Sorry, The Game is O-V-E-R for these 2 Mutual Funds

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.

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E.J. Smith - Your Survival Guy

Preparing your investments and family for when disaster strikes.

E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.