Putnam Moves Into Bonds

Sat., May 18, 1996

Tim Quinson Bloomberg Business News

Jeffrey Vinik, you aren’t alone.

Money managers Anthony I. Kreisel and David L. King of Putnam Investments are buying Treasury bonds for the $17 billion equity mutual fund they oversee. In the past month, Kreisel and King purchased about $600 million worth of 30-year bonds for the Putnam Fund for Growth & Income.

“Bonds are a good value relative to stocks right now,” Kreisel said. “The stock market is up and the bond market is down. We look for divergences in the market and that’s what we’re seeing.”

Bonds have been a losing investment all year. Benchmark 30-year bonds are down 8.7 percent on a total-return basis, driving yields as high as 7.12 percent from a two-year low of 5.95 percent on Dec. 29, according to Bloomberg Financial Markets. The U.S. stock market’s benchmark Standard & Poor’s 500 Index is up almost 8 percent so far in 1996.

The Putnam fund was buying 30-year bonds in recent weeks with yields between 6.7 percent and 7 percent, said Kreisel, who works in Putnam’s Boston office. Today, the yield of the 30-year bond was at 6.90 percent.

“We’re trying to be opportunistic buyers and we’ll be opportunistic sellers of the bonds,” Kreisel said. “We will stay with this investment as long as we see value.”

The investment is somewhat controversial since the Putnam fund, like Vinik’s Fidelity Magellan Fund, is bought by people who want to own shares of a top-tier stock fund, not a bond fund.

Most “growth” or “growth and income” stock funds are allowed to invest at least some of their assets in bonds. Only a handful, however, invest even 1 percent in long term Treasuries.

Putnam Fund for Growth & Income ranks No. 17 of 110 growth and income funds tracked by the research group Morningstar Inc. over the past 10 years, rising at an annual rate of almost 14 percent. Magellan ranks No. 20 of 191 growth funds followed by Morningstar in the same period, up 15.3 percent a year.

Vinik is perhaps the nation’s most criticized money manager this year because of his losing bet on bonds. The investment has put Vinik’s $55 billion Magellan Fund in the bottom 5 percent of all stock funds tracked by research group Lipper Analytical Services Inc. in 1996.

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