Absolute return investing is a strategy designed to achieve positive returns regardless of market conditions. The objective is to generate returns that are not dependent on the direction of the market, but rather on the skill of the manager. The goal of absolute return investing is to provide consistent, low-volatility returns over time, rather than trying to outperform a benchmark.
One of the key features of absolute return investing is the focus on risk management. The idea is to minimize the downside risk by using various strategies such as hedging, short-selling, and diversification. This allows the investor to reduce their exposure to market fluctuations and avoid significant losses.
There are various types of absolute return strategies, including long/short equity, global macro, managed futures, and market-neutral. Long/short equity strategies involve buying stocks the manager believes will perform well, while also shorting stocks the manager believes will perform poorly. Global macro strategies involve investing based on macroeconomic trends and events, while managed futures strategies involve trading futures contracts. Market-neutral strategies involve taking offsetting positions in long and short investments, such that the portfolio has little to no exposure to the overall market.
The benefits of absolute return investing include the potential for consistent returns regardless of market conditions, reduced volatility, and downside protection. However, there are also some potential drawbacks. Absolute return strategies can be complex and difficult to understand, and they often require significant expertise and resources to implement effectively. Additionally, they may have higher fees compared to traditional investment strategies.
When evaluating an absolute return investment, it is important to consider the investment manager's track record, investment philosophy, and risk management approach. Investors should also be aware of the risks associated with the particular strategy, as well as the potential fees and expenses. It is also important to have a clear understanding of the investment objectives and how they align with one's own investment goals.
Overall, absolute return investing can be a valuable addition to a diversified investment portfolio. By focusing on risk management and generating consistent, low-volatility returns, it can help investors achieve their long-term investment goals. However, it is important to carefully evaluate the strategy and investment manager before making any investment decisions.
