Author Box
Articles Categories
All Categories
Articles Resources

Introduction to Absolute Return Funds

March 17, 2012 | Comments: 0 | Views: 90

Absolute Return Funds are internationally known as Hedge Funds. Hedge Funds are often deemed high risk/high return investment products. This is because they have gained notoriety for making rich investors, like George Soros, John Henry & others, very rich. Hedge Funds use diverse investment strategies, so are typically deemed out-of-reach to the average investor. In fact, Hedge Funds are deemed to have the same volatility of bonds but with a much higher rate of return.

In this article you will discover:

  • What is an Absolute Return Fund?
  • How Absolute Return Funds play a part in your portfolio

What is an Absolute Return Fund?

Absolute Return Funds are actively managed investments that aim to produce returns in both rising and falling markets through the use of a broad range of investment techniques. Traditional investment funds tend to invest directly into stocks, which may go either up or down. These Funds have greater scope to use derivatives, short positions, and non-traditional securities to ensure their positions are protected in bearish markets.

Funds are massively diverse in size, scope and philosophy. The investment strategy employed by the fund manger will dictate whether investors receive returns in the form of income, capital appreciation, or both. The risk profile of absolute return funds can also range from very conservative to very aggressive. The difference in return and risk profile is determined by the exact instruments used by the fund manager. These methodologies will be highlighted in the fund's Product Disclosure Statement or Prospectus.

The main characteristics of Hedge Funds are:

  • Non-traditional investment techniques such as short-selling, derivatives, warrants
  • Performance incentives to align investor and manager interests
  • The use of gearing to increase investment positions and potential returns
  • Accepting pf new investments to effectively implement their complete investment strategy
  • Minimal exposure to potential market actions

How Absolute Return Funds play a part in your portfolio

All fund managers try to achieve the best performance they can. Their entire reason for being is to maximize your return on investment. An Absolute Return Fund uses various investment instruments to derive the best consistent performance to you.

Benefits of investing in an Absolute Return Fund are:

  • Returns in rising and falling markets
  • Absolute Return Funds main advantage over regular stocks is that they aim to give you return in both rising and falling markets. One of the keys to successful wealth accumulation is to continually move forward. Absolute Return Funds ignore bearish and bullish trends to be consistent performers in your portfolio.

Diversification in non-traditional investment instruments

Diversification in your investment portfolio is a key to success. Your portfolio should already contain shares, bonds, property, cash, fixed interest investments. Absolute Return Funds offer another weapon in your wealth accumulation armoury. You are able to diversify your portfolio further which gives you more security and, over time, a better return on investment.


Units in these Funds are often available directly from the fund manager but are easily found, and traded, on the stock exchange. This makes your investment highly liquid. You have the ability to increase, or decrease your stake, in a particular fund at the click of a button.

Returns from both income and capital

These Funds can give you both returns in both income and capital. This spread will assist your tax position as you are not overly exposed to any one kind of return.

Risk Management

These Funds are also actively managed. The managers also tend to have large amounts of their own personal wealth invested to reassure the investors that the managers are always trying to maximize their return on investment.

Written & published by Murray Priestley

Source: EzineArticles
Was this Helpful ?

Rate this Article

Article Tags:

Absolute Return Funds


Hedge Funds


Absolute Return


Absolute Return Fund

Forex dealing is dealing in currency trading and basically includes dealing in foreign exchange while the stock market dealing is the dealing of stock in a standard market market. The two types of

By: Anil Mali l Investing > Stocks l October 25, 2012 lViews: 243

Investments in silver metal can be done by several ways. The article talks about the best ways of silver investments. Silver, the precious metal has always attracted investors for several reasons.

By: Kyles Humphrey l Investing > Gold Silver l August 17, 2012 lViews: 304

The article offers reasonable reasons for high oil prices. Crude is indispensable and it is a great source of energy. The prices on oil keep on altering, sometimes it is too high and sometimes it

By: Kyles Humphrey l Investing > Stocks l August 17, 2012 lViews: 285

Many investors are unaware of new tax that will be levied as part of the Supreme Court’s decision to uphold President Obama’s health care reform. The investment tax, as it is being referenced,

By: Ben Esget l Investing > Retirement Planning l July 17, 2012 lViews: 404

A few months ago, I was at Starbucks talking to someone about stocks and bonds, he and his wife had worked hard and were worried about the stock market. They wanted something much less risky. He

By: Lance Winslow l Investing > Stocks l July 11, 2012 lViews: 433

The first step in the risk management process is to acknowledge the reality of risk. Denial is a common tactic that substitutes deliberate ignorance for thoughtful planning.

By: Lawrence Tepper l Investing > Retirement Planning l July 10, 2012 lViews: 240

According to financial experts, mutual funds shouldn't be selected merely on the basis of past performance and fundamental analysis of indices. First of all, you need to understand that investments

By: Shabbir Bhimanil Investing > Mutual Fundsl June 16, 2012 lViews: 189

Mutual funds are a type of certified managed combined investment schemes that gathers money from many investors to buy securities. There is no such accurate definition of mutual funds, however the

By: Vaibhav Bhadangel Investing > Mutual Fundsl June 06, 2012 lViews: 222

Mutual fund investments can give investors high returns when they succeed in choosing the best mutual funds. The best mutual funds are those that facilitate diversified and multiple stocks purchase,

By: Wayne A Gormanl Investing > Mutual Fundsl May 30, 2012 lViews: 212

Past performance isn't a proper indication of future overall performance. A poor-performing fund which had massive deficits in one year shouldn't be considered to do similarly in the subsequent year,

By: Alisia Matthewsl Investing > Mutual Fundsl May 25, 2012 lViews: 191

In case you are wondering if there are risks in investing, the answer is yes. Although investing in a cash ISA involves little risk, there are higher risks involved with regards to stocks and shares

By: Gert Hael Investing > Mutual Fundsl May 22, 2012 lViews: 203

There are many advertisements offering to sell you techniques labelled how to make money the easy way but the experts know that these get rich quick schemes are a sham; just a way to separate any

By: Jack Ritchiesl Investing > Mutual Fundsl May 21, 2012 lViews: 345

Discuss this Article

comments powered by Disqus