Putnam Investments, founded in 1937 and managing $197 billion in assets, made its foray into the ETF space with the launch of four actively managed ETFs. The funds all rely on Fidelity’s model for nontransparent actively managed ETFs. They, their tickers and their expense ratios are as follows:
- Putnam Sustainable Leaders ETF (PLDR), 0.59%
- Putnam Sustainable Future ETF (PFUT), 0.64%
- Putnam Focused Large Cap Growth ETF (PGRO), 0.55%
- Putnam Focused Large Cap Value ETF (PVAL), 0.55%
The four funds are essentially clones of existing Putnam mutual funds or separately managed accounts.
“The introduction of these four ETFs delivers on our long-standing commitment to meet the evolving needs of investors by offering a broad range of vehicle options that access our deep, fundamentally driven investment capabilities,” Putnam President & CEO Robert Reynolds said.
PLDR looks to invest in U.S. companies of any size that embrace what the prospectus describes as “financially material sustainable business practices.” The fund’s managers evaluate companies on sustainability measures around environmental, social and governance factors as well as relying on fundamental research, the document says. It further notes that these sustainable companies tend to have a growth tilt and that the criteria used to evaluate companies are expected to evolve over time.
PFUT relies on similar criteria as PLDR but focuses on companies that, via their business activities, promote sustainable development. It implements a proprietary ratings system to rate companies on a variety of sustainability criteria. Companies are ranked from 1 (highest score) to 4 (lowest score), with only companies rated 1 or 2 considered for selection into the fund, the prospectus says.
PGRO selects stocks with characteristics in common with the components of the Russell 1000 Growth Index. The managers consider factors like valuation, financial strength, growth potential, competitive position in its industry, projected future earnings, and cash flows and dividends, according to the prospectus.
PVAL takes into account the same factors as PGRO but selects its components from companies that have similar characteristics to those included in the Russell 1000 Value Index, the document says.
The Fidelity Model
Fidelity’s nontransparent active ETF model, which underlies the four Putnam ETFs, includes a proxy portfolio that is publicly available on a daily basis along with the percentage by which it overlaps with the ETF’s actual portfolio.
What makes the Fidelity methods superior, according to Greg Friedman, head of ETF management and strategy at Fidelity Investments, is the fact that the firm uses ETFs in its proxy portfolio in addition to securities disclosed in the previous holdings report. The ETFs are selected based on their correlations with the undisclosed securities, liquidity and costs to create a close tracking differential to the actual portfolio.
Holdings are reported on a monthly basis with a 30-day lag, Friedman says, noting that this is Fidelity’s standard for disclosure on its mutual funds and that the model can adapt to any firm’s established disclosure schedule. The model has been licensed to other firms, including Goldman Sachs.
Contact Heather Bell at [email protected]