Q2 2012Putnam Perspectives

Capital Markets Outlook

Jeffrey L. Knight, CFA Head of Global Asset Allocation

Key takeaways

A record drop in volatility does not signal imminent market reversal. Europes lag in the rally points to a possible source of weakness. Muted rise in bond yields may reflect economic concerns.

Putnams outlook
Asset class Underweight Small underweight Neutral l l l l l l l l l l l l l l l l l l l Small overweight Overweight

EQUITY

U.S. large cap U.S. small cap U.S. value U.S. growth Europe Japan Emerging markets
FIXED INCOME

U.S. government U.S. tax exempt U.S. investment-grade corporates U.S. mortgage-backed U.S. floating-rate bank loans U.S. high yield Non-U.S. developed country Emerging markets
COMMODITIES CASH CURRENCY

Dollar/yen Dollar/euro Dollar/pound

Favor dollar Favor dollar Favor dollar

Q 2 2012| Capital Markets Outlook

Investment themes
A record drop in volatility does not signal imminent market reversal.
Market conditions thus far in 2012 have rewarded those who have embraced investment risk. In fact, of the thirteen weeks in the first quarter of 2012, only two saw negative returns from the S&P 500. Charting market prices for this quarter is remarkable not so much because of the markets level, or even its trajectory, as for its uncanny steadiness. In truth, a 13% return for stocks, as posted by the S&P 500 in the first quarter, is not terribly uncommon. On the other hand, the recent collapse in volatility is much more rare. What does this mean for the markets prospects in the second quarter?

We examined the data since 1990 for six-month changes in implied volatility as measured by the VIX (CBOE Volatility Index). Often called the fear index, the VIX reflects investor expectations as measured by options contracts. Our research shows that the reduction in implied volatility that

The reduction in implied volatility that we have seen over the past six months is unprecedented.
we have seen over the past six months is unprecedented. Figure 1 presents data for the nine largest VIX declines since 1990, showing just how unusual the past six months have been.

Figure 1. Stocks typically rallied after volatility dropped. After the largest drops in volatility over two quarters, stocks have appreciated in the following quarter 6 out of 8 times (9/30/903/31/12)

3/31/09 9/30/98
40

9/30/11

9/30/02 9/30/01

12/31/08 6/30/10 12/31/02

Volatility (VIX)

30

9/30/90 3/31/03

6/30/09
20

3/31/99 3/31/91 3/31/02 6/30/03

9/30/09 12/31/10

3/31/12

10

Performance of S&P 500 in subsequent quarter 15.4% 7.0% 2.6% -0.2% -13.4% 6/30/91 6/30/99 6/30/02 6/30/03 9/30/03 9/30/09 12/31/09 3/31/11 15.6% 6.0% 5.9%

Source: Putnam. The VIX (CBOE Volatility Index) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Past performance is not a guarantee of future results.

PUTNAM INVESTM ENTS| putnam.com

From these data, it is clear we should not automatically assume a turn for the worse is near. In fact, history indicates it is more common after a significant decline in volatility for the stock market to move higher over the subsequent quarter than to move lower. Indeed, in the absence of any catalyst to disrupt this calm advance, we are content to give the durability of stock market strength the benefit of the doubt as the second quarter begins. Still, the plunge in volatility prompts two observations. First, we must concede that we have rarely observed significant declines in volatility starting from the levels we see today. Since at least some of the markets advance over the past six months must be attributed to declining investor risk aversion, it stands to reason that much of this force is behind us, and further stock market advances must

Europes lag in the rally points to a possible source of weakness.

As volatility has dropped since late 2011, risk assets of all kinds have rallied. Continuing this trend, stocks, commodities, credit instruments, and emerging-market currencies showed sharp gains in the first quarter. For the most part, these assets have behaved as theory would predict: The more volatile ones, like small-cap stocks, emerging-market stocks, and even financial stocks, posted the highest returns. However, one asset class European stocks deserves notice.

