Putnam Investments has launched four actively managed semi-transparent ETFs on NYSE Arca replicating some of the firm’s most popular US equity strategies.
Robert L. Reynolds, President and CEO, Putnam Investments.
Two of the funds – the Putnam Focused Large Cap Growth ETF (PGRO US) and Putnam Focused Large Cap Value ETF (PVAL US) – target growth and value stocks within the US large-cap segment.
The Putnam Sustainable Leaders ETF (PLDR US) and Putnam Sustainable Future ETF (PFUT US), meanwhile, invest across the US market cap spectrum while incorporating environmental, social, and governance (ESG) selection criteria.
The funds utilize Fidelity’s tracking basket methodology for semi-transparent ETFs which protects a portfolio manager’s trading intentions while retaining certain favourable ETF characteristics such as an effective arbitrage mechanism, tax efficiency, and intraday tradability.
The ETFs are Putnam’s first. The investment giant has historically managed money via mutual funds, separately managed accounts, collective investment trusts, and private funds.
Robert L. Reynolds, President and CEO, Putnam Investments, said: “We are excited to enter the ETF marketplace today with the launch of active ETFs that employ Putnam’s time-tested, active management expertise.
“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.
“We very deliberately chose four of our leading equity strategies, including two ESG-focused portfolios, to provide the marketplace with Putnam’s unique brand of active investing combined with the benefits of an ETF wrapper.”
The ETFs
The Putnam Focused Large Cap Growth ETF selects stocks from the Russell 1000 Growth Index, choosing businesses that exhibit both a high level of growth and an above-average duration of growth. Its expense ratio is 0.55%.
The Putnam Focused Large Cap Value ETF selects stocks from the Russell 1000 Value Index that are priced below their long-term potential and where there is an identifiable catalyst for positive change. Its expense ratio is also 0.55%.
The Putnam Sustainable Leaders ETF may invest in any US-listed company that has demonstrated a commitment to sustainable business practices by, for example, managing resources, reducing waste, limiting carbon intensity, committing to fair labour practices, and promoting corporate transparency and board independence. Its expense ratio is 0.59%.
The Putnam Sustainable Future ETF may invest in any US-listed company whose products and services contribute to sustainable environmental and economic development by, for example, reducing carbon emissions, improving water quality, enhancing employee well-being, and promoting equal economic opportunity. Its expense ratio is 0.64%.
Fidelity semi-transparent model
Semi-transparent ETFs aim to avoid disclosing daily portfolio holdings while maintaining the tax efficiency, liquidity, and lower costs typically associated with ETFs.
The Fidelity model does this by publishing a proxy portfolio consisting of some actual portfolio holdings, cash, and representative ETFs that hold securities similar to those held by the ETF.
According to Fidelity, by using diversified ETFs instead of individual stocks within the proxy portfolio, the model is better able to shield the manager’s intellectual property from front-runners.
Fidelity publishes the percentage weight overlap between the holdings of the ETF and its proxy portfolio on a daily basis, helping investors understand how similar the tracking basket is to the fund’s actual holdings.
The proxy portfolio is optimized to closely track the ETF’s performance, thereby providing enough information to effectively price and trade fund shares throughout the day. Actual portfolio holdings are disclosed on a monthly basis with a 30-day delay.