Absolute Return Funds: A Guide
Keeping down volatility | Multi-asset and conviction calls | Risks | The funds
Absolute return funds are a relatively new innovation in the world of investment funds seeking to provide investors with a return whatever the market circumstances.
Investing in different assets and with the flexibility to take positions that can benefit from market falls as well as a rising markets.
Keeping down volatilityOne of the main aspects of investment funds investing in the stock market is day-to-day volatility. This volatility can see an equity fund’s performance move up and down on a regular basis, even if the outcome over a longer period of time is a positive return. Absolute return funds may aim to reduce this volatility while still delivering a level of return. A fund may also aim to deliver investors this return over a 12 month rolling period. By having exposure to different assets or taking positions benefiting from a fall in share prices, an absolute return fund will aim to limit losses when markets are sliding. |
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| Fund Manager | Fund | Sector | Fact Sheet | More Info |
|---|---|---|---|---|
 | UK Absolute Alpha | Absolute Return | Factsheet | Apply |
 | European Absolute Return | Absolute Return | Factsheet | |
 | Diversified Absolute Return Fund | Absolute Return | Factsheet | Apply |
The value of investments and any return from them can fall as well as rise and you may not get back the full amount invested. Please ensure that you read the Important Risk Information below.
Multi-asset and conviction calls
Much of the absolute return investment strategy rests on investing in different assets, such as equities, commodities, property and bonds, and taking a view on whether a company share price or particular asset may fall in value.
The team behind the BlackRock Absolute Alpha Fund use a combination of approaches to either create a return or protect from a rocky market.
This includes ‘long investing’, believing that a company share price will rise and ‘synthetic-short investments’ which are based on a belief that a company stock price will fall, and also the flexibility to invest 100 per cent of the portfolio in cash or cash-like financial instruments.
The Standard Life Global Absolute Return Strategies Fund is managed by a multi-asset investing team which implement a variety of investment strategies while seeking to manage risk.
As a result absolute return funds’ portfolios may be relatively complex, not only investing in different assets and markets, but also taking positions on the performance of a market or asset. This could be a foreign exchange strategy that uses a financial instrument to take a position on the performance of one currency against another, such as the euro against the US dollar.
Risks
As with any fund directly exposed to markets the value of investments in absolute return funds can fall as well as rise, while there is no guarantee that the total return targets, independent of market conditions, will be met.
Also, in conditions where stock markets are rising strongly this type of fund may underperform a fund just investing in equities, as it has limited exposure to one type of asset.
As well as this, funds may make the wrong call on a particular market event or change, and suffer losses from being invested long or short at the wrong time. A strategy of having a diverse range of investments in the portfolio is designed to limit the potential impact of that risk.
The funds
There are a variety of absolute return funds available, as well as cautious managed or multi-asset funds which have similar aims to an absolute return fund but may take an approach more centred around holding a diversified portfolio.
In the Fair Investment Fund Supermarket, as well as the BlackRock and Standard Life funds, the Cazenove Absolute Target Fund and Threadneedle Absolute Return Bond Fund are also available.
Visit the Fair Investment Fund Supermarket for more information and to view our fund selection »
Important Risk Information:
This website contains information only and does not constitute advice or a personal recommendation in any way whatsoever. The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. The tax efficiency of ISAs is based on current tax law and there is no guarantee that tax rules will stay the same in the future.
Different types of investment carry different levels of risk and may not be suitable for all investors. Please ensure that you read the Important Risk Information for further details. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment and should read the product literature. If you are in any doubt as to the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.