Further stock market advances must come from more fundamental catalysts, such as earnings and dividends.
come from more fundamental catalysts, such as earnings and dividends. As such, the trajectory of market gains from recent levels is likely to be lower than that of the first quarter. Second, it is worth noting that downside hedging strategies with options have become significantly more affordable now than they were six months ago, and may be attractive should certain risk scenarios materialize in the coming months.

While the LTRO might have bought Europe some time to deal with its sovereign debt problems, it has done nothing to solve these problems.
The general calm that has prevailed over markets might be attributed in part to the European Central Banks LongTerm Refinancing Operation (LTRO), initiated in December and expanded in February, or even to the lack of turmoil around Greeces debt default. But investors should be careful not to infer hastily that all is well in Europe. While the LTRO might have bought Europe some time to deal with its sovereign debt problems, it has done nothing to solve these problems. The second quarter will deliver several new challenges that could disrupt the nascent calm across European financial markets. First, important political elections will occur in coming months, including a presidential election in France, national elections in Greece, and a fiscal referendum in Ireland. Second, several countries caught up in the crisis face refunding needs, with key bond auctions scheduled in the second quarter for Italy, Spain, and Portugal. Finally, the impact of austerity policies should begin to show through in economic statistics during the second quarter.

Q 2 2012| Capital Markets Outlook

Figure 2. Spain has lagged in Europes LTRO-fueled recovery. Performance of select European stock markets since start of ECBs LTRO program, 12/21/113/31/12
120

115 110

Germany (DAX) France (CAC 40) Italy (FTSE MIB)

105 100

95
12/21/11

Spain (IBEX 35)

3/31/12

Source: Bloomberg. Values rebased to 100 on December 21, 2011, the beginning of the European Central Banks first Long-Term Refinancing Operation.

Along these lines, it is troublesome to note the recent underperformance of Spain, in particular (Figure 2). In 2012, the Spanish stock market has delivered negative returns even as markets worldwide have delivered broad gains. Disconnected market performance like this rarely occurs without a fundamental cause. Investors may be detecting growing strains in Spain.

Muted rise in bond yields may reflect economic concerns.

With all the positive news coming from the stock market, investors might have paid less attention to a subtle storyline developing in bond markets. Bond yields rose during the first quarter, and by recent standards, any increase in bond yields is noteworthy. At the same time, we think that the first-quarter rise in yields raises an important, generally overlooked, question, namely, why havent bond yields risen by a much greater amount?

Signs of stress from the stock markets or from credit default swaps (CDS) of Spain, Italy, Portugal, or Austria would prompt us to reduce risk levels.
While we are comfortable with maintaining a pro-risk stance overall as the second quarter begins, signs of stress from the stock markets or from credit default swaps (CDS) of Spain, Italy, Portugal, or Austria would prompt us to reduce risk levels. In the meantime, we continue to avoid risk in peripheral European markets.

Why havent bond yields risen by a much greater amount?

Over the past five years, 10-year Treasury yields have generally moved in near lockstep with stock prices (Figure 3). Every time stocks sold off, bond yields dropped alongside them. However, over the past six months, the reverse has not been true. Despite a significant rise in stock prices, bond yields have risen only modestly.

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As with European stocks, the disconnected performance of bonds is noteworthy, in our opinion. Of course, part of the explanation for low Treasury yields is that the Fed has been purchasing Treasuries with the goal of keeping rates low. Beyond this, however, we surmise that bond investors may be detecting a gradual slowing in economic data,

We have not escaped the secular pressures brought on by the stilldeflating global debt bubble.
recovery. In light of these developments, and recognizing that bonds are less overvalued today than at the beginning of the year, we believe it remains prudent to maintain some exposure to interest-rate risk, which may also be helpful given the potential threats we have outlined. Overall, we are content to give risk assets the benefit of the doubt as the second quarter begins. However, we regard the two market nonconformists the behavior of European stocks and Treasury bond yields to be reminders that risks remain, and that we have not escaped the secular pressures brought on by the still-deflating global debt bubble.

