Absolute Return

The absolute return or simply return is a measure of the gain or loss on an investment portfolio expressed as a percentage of invested capital. It can also be defined as the return that an asset achieves over a certain period of time. This measure looks at the appreciation or depreciation (expressed as a percentage) that an asset – usually a stock or a mutual fund – achieves over a given period of time.

Absolute return differs from relative return because it is concerned with the return of a particular asset and does not compare it to any other measure or benchmark.

In general, a mutual fund seeks to produce returns that are better that its peers, its fund category, and/or the market as a whole. This type of fund management is referred to as a relative return approach to fund investing. As an investment vehicle, an absolute return fund seeks to make positive returns by employing investment management techniques that differ from traditional mutual funds.

Absolute return investment techniques include using short selling, futures, options, derivatives, arbitrage, leverage and unconventional assets.

Alfred Winslow Jones is credited with forming the first absolute return fund in New York in 1949. In recent years, this so-called absolute return approach to fund investing has become one of the fastest growing investment products in the world and is more commonly referred to as a hedge fund.

Please follow and like us: