Diversified Income Trust Fund Semi-Annual Report
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Putnam Diversified Income Trust Semiannual report 3 | 31 | 21 Income funds invest in bonds and other securities with the goal of providing a steady stream of income over time. FUND SYMBOL CLASS A PDINX Putnam Diversified Income Trust Semiannual report 3 | 31 | 21 Message from the Trustees 1 Interview with your fund’s portfolio manager 3 Your fund’s performance 9 Your fund’s expenses 11 Consider these risks before investing 13 Terms and definitions 14 Other information for shareholders 16 Financial statements 17 Message from the Trustees May 10, 2021 Dear Fellow Shareholder: As society continues to grapple with the Covid-19 pandemic, optimism remains tempered by concern about newer, more aggressive strains of the virus. After infection rates dropped early in the year, they began to rise again in some areas during March. At the same time, the pace of vaccinations accelerated, and several states eased restrictions on consumer activity. Markets appear to expect an improving economy. The S&P 500 Index crossed the 4,000 threshold as the calendar turned to April. In addition, yields rose in the bond market. This is typically a sign that fixed-income investors anticipate both higher gross domestic product [GDP] growth and the risk of inflation. No matter how markets move, Putnam’s portfolio managers and analysts keep their focus on researching new opportunities and potential risks. This active approach is intended to serve you through changing conditions. As always, thank you for investing with Putnam. Respectfully yours, Robert L. Reynolds Kenneth R. Leibler President and Chief Executive Officer Chair, Board of Trustees Putnam Investments Performance history as of 3/31/21 Annualized total return (%) comparison The fund — class A shares Fund’s benchmark Fund’s Lipper before sales charge ICE BofA U.S. Treasury Bill Index peer group average* Putnam Diversified Income Alternative Credit Focus Funds Trust (PDINX) 16.29 15.67 7.22 5.88 5.29 5.43 3.84 4.36 3.24 3.03 2.36 2.88 1.21 1.55 0.66 0.12 0.06 LIFE OF FUND† 10 YEARS 5 YEARS 3 YEARS 1 YEAR 6 MONTHS‡ (since 10/3/88) Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 4.00%; had they, returns would have been lower. See below and pages 9–10 for additional performance information. For a portion of the periods, the fund had expense limitations, without which returns would have been lower. To obtain the most recent month-end performance, visit putnam.com. * Source: Lipper, a Refinitiv company. † The fund’s benchmark, the ICE BofA U.S. Treasury Bill Index, was introduced on 6/30/92, which post-dates the inception of the fund. ‡ Returns for the six-month period are not annualized, but cumulative. Recent broad market index and fund performance U.S. stocks 19.07% (S&P 500 Index) Putnam Diversified Income Trust 7.22% (class A shares before sales charge) Fund’s benchmark 0.06% (ICE BofA U.S. Treasury Bill Index) U.S. bonds –2.73% (Bloomberg Barclays U.S. Aggregate Bond Index)* This comparison shows your fund’s performance in the context of broad market indexes for the six months ended 3/31/21. See above and pages 9–10 for additional fund performance information. Index descriptions can be found on page 15. * Source: Bloomberg Index Services Limited. 2 Diversified Income Trust Interview with your fund’s portfolio manager Interview with your fund’s portfolio manager Performance history as of 3/31/21 Bill Kohli discusses the investing environment Annualized total return (%) comparison and strategies driving fund performance for the The fund — class A shares Fund’s benchmark Fund’s Lipper before sales charge ICE BofA U.S. Treasury Bill Index peer group average* six months ended March 31, 2021, as well as his Putnam Diversified Income Alternative Credit Focus Funds Trust (PDINX) outlook for the fund. 16.29 15.67 7.22 5.88 5.29 5.43 3.84 4.36 3.24 3.03 2.36 2.88 1.21 1.55 0.66 0.12 0.06 LIFE OF FUND† 10 YEARS 5 YEARS 3 YEARS 1 YEAR 6 MONTHS‡ Bill, what was the fund’s investment (since 10/3/88) environment like during the Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. reporting period? Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the As calendar 2020 came to a close, news of bar chart do not reflect a sales charge of 4.00%; had they, returns would have been lower. See below and pages 9–10 multiple Covid-19 vaccines fueled hopes of for additional performance information. For a portion of the periods, the fund had expense limitations, without which returning to more normalcy in the economy, returns would have been lower. To obtain the most recent month-end performance, visit putnam.com. D. William Kohli Portfolio Manager markets, and society. In the early months of * Source: Lipper, a Refinitiv company. the new year, widespread vaccine distribution † The fund’s benchmark, the ICE BofA U.S. Treasury Bill Index, was introduced on 6/30/92, which post-dates the inception Bill Kohli is Co-Chief Investment Officer, bolstered investor optimism about the strength of the fund. Fixed Income. He has an M.B.A. from the of the economic recovery in 2021. A $1.9 trillion Haas School of Business at the University ‡ Returns for the six-month period are not annualized, but cumulative. of California, Berkeley, and a B.A. from the aid package signed into law by President Biden University of California, San Diego. Bill in early March provided a further boost to joined Putnam in 1994 and has been in the market sentiment. Recent broad market index and fund performance investment industry since 1988. Against this backdrop, rising prices for stocks Michael J. Atkin; Albert Chan, U.S. stocks CFA; Robert L. Davis, CFA; and commodities helped lift the overall market 19.07% (S&P 500 Index) Brett S. Kozlowski, CFA; Michael V. Salm; environment. Credit performed well with and Paul D. Scanlon, CFA, are also Portfolio yield spreads tightening across the quality Putnam Diversified Income Trust 7.22% Managers of the fund. (class A shares before sales charge) spectrum. [Spreads are the yield advantage credit-sensitive bonds offer over comparable- Fund’s benchmark 0.06% maturity U.S. Treasuries. Bond prices rise as (ICE BofA U.S. Treasury Bill Index) spreads tighten and fall as spreads widen.] U.S. bonds However, concerns about the potential infla- –2.73% (Bloomberg Barclays U.S. Aggregate Bond Index)* tionary impact of additional stimulus on top of an already-recovering economy led to an This comparison shows your fund’s performance in the context of broad market indexes for the six months exodus from government bonds. This drove ended 3/31/21. See above and pages 9–10 for additional fund performance information. Index descriptions can be found on page 15. longer-term interest rates higher and placed a degree of pressure on the credit market. After * Source: Bloomberg Index Services Limited. Diversified Income Trust 3 Credit quality overview A-1+ 11.4% A-1 8.1% A-3 0.9% AAA 57.3% AA 1.1% A 0.8% BBB 7.5% BB 16.8% B 11.5% CCC and below 7.8% Not rated –23.2% Credit qualities are shown as a percentage of the fund’s net assets as of 3/31/21. A bond rated BBB or higher (A-3 or higher, for short-term debt) is considered investment grade. This chart reflects the highest security rating provided by one or more of Standard & Poor’s, Moody’s, and Fitch. To-be-announced (TBA) mortgage commitments, if any, are included based on their issuer ratings. Ratings may vary over time. Cash, derivative instruments, and net other assets are shown in the not-rated category. Payables and receivables for TBA mortgage commitments are included in the not-rated category and may result in negative weights. The fund itself has not been rated by an independent rating agency. beginning the period at 0.69%, the yield on the strong at the end of 2020. High-yield bonds also benchmark 10-year U.S. Treasury note reached added considerable value. Positions in IG credit 1.74% by March 31. Similarly, the yield on the helped, albeit more modestly. 30-year Treasury note rose from 1.46% to 2.41% Our mortgage-credit holdings provided a over the same time period. further meaningful boost. The commercial Within this environment, ascending bond mortgage sector continued to heal following the yields weighed on investment-grade [IG] debt dramatic downturn that occurred during the despite spread tightening. Convertible bonds first quarter of 2020. Investor concerns that the and high-yield credit, meanwhile, posted strong Covid-19 pandemic might permanently impair gains, aided by better-than-expected corporate cash flows in certain segments of the commer- earnings and higher oil prices. cial mortgage-backed securities [CMBS] market waned as U.S. vaccine distribution became Which holdings and strategies drove the more widespread.