What is an Absolute Return Fund?

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 strategies include using short selling, futures, options, derivatives, arbitrage, leverage, and unconventional assets.

What is the relative return of a mutual fund?

The relative return of a mutual fund measures how well a mutual fund has performed compared to its benchmark. For example, if you own a mutual fund with a return of 10% and the return of its benchmark is 7%, then the relative return is 3%. The absolute return is simply the return of the mutual fund. In this case, the absolute return is 10%.

Why do hedge funds use absolute returns?

The adjective "absolute" is used to stress the distinction with the relative return measures (often used by long-only stock funds) that are based on comparison to a benchmark. The hedge fund business is defined by absolute returns.

How important is absolute return & relative return?

Keeping absolute return and relative return in perspective matters when deciding how to invest. Absolute returns offer a snapshot of how an asset or investment has performed during a specific window of time. Using this metric to construct a portfolio typically centers on one goal: driving positive returns as much as possible.