Bloomberg Anywhere Remote Login Bloomberg Terminal Demo Request


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Bloomberg Customers

A Conservative Fund's Careful Picks

By Palash R. Ghosh Founded in 1937, George Putnam Fund of Boston/A (PGEOX) is one of the oldest mutual funds in the world and possibly the very first balanced portfolio.

Lead manager Jeanne Mockard took over the $5.3 billion fund, one of Putnam's most conservative products, five years ago. Her team of equity and bond specialists includes Michael Abata, Kevin Cronin, Jeffrey Knight, and Raman Srivastava. They work together to construct a portfolio of large-cap value stocks and high-quality fixed-income securities that generate reasonable returns in bull markets and provide protection against losses during down markets.

DIVIDEND EMPHASIS. For the one-year period ended Aug. 12, George Putnam Fund gained 12.5%, vs. 17.7% for the S&P 500 index and 13.8% for the average U.S. balanced fund. For the three-year period, the fund registered an average annualized return of 9.5%, vs. 12.6% for the index and 10.1% for the peer group. However, for the longer five-year period, the fund has soundly beat the index and similar funds, rising 5.1%, vs. 2.1% for its peers and a loss of 2% for the benchmark index.

Volatility, as measured by standard deviation, comes in at 8.25%, a hair above the peer group's 8.13% average. The fund's 1% expense ratio matches that of the peer group. Based on the fund's risk and return profile, Standard & Poor's ranks it 3 Stars.

George Putnam Fund essentially runs with three moving parts. The equity and bond portions are actively managed, and the team determines the most attractive allocation between them.

Using a proprietary quantitative model and fundamental research, the equity team looks for large-cap companies that are undervalued and on the verge of significant price appreciation, based on some identifiable catalyst. "We believe that well-established companies that pay regular dividends outperform the overall market over the long term," Mockard says.

WINNING COCKTAIL. The bond portion of the fund is run against the Lehman Aggregate Index, so it includes primarily high-quality investment-grade corporate bonds, mortgage-backed securities, and Treasuries. Typically, these securities have intermediate to long-term maturities.

Overall, the fund likes to maintain a 55% to 65% allocation to stocks, and a 35% to 45% stake in bonds. As of July 31, 59.7% of the fund's assets were invested in stocks, 25.7% in mortgage-backed securities, and 11.2% in corporate bonds and notes.

The fund is about 5% underweight in bonds, which doesn't come as a surprise given the Federal Reserve's commitment to tightening credit. Within the bond exposure, Mockard is underweight in corporates. "This has helped us, given the historic downgrades of Ford Motor (F) and General Motors (GM).

LEANING TOWARD INSURERS. As of July 31, the fund's top 10 equity holdings were ExxonMobil (XOM), Citigroup (C), Chevron (CVX), Bank of America (BAC), Pfizer (PFE), Altria Group (MO), U.S. Bancorp (USB), Tyco (TYC), Hewlett-Packard (HPQ), and IBM (IBM). These positions represented 17.6% of total assets.

The top industry sectors as of that date include financials, 26.7%; energy, 12.7%; technology, 10.4%; health care, 10.2%; consumer cyclicals, 10.2%; consumer staples, 7.9%; utilities, 4.6%; and capital goods, 4.6%.

Financials represent a slight overweight position to the S&P 500 index. Within this large and diverse sector, the fund is underweight in banks and overweight in insurance companies. "Insurance stocks are less sensitive to interest rates, which are, of course, rising," she notes. "When the yield curve is flattening and spreads are squeezed, you don't want to be invested in banks."

STICKING TO VALUE. Mockard says insurance companies have enjoyed improved pricing over the last six to nine months, but their stock prices have continued to lag, making for a very attractive investment opportunity. The fund's insurance holdings include St. Paul Travelers (STA), Hartford Financial Services Group (HIG), and Chubb (CB).

The portfolio is also overweight in energy, even though the sector has skyrocketed along with rising crude oil prices. However, as a value buyer, Mockard has moved away from aggressive names -- particularly stocks in the surging exploration and production sector -- and into integrated oil companies, which are trading at much cheaper prices.

"We're still using a value strategy within the energy sector," she explains. "For example, Chevron has lagged the market and its energy peers because it's a little less sensitive to commodity prices, possessing both upstream and downstream operations, including refining, marketing, transportation, and the petrochemicals business." Chevron, which recently completed a massive $18.3 billion merger with Unocal, has seen its stock rise about 18% year to date. The stock's p-e is at a very modest 9.3.

EYE ON CHINA.Mockard currently has a slight overweight in drugs stocks. "Broadly speaking, the drug sector has gone through a transition from growth to value," she says. "They have had to reinvent themselves. Some pharma companies are talking about cutting their salesforces. They're focusing more than ever on the bottom line as they have to compete more with generic-drug companies and the reimportation of cheap drugs from Canada. We wanted a significant allocation in health care because of the attractive valuations we found there."

Pharma giant Pfizer, Mockard's most prominent drug holding, has endured a severe price decline after reports of medical risks related to its arthritis drug Celebrex. "Pfizer kept the product on the market, and its remaining drug pipeline looks very promising," she says.

Although she invests almost exclusively in domestic stocks, Mockard has an eye on China, a country whose booming economy, she feels, will have a great impact on the future performance of U.S. businesses. She places heavy emphasis on meeting with company management and recently visited China, where increasing numbers of U.S. corporations are setting up shop.

EVERYBODY'S DOING IT. While Mockard has no plans to invest in Chinese stocks, she believes the growing importance of China to the global economy cannot be ignored, particularly with respect to energy. "As a net importer of oil, China has a great impact on global oil prices," she says. Global oil players like ExxonMobil and Chevron will depend more on Chinese demand to drive future growth.

It's not only energy that will feel the effect. "China is also buying steel and other commodities, affecting their prices," she says. "In fact, there are very few sectors of the U.S. economy that aren't looking at China to expand their business."

Ghosh is a reporter for Standard & Poor's Fund Advisor

blog comments powered by Disqus