Putnam Investments is launching a mutual fund that utilizes a "risk parity" approach it has offered institutional clients for the last five years. The Putnam Dynamic Risk Allocation Fund is designed to balance portfolio risk across a variety of asset classes, executives said.

Since Putnam launched the strategy in the institutional space about five years ago it has returned about 9% a year on average. Its best year was 2009, when it retuned 35%; the worst year was 2008 when it lost 18%. The "risk parity" approach entails managing different allocations to their risk levels rather than to assets or returns. AQR Capital Management has a similar fund.

Executives at Putnam view the fund as a complement to its absolute return line of mutual funds that were launched in early 2009 and a substitute for more traditional funds. "It takes risk in a more well-distributed way," said Jeffrey Knight, head of global asset allocation at Putnam. "We are trying to get an edge in every category of the portfolio, often through lower-beta assets."

The fund can employ leverage as high as two-to-one, though Knight says it has never reached that level. In addition to the global equities and bonds, the fund canĀ  invest in commodities and REITs.