CandleFocus Glossary Editor
Absolute return is a term used to describe an investment strategy that seeks to make money in any market environment. This type of strategy is also known as a “total return” strategy. The goal of absolute return investing is to minimize downside risk and maximize returns, regardless of market conditions.
Absolute return strategies are typically implemented by investment professionals who manage their own portfolio or even a hedge fund. They are typically risk-averse investors who want to make money while minimizing the risk of loss.
To achieve an absolute return, an investor or portfolio manager must have a comprehensive view of the market and the financial instruments available. This includes stocks, bonds, options, derivatives, commodities, credit default swaps, and more. For example, a portfolio manager may invest in bonds when markets are performing poorly and stocks when markets are doing well. Or the manager might choose to sell short certain stocks during a market downturn and buy them back during an upturn.
The financial instruments used in absolute return strategies often give investors greater control over the potential rate of return, allowing them to adjust their strategy in order to maximize their returns when conditions are favorable and minimize their losses in unfavorable conditions.
Investors also need to consider a variety of factors when implementing an absolute return strategy, such as liquidity, volatility and the cost of trading. In addition, investors need to be aware of and mitigate potential risks associated with any investment strategy, such as market risk, interest rate risk, currency risk and inflation risk.
For individuals seeking an absolute return strategy, there are a variety of options available on the market, including mutual funds, exchange-traded funds (ETFs), managed accounts and individual brokerage accounts. Such strategies can be tailored to suit the specific needs and goals of each investor.
Ultimately, absolute return strategies are about managing risk and maximizing returns. By requiring a broad understanding of the markets and financial instruments, absolute return strategies may be a good option for sophisticated investors looking to diversify their portfolios and protect against losses in any market environment.
Absolute return strategies are typically implemented by investment professionals who manage their own portfolio or even a hedge fund. They are typically risk-averse investors who want to make money while minimizing the risk of loss.
To achieve an absolute return, an investor or portfolio manager must have a comprehensive view of the market and the financial instruments available. This includes stocks, bonds, options, derivatives, commodities, credit default swaps, and more. For example, a portfolio manager may invest in bonds when markets are performing poorly and stocks when markets are doing well. Or the manager might choose to sell short certain stocks during a market downturn and buy them back during an upturn.
The financial instruments used in absolute return strategies often give investors greater control over the potential rate of return, allowing them to adjust their strategy in order to maximize their returns when conditions are favorable and minimize their losses in unfavorable conditions.
Investors also need to consider a variety of factors when implementing an absolute return strategy, such as liquidity, volatility and the cost of trading. In addition, investors need to be aware of and mitigate potential risks associated with any investment strategy, such as market risk, interest rate risk, currency risk and inflation risk.
For individuals seeking an absolute return strategy, there are a variety of options available on the market, including mutual funds, exchange-traded funds (ETFs), managed accounts and individual brokerage accounts. Such strategies can be tailored to suit the specific needs and goals of each investor.
Ultimately, absolute return strategies are about managing risk and maximizing returns. By requiring a broad understanding of the markets and financial instruments, absolute return strategies may be a good option for sophisticated investors looking to diversify their portfolios and protect against losses in any market environment.