Absolute return at the core of a diversified portfolio

Posted on February 4, 2013

While absolute return strategies might seem new and exotic, the truth is that they should soon be familiar and essential. That’s because they offer many of the characteristics of a core portfolio holding.

Absolute return strategies fit at the core of a portfolio for two reasons — they pursue specific return targets and they seek to reduce volatility. The return targets can align with an investment goal. By comparison, a more traditional stock or bond fund has no way to set an expectation for what that return might be over a foreseeable time horizon, because it seeks to outperform a market benchmark.

Second, absolute return strategies pursue positive returns with lower volatility than traditional funds, to help diversify portfolios for all kinds of investors. Typically, these funds give portfolio managers progressive risk management tools to hedge out specific risks, and the flexibility to use cash to reduce volatility.

In this way, absolute return funds can be thought of as alternatives to investments that have traditionally been used as core holdings in portfolios. For older investors, for whom short-term securities are often used as a core holding, to younger investors, for whom a stock fund can be a core holding, there is an absolute return fund that can be a pillar in any portfolio.

Smoothing out the rough patches

Posted on January 31, 2013

How absolute return strategies can help provide a less volatile investment experience U.S. investors have had to become increasingly self-reliant in order to fund a larger portion of their retirement income for a longer period of time. Meanwhile, global economic forces have converged to significantly deplete their retirement assets. Whether these circumstances represent the beginning … Continue reading »