Putnam Investments is launching a variation of its Absolute Return 500 fund as a subaccount option for variable insurance products
The Putnam Variable Trust Absolute Return 500 fund is designed to obtain a positive return that beats the rate of inflation by 5% over at least three years.
The fund, viewed as an alternative to balanced funds, is managed by the same team of portfolio managers that oversees its retail version. Jeffrey Knight, head of global asset allocation at Putnam, leads that group.
In talks with carriers, Putnam discovered that insurers sought a lower volatility investment option for their variable annuities from a risk management perspective. “The analysis we discussed was a lower volatility option,” said Bill Connolly, head of global distribution at Putnam. “Getting the same targeted return with one-half to one-third of the volatility really helps their hedging analysis.”
Mr. Connolly couldn't share the names of the carriers that are currently exploring the Absolute Return 500 fund, but The Hartford Financial Services Group Inc. and SunAmerica Financial Group both offer variable annuities with Putnam's funds. Both are among the longest-standing relationships the firm has with carriers.
The company may also design variable annuity versions of its Absolute Return 100, 300 and 700 funds, based on where the investments might fit within carriers' investment models, Mr. Connolly added.
Though the new Putnam offering may make sense for carriers aiming to tamp down risk, advisers could also become fans of the new investment option. “Strategies that are more market neutral do provide a concrete benefit for the clients,” noted Tamiko Toland, managing director, retirement income consulting at Strategic Insight Inc. She noted that advisers seem to already be sold on the retail mutual fund version of the option.
The Putnam fund isn't the first absolute return strategy to be deployed in a subaccount. Pacific Investment Management Co. LLC's Total Return portfolio has been in heavy rotation in a number of variable products — from carriers including Allianz Life Insurance Company of North America, Transamerica Life Insurance and Annuity Co. and ING Groep NV.