We surmise that bond investors may be detecting a gradual slowing in economic data, based on certain key developments in the first quarter.
based on certain key developments in the first quarter. For example, the rate of economic surprise is deteriorating sharply in the United States and around the world, rising oil prices are eating into disposable income, and manufacturing surveys have responded only mildly to the economic

Figure 3. Bucking recent history, Treasury yields have not followed stock prices higher. Comparison of S&P 500 Index and yields of 10-year Treasuries, 3/31/073/31/12
S&P 500 Index 10-year U.S. Treasury yield

1600

7%

S&P level

Yield

1100

4%

600
3/07 3/08 3/09 3/10 3/11 3/12

1%

Source: Bloomberg.

Q 2 2012| Capital Markets Outlook

Asset class views

U.S. equity
Stocks rallied sharply, posting their strongest first-quarter gains in over a decade and reversing some of the fearbased valuation anomalies we saw in 2011. Financials, an extremely undervalued sector at the end of 2011, was the best-performing S&P 500 sector in the most recent quarter. Utilities, a safe haven for investors in 2011 when it advanced 20%, was the only sector with negative results in the first quarter (Source: Putnam). Small-cap and largecap stocks appreciated at roughly the same pace. The quarters stunning gains can partly be characterized as a relief rally. U.S. economic growth continued to surprise on the upside, and investors appear to have concluded the recovery has become sustainable. The 3% GDP growth reported for the fourth quarter was not particularly robust, but it was sufficient to alleviate investor concerns. Europe also proved to be more stable and a little stronger than feared. Greece underwent an orderly default without much incidence against the backdrop of the ECB injecting liquidity into the financial system.

The near 30% rally since October necessarily figures into our view of the opportunity set. We believe valuations remain compelling in many areas of the market, but no longer reflect the extremes we saw in the fall of 2011. Opportunities exist in stocks that have global economic sensitivity, are in the financials sector, or have some macro concern, in our view. Across the economy, cash on balance sheets continues to grow, so we expect to see a continuation of the trend of establishing or raising dividends. At 2.15% at the end of March, the S&P 500s dividend yield is now roughly equivalent to the 2.23% yield on a 10-year Treasury (Sources: Putnam and U.S. Federal Reserve).

Opportunities exist in stocks that have global economic sensitivity, are in the financials sector, or have some macro concern, in our view.
In sum, our outlook is constructive and pro-cyclical. We believe corporate fundamentals support the continuation of the current rally but that there will be increasing benefit to careful stock selection going forward. As has been the case for the past two years, macro risks whether the concern is a hard landing in China, a spike in oil prices, or economic deterioration in Europe may reassert themselves at any time.

Our expectation is for single-digit earnings growth in 2012.

Corporate earnings were the other engine driving stock prices. At over $100 per share, the S&P 500s projected earnings are at all-time highs, continuing on a trajectory that started in 2009. Earnings growth is now beginning to show signs of fatigue. The fourth quarters single-digit profit growth marked a decline from growth in the third quarter, and our expectation is for single-digit earnings growth in 2012. While this does not yet translate into an expensive market, in our view, the days of every company beating expectations are probably over.

Non-U.S. equity
In the second half of 2011, international stocks generally suffered in the face of compounding sovereign risks in Europe. But as macroeconomic fears gradually lost their grip on markets in December 2011 and January 2012, investors expressed increasing enthusiasm about a broad variety of international stocks. With this renewed interest, correlations fell across the global equity markets, and international stocks rebounded sharply. For the second quarter and beyond, we believe that non-U.S. stock fundamentals will continue to matter, making stock selection all the more important in seeking positive returns.

PUTNAM INVESTM ENTS| putnam.com

Some of the most attractive non-U.S. equities from a valuation standpoint are those that sold off most sharply last year. Bargain hunting in Europe, for example, is back on the agenda. We expect economically sensitive sectors, in general, to benefit from the declining perception of European macroeconomic risks, and that consumer discretionary stocks, in particular, will be well-positioned in this environment. Furthermore, although company data suggest the economy is making forward strides, investor attitudes frequently range from ambivalent to negative on the European consumers ability to support a broad range of businesses. This sustains the valuation opportunity in Europe, in our view, in an industry such as banking, where we feel a number of higher-quality banks will ultimately distinguish themselves from lower-quality banks that are in greater financial distress.

