Why invest in absolute return funds?

The ultimate aim for investors is to achieve high returns without the risk of losing money. This is, of course, an unrealistic expectation. To achieve consistently good returns in different economic environments requires the active deployment of investment risk. Absolute return funds seek to give investors the potential for a more favourable balance between risk and return than traditional asset class investments, e.g. equities.

There are a number of good reasons to invest in absolute return funds.

Diversification

Absolute return funds can have a low correlation with traditional investment strategies. While they invest in many of the same asset classes – equities, bonds, real estate and cash – they can use derivatives to gain additional returns and guard against market falls.

Transparency, simplicity, liquidity

A well-managed fund will allow its clients to understand how it is invested and offer daily pricing for high liquidity.

Attractive risk/return trade off

Absolute return funds are ideal for investors looking for competitive returns but with less of the risk associated with stock market investment.

Less cyclical exposure

Many absolute return funds aim to deliver positive returns in all market conditions. As a result, they tend to use cash returns as a benchmark, instead of an equity or bond index.

Regulated for clients’ security

Now that absolute return funds are widely available to retail investors, providers of authorised funds must obey rules around daily pricing, liquidity and transparency.