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s new Absolute Return funds, you really have only yourself to blame. Their debut earlier this year was backed by a full court press push: full page color ads, press releases,interviews, and prime real estate on thePutnam website. The four funds — dubbed theAbsolute Return 100 Fund300 Fund500 Fund, and700 Fund– intend to provide something that should be an easy sell in todays markets:Consistent performance with low volatility

. The funds aim to earn returns that outpace Treasury bills by one, three, five and seven percent respectively. Unfortunately, they seem more likely to follow in the footsteps of the vast majority of the mutual fund industrys other innovations.

On the Putnam website, CEORobert Reynoldssays that the Absolute Return funds were created asa bold response to the challenge of historically volatile financial markets,and that these funds are absolutely for all kinds of investors. Thats a nice thought, but what one person calls a bold response might also be considered, a bit more cynically, as an attempt to capitalize on the mood of the day.

The cynics have the benefit of history on their side. As you can see from the accompanying charts (click for full-sized versions), the mutual fund industry is forever fighting the last war. Whether technology funds in 2000 or emerging market and commodity funds in 2008, the industry has demonstrated a tremendous capacity for providing precisely the wrong type of investment at precisely the wrong time. The reason isnt difficult to understand: its far easier to sell something when everyones clamoring for it, which is usually just before hot sectors and styles flame out.

We have yet to see whether the new Putnam funds will fit this historical pattern, but theres no denying their goal fits the mood of the day. The question, of course, is how successful theyll be in achieving absolute returns with low volatility. In that regard, the odds are against them.

Consider the 500 and 700 funds, which are advertised asalternatives to balanced and stock funds, respectively. According to the prospectus, the fund managers will attempt to add value through the use of overlay strategies, which the prospectus defines as active trading strategies designed to provide additional total return through the exploitation of market inefficiencies and other conditions.

Exploiting market inefficiencies. So much for concerns that they wouldnt have a plan. I can only imagine walking intoDavid Swensens office atYaleto pitch my asset-management strategy:

Why didnt I think of that? Can you handle $1 billion?

will undoubtedly be accompanied by a fair amount of trading

, which will increase the funds already considerable expenses. The funds A shares have expense ratios that range from 1.25 percent for the 100 Fund to 1.65 percent for the 700 Fund (net of fee waivers), and are accompanied by front-end sales loads of 3.25 percent (for the 100 and 300 funds) or 5.75 percent (for the 500 and 700 funds).

Thus an investor who holds the 500 Fund for five years might be on the hook for total annual expenses of 3.2 percent (a 1.5 percent expense ratio, plus the annualized sales load of 1.2 percent, plus trading costs conservatively estimated at 0.5 percent). If the Treasury bill return over that period is 2 percent annually, the fund would have to return 10.2 percent annually to meet its goal.

Sounds like a stretch. If only we had some sort of a track record to determine if thats a reasonable expectation.

As luck would have it, we do. Back on page 57, in the appendix of the prospectus, were informed that Putnam manages other accounts that have investment objectives and policies that are substantially similar to those of the Absolute Return 500 Fund. So, how have they fared? Not so hot, actually.

In the year ended September 30, 2008, the other accounts lost 7.8 percent, while the Treasury Bill Index gained three percent. From their July 1, 2006 inception, the other accounts have earned 3.8 percent, compared to the Treasury Indexs gain of 4.2 percent — falling short of their target by 5.4 percent. It is, admittedly, a short time frame, but if youre setting bold targets, you should expect to have your record scrutinized.

To help alleviate concerns about performance, Reynolds points out that they have afee structure that aligns the interests of manager and investor…. If the funds dont achieve the target returns, [Putnam] will be paid less. Now were talking. How much less, exactly?

Well, you might call it a bit less. The maximum adjustment on the 100 Fund is — hold your breath — 0.04 percent. On the 300 Fund, its 0.12 percent; 0.2 percent on the 500 Fund; and 0.28 percent on the 700 Fund. So yes, they do have a bit of skin in the game, but barely enough to require a Band-Aid should they lose it.

In sum, Putman is offering a new suite of funds with high expenses, sales loads and a poor track record at the precise moment in time when they should have the broadest appeal. As my grandfather liked to say about deals like that, Cover your wallet.

© 2009 CBS Interactive Inc.. All Rights Reserved.

View all articles by Nathan Hale on CBS MoneyWatch

Nathan Hale has spent decades working in the financial services industry, during which he has researched and written extensively about personal investing, the mutual fund industry, and financial services. In this role, he uses a nom de plume because many of his opinions about the mutual fund industry and its practices would not endear him to its participants.

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