5 Things to Watch Out for with Absolute-Return Funds

Absolute-return funds aim to provide consistent returns regardless of what is going on in the market place. While these can sometimes be attractive, there are a few things that you will want to watch out for.

1. Not Easily Analyzed

One of the big problems with absolute-return funds is that they are not easily analyzed. These funds typically invest in a number of different types of securities and some of them are unorthodox strategies. When you are trying to analyze these returns, you might have trouble because everyone of them is going to be different. This makes comparing absolute-return funds very difficult.

2. Categorizing

Another big problem that many people have with this type of fund is that they cannot agree on which funds should be considered absolute-return funds. There are many different funds that use alternative means of investment in order to provide returns for investors. However, not all of these should be considered absolute-return funds. If you are trying to choose one of these funds, it may be difficult for you to look at all of your options. 

3. Benchmark

With most mutual funds, you can easily compare their results to a certain financial benchmark. By utilizing a benchmark comparison, you can easily see if that mutual fund is performing well or not. If it beats the benchmark, it should be worthy of your consideration. If it does not keep up with the benchmark, then the fund is not performing up to expectations. One of the problems with absolute-return funds is that you really will not have an easily identifiable benchmark to use for comparison. Many of these funds invest in opportunities outside of the traditional financial markets. Since they use so many different alternative forms of investment, it can be difficult to know whether you are doing as well as you should with this investment.

4. Sales Charge

Something else that you will want to watch out for with this type of fund is the sales charge. Many times, these funds have excess of sales charges that can add up quickly. This is money that is going to come out of your pocket and go directly to the person that sold you your shares of the fund. Since the objective of investing in this type of fund is to bring in returns, you need to be careful how much you pay because this is going to come right out of your actual returns.

5. Aggressive Strategies

Another potential problem that you might run into with absolute-return funds is that they have overly aggressive strategies. Since the name of these funds and first that they are going to provide a return no matter what happens, sometimes the fund managers can get overly aggressive. They try to leverage the fund or use other aggressive tactics to bring in a return for the investors. Sometimes, this can work. Other times, it ends up hurting all of the investors with excessive losses.

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