The risk of sustained high oil prices is one of the primary factors that could crimp global growth.
The U.S. economy, meanwhile, is showing continued signs of strength, and while Europe may tip into recession, we expect the problems will be contained. The risk of sustained high oil prices is one of the primary factors that could crimp global growth. But if diplomatic solutions are found that can help defuse some of the underlying geopolitical risks, it could arrest rising oil prices and lend further support to non-U.S. equity markets and the continuing recovery.

Fixed income
The fixed-income markets in general benefited from a change in investors risk outlook in 2012. Central banks continued to provide liquidity for financial markets, both in Europe through the LTRO and in the United States, where there is speculation that the Federal Reserve (the Fed) is considering a third round of quantitative easing (QE3). This accommodative policy helped offer some level of support for the bond markets after a challenging fourth quarter in which investors demonstrated little appetite for risk. U.S. fixed incomeIn the United States, interest rates climbed higher, even on the short end of the yield curve, in part reflecting increasing optimism about the strength of the economic recovery. Recent economic data, while not indicative of a strong recovery, has generally come in stronger than anticipated. There continues to be some speculation as to whether the Fed intends to launch QE3. Recent statements by Chairman Ben Bernanke suggest that the Fed is carefully monitoring the health of the economy and that more policy intervention is a possibility. It was an unusually mild winter in much of the United States, and some market-watchers have been raising questions as to whether the stronger-than-expected economic data was driven by the warmer weather. We wont know the answer for sure until data for March and April become available as points of comparison, but its an issue were keeping a close eye on nonetheless.

In the emerging markets, investor capital has returned and appetite for risk has grown, despite fears of a slowdown and the potential for policy error in China.
In the emerging markets, investor capital has returned and appetite for risk has grown, despite fears of a slowdown and the potential for policy error in China. Contrary to the consensus, we take a constructive view on China. Where others see sluggish data, we see a more sustainable growth pattern, bolstered by the growing significance of the Chinese consumer and the impressive policy arsenal of Chinas central bank. Other countries with positive fundamentals and excellent secular growth stories, such as Brazil and Indonesia, also offer a range of attractive opportunities that are made even more compelling by easing economic policy. As emerging economies loosen policy while taking care not to go too far it creates a positive environment for equities, particularly banks, consumer discretionary stocks, and domestic-focused industrials, in our view.

Q 2 2012| Capital Markets Outlook

On the corporate side, fundamentals remained attractive, with positive earnings and low defaults, and high yield performed particularly well.
In the non-government sectors, mortgage credit specifically, non-agency residential mortgage-backed securities (RMBS) and corporate credit posted strong returns for the quarter. RMBS was one of the hardest hit sectors at the end of 2011, as investors feared that European banks, which hold a significant volume of these securities, would be forced to liquidate positions quickly to raise capital. While there has been some selling, it was nowhere near the magnitude investors feared, and the sector rallied in the first quarter of 2012. On the corporate side, fundamentals remained attractive, with positive earnings and low defaults, and high yield performed particularly well. Emerging-market debt also benefited from the investors increased risk appetites during the period, with commodity-exporting countries like Venezuela and Russia enjoying higher oil prices and strong demand. Non-U.S. fixed incomeThe Greek default, which occurred in February, was an orderly one, and appears unlikely to start a wave of restructurings in other peripheral European countries or force European banks to rapidly de-lever and raise capital. That said, while the short-term

a set of policy tools to address their challenges, either through devaluing their currency or adapting monetary policy tailored to their particular circumstances. As it stands, the European Central Bank can only set a single policy for this diverse group of economies despite their different dynamics and different needs. Until that fundamental problem is addressed, we believe investors will continue to see waves of volatility from the European bond markets. U.S. tax exemptOverall credit quality across the municipal bond market remains generally sound and is showing signs of improvement. We believe that the fiscal conditions of states and municipalities are indicative of

We believe actual defaults will remain relatively low in 2012, but we would not be surprised by an uptick in local GOs.
stability, but that states will continue to face financial challenges as the economic recovery works to gain some traction. Tax receipts are beginning to increase, albeit slowly, and we believe actual defaults will remain relatively low in 2012, but we would not be surprised by an uptick in local GOs. Our primary concerns remain focused on the broad economy and Congresss plans to reduce the deficit. Broad-based tax reform, a change in the tax status of municipal bonds, and significant cuts in state funding all would have consequences for the municipal bond market. We are monitoring all of these factors closely, and believe our funds are well positioned for this less-than-certain environment going forward.

