Absolute Return Fund

The absolute return fund is the amount of profit or loss on an investment portfolio, which is usually a stock or a mutual fund. These variations are achieved over a period of time and are expressed as a percentage of the invested capital.

The absolute return investment strategies are different from the traditional mutual funds. These techniques involve short selling, futures, options, derivatives, arbitrage, leverage and unconventional assets. The absolute return is different from the relative return in terms that it is concerned more with the return of a particular asset and does not compare it any other benchmark. A mutual fund looks to produce returns that are better than its peers or the market as a whole, the absolute return fund on the other hand seeks to make a positive return by using investment management techniques that are different from the traditional mutual funds.

The absolute return strategy aims to produce a positive absolute return despite the direction in which the financial market is heading. They accomplish this by investing the assets in cash or other low unpredictable investments, then taking the hedge long and short positions of the securities in a way that collectively they are likely to have most exposures to market returns. As a result the portfolio should have a low association with the financial market performance. The returns of such a portfolio mostly depend on the portfolio manager’s skill in selecting profitable long and short positions.

In today’s financial market the absolute return approach of fund investing has become one of the fastest growing investment product all over the world and is commonly referred to as hedge fund.