25% to borrowing costs at its
March 2022 meeting. The Fed pledged to make
additional interest-rate hikes at its six remaining
meetings in calendar 2022.
Between May and September, the Fed raised
interest rates four more times. The federal funds
rate moved from 0.00%–0.25% at the start of the
6 Dynamic Asset Allocation Growth Fund
Portfolio composition
U.S. large-cap equity 45.0%
International equity 15.6
U.S. investment-grade bonds 15.5
U.S. small- and mid-cap equity 7.9
U.S. money markets 5.8
U.S. high-yield bonds 4.6
Emerging market equity 3.9
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. (3.4%) Common stocks Technology/Computers
Microsoft Corp. (2.9%) Common stocks Technology/Software
Amazon.com, Inc. (1.7%) Common stocks Consumer cyclicals/Retail
Alphabet, Inc. Class A (1.2%) Common stocks Technology/Technology services
Tesla, Inc. (0.9%) Common stocks Consumer cyclicals/Automotive
Merck & Co., Inc. (0.8%) Common stocks Health care/Pharmaceuticals
Procter & Gamble Co. (The) (0.8%) Common stocks Consumer staples/Consumer goods
Eli Lilly and Co. (0.7%) Common stocks Health care/Pharmaceuticals
Coca-Cola Co. (The) (0.7%) Common stocks Consumer staples/Beverage
Exxon Mobil Corp. (0.7%) Common stocks Energy/Oil and gas
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.
Dynamic Asset Allocation Growth Fund 7
period to 3.00%–3.25% by period-end. Many To reduce inflation, the Fed
investors feared that the Fed’s hawkish 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 decisions. Equity positioning in the first quarter
[ND], fared worse, returning –25.13%. Emerging of calendar 2022 added value, as the fund
market stocks, as measured by the MSCI benefited from short-term over- and under-
Emerging Markets Index [GD], were among the weight positions, which took advantage of
weakest performers, returning –27.80% for the equity market volatility. A modest overweight
period. High-yield bonds returned –13.08%, as position in the second quarter of calendar 2022
measured by the JPMorgan Developed High offset some of these gains as stocks moved into
Yield Index. Investment-grade bonds returned correction territory [a decline of 10% or more
–14.60%, as measured by the Bloomberg U.S. from a recent high]. Underweight positioning in
Aggregate Bond Index. August and September 2022 benefited results
as stocks sank to annual lows.
Credit spreads widened as interest rates rose.
[Spreads are the yield advantage credit-sensitive In fixed income, the portfolio experienced a
bonds offer over comparable-maturity U.S. small gain from a modest underweight position
Treasuries. Bond prices rise as yield spreads to interest-rate risk, as yields rose sharply
tighten and decline as spreads widen.] The with the Fed’s move toward tighter policy.
yield on the benchmark 10-year U.S. Treasury We changed this position to neutral at the
climbed from 1.52% at the start of the period beginning of February 2022.
to 3.83% by period-end. Short-term yields rose
The portfolio posted a loss from an
even more, causing the yield curve to flatten or
out-of-benchmark, modestly long position to
invert at times.
commodity risk, implemented at the beginning
of March 2022. The position ranged from
How did the fund perform for the 12 months
modestly long to long over the remainder of
ended September 30, 2022?
the period.
The fund’s class A shares returned –18.53%,
Overall, security selection decisions boosted
underperforming its primary benchmark, the
performance. Our quantitative U.S. large-cap
Russell 3000 Index, which returned –17.63%
core equity strategy performed strongly, while
for the period. The fund slightly underper-
our quantitative international equity strategy
formed the custom Putnam Growth Blended
contributed a small gain. In quantitative
Benchmark, which returned –18.48% for
strategies, our team analyzes stock market
the period.
history to identify characteristics of stocks
[factors] that have excess risk-adjusted returns.
What strategies impacted fund performance
Over the period, our valuation factors drove
relative to the custom benchmark during the
performance. Our fundamental U.S. large-cap
reporting period?
growth, opportunistic fixed income, and
Overall, our dynamic asset allocation decisions
emerging market equity strategies finished
slightly aided performance. We adjusted the
negative for the period. Our fundamental
portfolio’s tactical allocation mix several times
U.S. large-cap value strategy was a notable
during the period. The largest boost to fund
positive contributor.
performance came from our equity allocation
8 Dynamic Asset Allocation Growth Fund