Europe is home to a variety of economies, each with its own set of challenges, whether a housing market bubble, an over-leveraged banking sector, or a workforce struggling to remain competitive.
liquidity issues at stake in Europe appear to be under control, the larger, long-term structural problems have been largely unaddressed thus far. Europe is home to a variety of economies, each with its own set of challenges, whether a housing market bubble, an over-leveraged banking sector, or a workforce struggling to remain competitive. These economies no longer have as broad

Commodities
We continue to favor an underweight to commodities. As we articulated last quarter, we find commodities, overall, to be just another way to take investment risk, and a generally inferior one at that. Commodities underperformed equities during the first quarter, which was a strong quarter for risk assets. Due to their negative roll yield, economic sensitivity, and high volatility, we would expect commodities to lag other risk assets in a sell-off as well.

PUTNAM INVESTM ENTS| putnam.com

MARKET TRENDS
Index name (returns in USD) 1Q 12

12 months ended 3/31/12

EQUITY INDEXES

Dow Jones Industrial Average S&P 500 Nasdaq Composite MSCI World (ND) MSCI EAFE (ND) MSCI Europe (ND) MSCI Emerging Markets (ND) Tokyo Topix Russell 1000 Russell 2000 Russell 3000 Growth Russell 3000 Value Barclays Capital U.S. Aggregate Bond Barclays Capital 10-Year Bellwether Barclays Capital Government Bond Barclays Capital U.S. Mortgage-Backed Securities (MBS) Barclays Capital Municipal Bond CG World Government Bond ex-U.S. JPMorgan Developed High Yield JPMorgan Global High Yield JPMorgan Emerging Markets Global Diversified S&P LSTA Loan
COMMODITIES FIXED-INCOME INDEXES

8.84% 12.59 18.67 11.56 10.86 10.66 14.07 18.47 12.90 12.44 14.58 11.16 0.30% -2.25 -1.12 0.57 1.75 -0.22 5.46 5.87 4.25 3.76 5.88% 0.01%

10.18% 8.54 11.16 0.56 -5.77 -7.54 -8.81 0.75 7.86 -0.18 10.14 4.30 7.71% 14.97 7.89 6.21 12.07 3.93 7.81 7.41 10.94 2.85 -6.21% 0.06%

S&P GSCI

CASH

BofA ML U.S. 3-Month Treasury Bill

It is not possible to invest directly in an index. Past performance is not indicative of future results.

Currency
Within commodities, we continue to favor the energy subsector. Demand for oil remains strong even in light of rising prices, and the ongoing threat of geopolitical tension, principally in Iran, could support oil prices in the months ahead. On the other end of the spectrum, we regard industrial metals as the most unattractive subsector, and particularly vulnerable to any softening of economic growth. The first quarter saw a sizeable increase in liquidity and expectations for more with the second ECB LTRO at the end of February. This environment was quite conducive for risk assets and for the carry strategy within foreign currency. With better U.S. economic data, a decreasing probability of additional quantitative easing measures (QE3) in the United States and a more dovish Bank of Japan (BoJ), the market has begun to replace the U.S. dollar with the yen as the primary funding currency.

Q 2 2012| Capital Markets Outlook

We have favored the dollar modestly as risk aversion has remained subdued. This stance is supportive of currencies that benefit from rising commodity prices and a procyclical orientation, especially those with greater trade ties to the United States. In general, exposure to currencies of commodity-exporting countries has been tempered

The dollar should remain supported against the major currencies due to positive equity flows, increased yield support, and the current phase of the global growth cycle.
due to uncertainty regarding China and its demand for commodities. Interest-rate momentum has moved in favor of the U.S. dollar and against the Japanese yen, but the dollar should also remain supported against the major currencies due to positive equity flows, increased yield support, and the current phase of the global growth cycle.

