Absolute Return Investing
An investment approach that targets positive returns regardless of market direction — as opposed to relative return investing, which measures success against a benchmark.
An absolute return manager is only successful if they actually generate positive returns; there is no benchmark to shelter behind. The target is typically a cash spread — for example SOFR + 4% or 5% annually — regardless of what markets do.
Common absolute return vehicles include market neutral equity funds, global macro funds, multi-strategy hedge funds, and merger arbitrage funds. For institutional portfolios, absolute return strategies serve as diversifiers — providing returns that are uncorrelated with traditional equity and fixed income markets.
Frequently Asked Questions
What is absolute return investing?
Absolute return investing targets positive returns regardless of market direction. Unlike relative return strategies measured against benchmarks, absolute return managers are judged solely on whether they generate positive returns.
What types of funds use absolute return strategies?
Common absolute return vehicles include market neutral equity funds, global macro funds, multi-strategy hedge funds, and merger arbitrage funds.
How do absolute return strategies fit in an institutional portfolio?
Absolute return strategies serve as diversifiers — providing returns that are uncorrelated with traditional equity and fixed income markets, reducing overall portfolio volatility.
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