Putnam to lower management fees, add performance fees on some funds
Putnam Investments has announced it is lowering management fees on several of its retail mutual fund categories in order to be more competitive.
Putnam Investments has announced it is lowering management fees on several of its retail mutual fund categories in order to be more competitive.
Starting Aug. 1, the fee reductions will apply to fixed income, asset allocation and target date funds.
In addition, the Boston-based fund firm will seek shareholder approval this fall to institute performance fees on some of its equity funds as well as put a fund family breakpoint system in place across all of its funds which will reduce management fees further across the boards as total assets under management rises.
“It goes back to when I first joined Putnam a year ago, and we wanted to do what would be shareholder friendly and adviser friendly,” said president and chief executive Robert Reynolds.
“I think our fee structure is now very competitive in the industry.”
Particularly in the area of fixed income, where at least one fund will experience a 34% reduction in its management fee, “there was an opportunity to have [fees] lower than what they were,” he said.
Management fees on Putnam’s 20 fixed income funds will be reduced an average of 13%, to an average of 0.486% from 0.555%.
For example, the 0.62% management fee for the $686 million American Government Income Fund (PAGVX) will see the largest decline (34%) to 0.41%.
The management fee for the $829.5 million Putnam Income Fund (PINCX) will drop to 0.41%, from 0.60%.
On average, the total expense ratio, which includes services and other fees, for the fixed income funds will decline to 0.919% from 0.965%.
Putnam’s three asset allocation funds will experience an average 10% decline in management fees, to an average of 0.571% from 0.627%.
On average, the total expense ratio is projected to be flat for these funds as the firm is projecting a slight increase in service and other fees, said Putnam spokesman Jonathan Goldstein.
Putnam’s Retirement Ready funds — a series of nine target date funds, would also reduce management fees with the elimination of a 0.05% wrap fee.
The average expense ratio will drop to 1.15% from 1.25%, representing a decline of 7.5%.
According to Chicago-based fund tracker Morningstar Inc., the average expense ratio for a U.S. stock fund is 1.35% and 1.02% for U.S. bond funds.
Putnam will also ask shareholders this fall to institute performance fees on its 13 growth, international and global equity funds.
If a fund should outperform its benchmark on a rolling three-year calculation, the move will add an average of 15% to 20% to the management fee, or 3% of the amount gained.
Conversely, if the fund underperforms, the shareholder would receive an equivalent fee reduction, said Jeffrey Carney, senior managing director, global marketing and products, at Putnam.
“The performance fee makes sense for the more aggressive mandates,” he said, adding the proposal does not include value, fixed income or sector funds.
Performance fees were instituted on Putnam’s new funds launched in January.
“I thought our equity-fund fees were very reasonable, but I’ve always had the belief that if you were trying to be shareholder friendly, you need to put yourself on the same side of the table with the shareholder,” Mr. Reynolds said.
Also at the meeting, shareholders will be asked to vote on whether the firm should institute a firm-wide program of fund family breakpoints.
Currently, the funds have individual breakpoints, which allow shareholders to benefit from scale when an individual fund reaches a specific asset level.
If approved, a fund family breakpoint would take into consideration the assets of all the retail funds in aggregate, which totaled $52 billion as of June 30, and award shareholders a benefit of scale when the total assets increased in size, in $5 billion increments.
For example, when total assets rises by $5 billion, there will be a 1.1% reduction in all of the management fees across all funds.
Read more: When are management fees deductible?
“We wanted to set it up so that every dollar that comes into Putnam benefits every shareholder,” Mr. Reynolds said.
“It is more reflective of the way we run our business.”
The fee reduction would increase over time.
The proxy documents are expected to be mailed mid-September in anticipation of the Nov. 19 shareholder meeting. If the proposals are passed they would go into effect Jan. 1.
Putnam has $103 billion in assets under management, including $52 billion in retail mutual fund offerings.
Learn more about reprints and licensing for this article.