In Europe, the ECB has conducted its second three-year LTRO to ensure banks are able to achieve financing. As a result, the risk premium for the euro has been reduced as financial disaster has been averted. However, economic data remain modest at best, and there is still pressure on European sovereign bonds. This will keep interest-rate cuts a possibility and the size of the ECB balance sheet larger than that of the Fed, with the potential to get even bigger. These factors should keep pressure on the euro. We favor the dollar over the pound as the Bank of England (BoE) has increased its target holdings of U.K. government GILT bonds. This move expands the BoEs quantitative easing and should keep pressure on the currency. Relative to the euro, the pound should be supported as reserve managers continue to diversify away from the single currency.

The Barclays Capital Government Bond Index is an unmanaged index of U.S. Treasury and government agency bonds. The Barclays Capital Municipal Bond Index is an unmanaged index of long-term fixed-rate investmentgrade tax-exempt bonds. You cannot invest directly in an index. The Barclays Capital 10-Year U.S. Treasury Bellwether Index is an unmanaged index of U.S. Treasury bonds with 10 years maturity. The Barclays Capital U.S. Aggregate Bond Index is an unmanaged index used as a general measure of U.S. fixed-income securities. The Barclays Capital U.S. Mortgage-Backed Securities (MBS) Index covers agency mortgage-backed passthrough securities (both fixed-rate and hybrid ARM) issued by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). The BofA Merrill Lynch U.S. 3-Month Treasury Bill Index consists of U.S. Treasury Bills maturing in 90 days. The Citigroup Non-U.S. World Government Bond Index is an unmanaged index generally considered to be representative of the world bond market excluding the United States. The Dow Jones Industrial Average Index (DJIA) is an unmanaged index composed of 30 blue-chip stocks whose one binding similarity is their hugeness each has sales per year that exceed $7 billion. The DJIA has been price-weighted since its inception on May 26, 1896, reflects large-cap companies representative of U.S. industry, and historically has moved in tandem with other major market indexes such as the S&P 500.

The Goldman Sachs Commodity Index is a composite index of commodity sector returns that represents a broadly diversified, unleveraged, long-only position in commodity futures. The JPMorgan Developed High Yield Index is an unmanaged index of high-yield fixed-income securities issued in developed countries. You cannot invest directly in an index. The JPMorgan Emerging Markets Global Diversified Index is composed of U.S. dollar-denominated Brady bonds, eurobonds, traded loans, and local market debt instruments issued by sovereign and quasi-sovereign entities. The JPMorgan Global High Yield Index is an unmanaged index that is designed to mirror the investable universe of the U.S. dollar global high-yield corporate debt market, including domestic (U.S.) and international (non-U.S.) issues. International issues are composed of both developed and emerging markets. The MSCI EAFE Index is an unmanaged list of equity securities from Europe and Australasia, with all values expressed in U.S. dollars. The MSCI Emerging Markets Index is a free-floatadjusted market-capitalization-weighted index that is designed to measure equity market performance in the global emerging markets. The MSCI Europe Index is an unmanaged list of equity securities originating in any of 15 European countries, with all values expressed in U.S. dollars. The MSCI World Index is an unmanaged list of securities from developed and emerging markets, with all values expressed in U.S. dollars.

The Nasdaq Composite Index is a widely recognized, market-capitalization-weighted index that is designed to represent the performance of Nasdaq securities and includes over 3,000 stocks. The Russell 1000 Index is an unmanaged index of the 1,000 largest U.S. companies. The Russell 2000 Index is an unmanaged list of common stocks that is frequently used as a general performance measure of U.S. stocks of small and/or midsize companies. The Russell 3000 Growth Index is an unmanaged index of those companies in the broad-market Russell 3000 Index chosen for their growth orientation. The Russell 3000 Value Index is an unmanaged index of those companies in the broad-market Russell 3000 Index chosen for their value orientation. The S&P/LSTA Leveraged Loan Index (LLI) is an unmanaged index of U.S. leveraged loans. The S&P 500 Index is an unmanaged list of common stocks that is frequently used as a general measure of U.S. stock market performance. The Tokyo Stock Exchange Index (TOPIX) is a marketcapitalization-weighted index of over 1,100 stocks traded on the Japanese market.

