Basically, it asks people to consider an alternative approach to portfolio construction by focusing more attention on the sequence-of-returns risk after retirement.
Why this approach? Because from Putnam's view, there are two important factors for a successful retirement planning:
- Proper asset accumulation;
- The sequence of returns immediately before and after one's retirement date.
Putnam designed four absolute return portfolios to seek a specific level of return with a specific level of volatility. The portfolios target risk and return rates are 1%, 3%, 5% and 7% above cash, annualized over market cycles (around three years). Its goal is to get a Sharpe ratio of one.
In theory, these volatility-dampening, efficiency-enhancing products could help smooth the ride for retirees, because a retiree still need to grow the money while avoiding exposure to much equity risk.
How to evaluate this type of product?
You should ask the right question - what's the objective of the fund and how effectively have the managers achieved it - then look at return versus the target and volatility versus the target, and based on that, you can judge the fund's success.