Absolute Return Funds

Absolute return funds aim to deliver positive returns regardless of market conditions, focusing on generating consistent gains rather than outperforming a benchmark index. These funds employ a variety of strategies, including long and short positions, derivatives, and arbitrage, to achieve their goals. The primary objective is capital preservation and steady growth, making them attractive to risk-averse investors who seek returns that are less correlated with broader market movements.

Example

An absolute return fund might use a market-neutral strategy, taking long positions in undervalued stocks and short positions in overvalued ones. This approach allows the fund to potentially profit in both rising and falling markets, aiming for positive returns even when the broader market is declining.

Key points

• Targets positive returns in all market environments.

• Utilizes diverse strategies like hedging and leverage.

• Appeals to conservative investors prioritizing capital preservation.

Quick Answers to Curious Questions

What distinguishes absolute return funds from traditional mutual funds?

Unlike traditional mutual funds that aim to outperform a benchmark index, absolute return funds focus on achieving positive returns in any market condition, independent of index performance.

How might an absolute return fund perform in a bear market?

By using strategies such as short selling and hedging, an absolute return fund can still generate positive returns even during a market downturn.

What are the potential risks of investing in absolute return funds?

Risks include the complexity of strategies used and higher fees, along with the possibility that the fund may not achieve its return goals in volatile markets.