10

We favor the dollar over the Japanese yen as the Bank of Japan surprised the markets with its decision to raise the target on its current Asset Purchase Program by 10 trillion to 65 trillion. The relative shift in monetary policy of the BoJ and the Fed, which now appears less likely to introduce a QE3 program following better recent economic data, has caused the yen to once again become the funding currency for the foreign currency markets. This view is subject to volatility as the BoJ meets twice in April and the Federal Open Market Committee has a two-day meeting in late April. While U.S. data remain supportive, rising U.S. yields should continue to drive the dollar higher versus the yen.

Putnams veteran senior market strategists review opportunities and risks across global asset classes
The Investment Themes of Capital Markets Outlook are developed by Putnams Global Asset Allocation Team, one of the industrys largest and longest-tenured groups dedicated to multi-asset strategies. The team monitors global markets on an ongoing basis and each quarter produces a comprehensive review of investment potential and risks. This rigorous research process guides the teams management of Putnam Global Asset Allocation Funds, Putnam RetirementReady Funds, Putnam Retirement Income Lifestyle Funds, and Putnam Absolute Return 500 Fund and 700 Fund.
Jeffrey L. Knight, CFA Head of Global Asset Allocation James A. Fetch Portfolio Manager Robert J. Kea, CFA Portfolio Manager Joshua B. Kutin, CFA Portfolio Manager Robert J. Schoen Portfolio Manager Jason R. Vaillancourt, CFA Portfolio Manager

The Asset Class Views reflect the thinking of Putnams sector research experts across global equity and fixedincome markets, distilled through senior investment leaders and portfolio managers across Putnam.
U.S. Equities Robert D. Ewing, CFA Co-Head of U.S. Equities International Equities Shep Perkins, CFA Co-Head of International Equities Fixed Income D. William Kohli Co-Head of Fixed Income Commodities Jeffrey L. Knight, CFA Head of Global Asset Allocation Currency Robert L. Davis, CFA Analyst

NOTES The opinions expressed in this article represent the current, goodfaith views of the author(s) at the time of publication and are provided for limited purposes, are not definitive investment advice, and should not be relied on as such. The information presented in this article has been developed internally and/or obtained from sources believed to be reliable; however, Putnam Investments does not guarantee the accuracy, adequacy, or completeness of such information. Predictions, opinions, and other information contained in this article are subject to change continually and without notice of any kind and may no longer be true after the date indicated. Any forward-looking statements speak only as of the date they are made, and Putnam assumes no duty to and does not undertake to update forward-looking statements. Forwardlooking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Actual results could differ materially from those anticipated in forward-looking statements. Past performance is not a guarantee of future results. As with any investment, there is a potential for profit as well as the possibility of loss. The information provided relates to Putnam Investments and its affiliates, which include The Putnam Advisory Company, LLC and Putnam Investments Limited. Prepared for use in Canada by Putnam Investments Inc. [Investissements Putnam Inc.] (o/a Putnam Management in Manitoba). Where permitted, advisory services are provided in Canada by Putnam Investments Inc. [Investissements Putnam Inc.] (o/a Putnam Management in Manitoba) and its affiliate, The Putnam Advisory Company, LLC. Diversification does not assure a profit or protect against loss. It is possible to lose money in a diversified portfolio.

Consider these risks before investing: International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Investments in small and/or midsize companies increase the risk of greater price fluctuations. Funds that invest in bonds are subject to certain risks including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses. Lower-rated bonds may offer higher yields in return for more risk. Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. Commodities involve the risks of changes in market, political, regulatory, and natural conditions. If you are a U.S. retail investor, please request a prospectus, or a summary prospectus if available, from your financial representative or by calling Putnam at 1-800-225-1581. The prospectus includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing.
In the United States, mutual funds are distributed by Putnam Retail Management.

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