Unraveling the Absolute Return Fund

The absolute return mutual fund can be an attractive option for investors. This type of fund seeks to provide a return regardless of what happens in the marketplace. Here are a few things to consider about the absolute return mutual fund and how it works.

Absolute Return Fund

Over the last few years, many mutual funds have received attention for not performing well. Most mutual funds attempt to beat a particular financial index as a way to gauge their performance. If the financial index loses money, the mutual fund considers itself in good shape if it lost less money relative to the index. As an investor, you want to make money instead of just preventing large losses. With the absolute return fund, this is the main objective. They shoot for a positive return every single year no matter what takes place in the stock market.

How This Is Achieved

With the absolute return fund, fund managers attempt to diversify the holdings outside of the stock market. If you want to consistently beat the market, you are going to have to go outside of it to some degree. Here are a few of the popular investment options for these types of funds.

Currencies

Investing in the foreign exchange (forex) market has become very popular for many funds. The forex market boasts nearly $3 trillion per day in volume, and it represents a large opportunity for those that can trade it. With this market, you can invest in foreign currencies that have a very low correlation to the United States dollar. This strategy allows you to effectively diversify the portfolio away from the United States economy.

Commodities

The commodities market is another good choice for these types of funds. Fund managers will typically invest in things like gold or oil to provide even more diversification away from a typical stock portfolio. These things tend to move on their own and are not dependent on the rest of the economy.

Distressed Debt

Absolute return funds also get involved in distressed debt. These distressed loans are often packaged together and sold to investors. This provides another avenue for the absolute return fund to invest in outside of the normal spectrum of investments.

Hedge Fund Techniques

Absolute return funds attempt to provide a tool that is very similar to investing in a hedge fund. Many hedge funds perform well regardless of market conditions, which is the ultimate goal of the absolute return fund. Some of these funds will actually analyze thousands of different hedge funds and mimic their movements identically. They will pick the best hedge funds in the industry and do what they do. They will then re-balance their strategy every month or quarter in order to take advantage of new strategies.

Investment Considerations

This type of fund can present you with a very good way to diversify your portfolio away from the stock market. Every investor should consider investing in this type of fund on a small scale. Since the stock market has always performed well over the long run, you do not want to get completely away from it. However, it is good to make a portion of your portfolio independent of the market.

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