In shift away from team approach, six Putnam funds will fold and 47 workers will lose jobs

Putnam Investments said it will eliminate six of its stock mutual funds by merging them into other, larger funds and put them under the control of individual managers in the latest shake-up by new chief executive Robert Reynolds.

Twelve portfolio managers will leave Putnam in the reorganization, and another 35 staff positions will be eliminated, out of a workforce of about 2,500, Reynolds said in a conference call yesterday.

Among the funds targeted for elimination are some that made Putnam the hottest fund complex during the go-go bull market of the late 1990s, such as its OTC & Emerging Growth Fund, which recorded an astounding 127 percent return in 1999. It is down 47 percent for 2008 so far, according to data firm Morningstar.com.

Putnam had long used a team approach to managing mutual funds, a strategy most recently affirmed by Reynolds's predecessor, Charles "Ed" Haldeman, who is now chairman of a Putnam unit. Haldeman recently beefed up the teams by having specialists in quantitative analysis, who used mathematical models to examine investment opportunities, work more closely with the traditional managers who study companies' fundamental operations when deciding what to buy and sell.

"You ended up with too many chefs in the kitchen and too much complexity," Reynolds said. Although the changes would diminish the influence of quantitative managers on particular funds, he said, the move shouldn't been seen as a repudiation of their input. "Quant definitely has a place at Putnam," he said.

Many of the firm's stock funds performed poorly even before this year's tumultuous markets. So far this year, Putnam stock funds have done worse than their peers, in part from wrong bets on big financial companies such as the collapsed investment banks Bear Stearns & Co. and Lehman Brothers Holdings Inc. Its well-known Putnam Fund for Growth & Income is down 41.25 percent for the year so far, 1.39 percentage points worse than peers.

Morningstar estimates investors have withdrawn $12.6 billion from Putnam funds in the year so far, helping lower assets under management to $116 billion.

"I understand why Reynolds is making these moves, since year-to-date flows have been staggering," said Morningstar analyst Wenli Tan. She also praised combining some smaller funds into larger ones, since they tended to overlap.

The firm does have some strong investment points, especially in fixed income and in international.

The eliminated funds are: Capital Appreciation Fund and Tax Smart Equity Fund, both of which will be merged into Investors Fund; Classic Equity Fund, to be merged into Fund for Growth & Income; Discovery Growth Fund into New Opportunities; and New Value Fund into Equity Income. OTC & Emerging Growth Fund will be wrapped into the Vista Fund.

Reynolds said the impetus for the changes wasn't cost-cutting, even though other fund companies, including cross-town rival Fidelity Investments, are laying off thousands of workers because of the sharp declines in financial markets. Rather, he said, the changes are intended to improve performance.

"We would make these changes where markets were rising or falling," Reynolds said, adding, "No one cuts their way to greatness and Putnam will not do that."

Reynolds, once Fidelity's chief operating officer, also instituted plans to tie managers' pay more closely to performance and to roll out new products.

Ross Kerber can be reached at kerber@globe.com.