Putnam Investments is giving an ESG makeover to its $1.3 billion RetirementReady target-date series, the Boston-based company announced today.
Beginning in either the fourth quarter of 2022 or the first quarter of 2023, the funds will undergo a name change to the Putnam Sustainable Retirement Funds, according to a filing the company made with the Securities and Exchange Commission. The series’ investment objective will also get an overhaul, with the funds switching to underlying investments in Putnam ETFs that follow ESG criteria. At least 80% of assets in the series will be invested in those ETFs, according to the regulatory filing.
“There is growing interest in ESG investing among a wide array of clients and investors, and we believe this is an optimal time to introduce our own brand of sustainable investing to the defined contribution marketplace,” Steven McKay, Putnam’s head of global defined contribution investment only, said in the company’s announcement. “We look forward to providing more detail on the composition and glide path of this innovative new target-date series as we move ahead.”
The firm didn’t comment beyond its announcement, citing a quiet period associated with the SEC filing. As part of the overhaul, the funds will see a 5-basis point reduction in fees due to a lower expense cap.
Putnam has another target-date series, Retirement Advantage, which is not part of the change.
The company’s strategy of changing an existing product to an ESG-friendly model could give it a convenient way into a niche space that as of now has very few competitors. Natixis, for example, is the only ESG target-date fund provider whose products currently have a five-year performance track record — a detail that plan fiduciaries often require in considering investments. That series is the centerpiece of a forthcoming group 401(k) plan from Transamerica, FuturePlan and LeafHouse Financial Advisors. As of March, the Natixis series was included in at least 270 retirement plans, according to the company.
Another provider, BlackRock, launched its ESG target-date series, LifePath ESG Index, in 2020.
“Because it is still such a nascent space, and there isn’t much competition, there is a great opportunity here” for ESG target-date providers, said Alyssa Stankiewicz, lead sustainability analyst for manager research at Morningstar.
Asset managers have been hesitant to develop products in part because of uncertainty from regulators, Stankiewicz noted.
Putnam’s Sustainable Retirement series technically will have a long track record, but fiduciaries could have different ways of interpreting past performance based on a different set of underlying investments. When the product line undergoes its change, it will shift from holding Putnam-managed mutual funds to Putnam ESG-friendly ETFs. Currently, Putnam has two ESG ETFs in its product suite, meaning that the company will almost certainly have to add more or convert existing products to have a sufficient range of investments from which to build the revamped target-date fund portfolios.
There are some potential drawbacks to overhauling the products, Stankiewicz said, including market-timing risks and potential capital gains distributions associated with having a massive portfolio turn over all at once.
Additionally, current investors in the series could question whether they want to remain in the series amid the changes, she said.
Currently, the market for ESG target-date products in the U.S. is limited, but that could soon change. The Department of Labor is in the process of finalizing a rule that would permit, if not encourage, plan fiduciaries to consider ESG criteria in their investment selection — including using them for the default investment options in plans, which most often are target-date funds. That’s a marked departure from a rule implemented during the Trump administration, which sustainable investing proponents said has had a chilling effect on ESG within 401(k)s. The older regulation, which isn’t being enforced by the Biden administration, specifically prohibited plan sponsors from choosing ESG products as the defaults for their 401(k)s. But even though ESG target dates will almost certainly get the green light soon, that doesn’t necessarily mean money will flood into those products immediately. Plan sponsors are notoriously hesitant to be early adopters of new practices, given their wariness of regulatory changes.
A report earlier this year by Callan Institute found that 8% of larger retirement plans offer an ESG investment option, although 7% indicated they had plans to add such funds this year, and nearly a third of all sponsors said they are open to having them on their menus.
Relationships are key to our business but advisors are often slow to engage in specific activities designed to foster them.
Whichever path you go down, act now while you're still in control.
Pro-bitcoin professionals, however, say the cryptocurrency has ushered in change.
“LPL has evolved significantly over the last decade and still wants to scale up,” says one industry executive.
Survey findings from the Nationwide Retirement Institute offers pearls of planning wisdom from 60- to 65-year-olds, as well as insights into concerns.
Streamline your outreach with Aidentified's AI-driven solutions
This season’s market volatility: Positioning for rate relief, income growth and the AI rebound
