The game is over for the Putnam Capital Spectrum and Equity Spectrum funds. Sorry to be so harsh. But that’s simply the way I see it. Not to pat my own back but I’ve pointed out in the past how Putnam has been guilty of being more of a marketing machine than a Prudent-Man oriented asset management firm.
After reading this excellent blog by Jason Zweig in his WSJ Intelligent Investor column, I feel even stronger about Putnam’s focus on marketing over Prudent-Man-type asset management. Zweig points out that these funds hold close to three-quarters of their assets under management in their top 10 holdings. The biggest being Dish Network, Jazz Pharmaceuticals and EchoStar.
“The Spectrum funds, all by themselves, own one in every six of Dish’s Class A shares, one in every seven of Jazz’s ordinary shares and nearly one in every three of EchoStar’s Class A shares. If they ever need to sell these stocks, who will buy them in such quantity?” asks Zweig.
Back to the Putnam marketing machine. Funds like these promote their performance in up years and broker/advisor networks put on the full court press. Then watch the money come pouring in. Then the reverse happens when the market falls, as noted by Zweig:
Investors chased the Spectrum funds’ performance when it was hot. Assets, only $391 million in both funds at the end of 2010, boomed to a combined $15.3 billion early last year. In 2014 alone, investors added $5 billion.
More recently, performance has faltered; last year, Capital Spectrum fell 9% and Equity Spectrum 14%. Right on cue, over the 12 months ending March 31, investors pulled $5 billion out of the two funds, estimates Morningstar.
You can guess why the fund is so heavily flogged by brokers. Follow the money. Look at the fees. Class A shares carry a max 5.75% load (never pay a load), plus annual expenses of 1.26%. Class B, C (and certain A and M shares) have no load, but carry a six year laddered deferred sales fee starting in year-one of 5% (see page 34 of prospectus), plus annual expenses of 2.01%.
The game is over for these two Putnam Spectrum funds.
