Sun, Mar 17, 2002 - Page 10 News List

Putnam may shut funds because its sales are declining

BLOOMBERG , BOSTON

Putnam Investments, the fourth-largest US mutual fund company, said it may close some of its 66 funds as sales and returns lag.

"Putnam is in the final stages of a comprehensive product lineup review," spokesman Matt Keenan said. "The company is considering making changes, possibly including closing or merging some funds." Putnam's stock funds went from leaders in the bull market that ended in March 2000, to laggards in the bear market because some had large holdings of technology stocks, said Kelli Stebel, analyst at fund tracker Morningstar Inc.

"They really bet the farm on tech," Stebel said. "You wouldn't think that a firm that large, with that many resources, would make such a large sector bet."

Lawrence Lasser, Putnam's chief executive, last June said company's growth stock managers were "too aggressive" during the bull market and that changes were in the offing. He said a review was underway, focused on the process managers followed and how their decisions were monitored.

As performance and sales have suffered industrywide, the number of funds liquidated or merged into other funds nearly tripled to 523 last year from 187 in 1999, according to Morningstar. Fund mergers generally require shareholder approval.

An announcement of any decision by the funds' board of trustees will be made "soon," Keenan said. The board was holding its monthly meeting today, he said. Boston-based Putnam, with US$315 billion under management at the end of last year, is a unit of Marsh & McLennan Cos, the biggest insurance broker.

The possibility that Putnam will soon merge some funds was reported earlier by the Web site Ignites.com.

At the end of 1999, the average Putnam stock fund had a three- year record in the top 37 percent of its peers, according to fund tracker Lipper. By the end of last year, the average Putnam stock fund's three-year record was in the top 53 percent.

Putnam's largest stock funds deteriorated more than average.

Its 10 largest stock funds, on average, were in the top third of their peers at the end of 1999, based on their performance over the previous three years. By the end of 2001, the funds were in the bottom 38 percent on average.

The US$16 billion Putnam New Opportunities Fund, in the top 32 percent of its peers at the end of 1999, was in the bottom 32 percent by the end of 2001. The US$3.13 billion Putnam OTC & Emerging Growth Fund, in the top 19 percent of its peers at the end of 1999, was in the bottom 2 percent at the end of 2001.

In January, Putnam fired Steve Kirson, a manager of OTC & Emerging Growth since 1996.

Stocks accounted for 79 percent of Putnam's assets under management at the end of last year.

As the funds slid, sales nose-dived. Putnam went from being the third-best selling of the 25 largest mutual fund groups in 2000 to the fourth-worst in 2001, according to Financial Research Corp, a Boston-based consulting firm. Investors pulled US$4.51 billion from Putnam's funds in 2001 after having added US$16.5 billion in 2000, according to FRC.

The poor performance of some Putnam funds during the bear market "came as a jolt, and had an impact on the confidence level that intermediaries had in Putnam," said Burton Greenwald, a Philidelphia-based mutual fund consultant, referring to the brokers who sell Putnam's funds.

Putnam is likeliest to close its most poorly performing funds, Greenwald said. "It's not likely those funds, given their recent records, are going to attract many new assets," he said.

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