Absolute return is an asset class that we’ve used since the late 1990’s. When you ask many investment advisors who they use in their portfolios for their Absolute Return manager, they will stare at you blankly. Those that do answer will name a wide variety of disciplines and managers they deem as Absolute Return, almost like trying to put a square peg in a round hole. The issue? There is no real universal definition of this asset class.
What we mean by Absolute Return
To us, absolute return as an asset class means a low volatility fund that creates a constant return without large up or downswings. We feel this asset class should represent management strategies that are low volatility, moderate return, and non-corrolated to equities (meaning they doen’t always move the same direction as stocks.)
Why are they so popular?
After the recent market crash, consumers are desperately looking for investments that will get them positive returns without taking large risks. Accordingly, investment funds companies are attempting to fill the gap by touting absolute return funds as low volatility, money makers. While the low volatility is usually true, there is still no guaranteed return, even though the name implies “Returns? Absolutely!”
Jessica Toonkel wrote a great article on Absolute Return funds, and the dangers they present to consumers. You can read her article here.