What Is Absolute Return?

Absolute return is the return that an asset achieves over a ജspecified period. This measure looks at the appreciation or depreciation, expressed as a percentage, that an asset, such as a stock or a mutual fund, achieves over a given period.

Absolute return 澳洲幸运5开奖号码历史查询:differs from relative return because it is concerned with the return of a particular asset and does not compare it to any other measure or 澳洲幸运5开奖号码历史查询:benchmark.

How Absolute Return Works

Absolute return refers to the amount of funds that an investment has earned. Also referred to as the total return, the absolute return measures the gain or loss experienced by an asset or 澳洲幸运5开奖号码历史查询:portfolio independent of any benchmark or🌜 other standard. Returns can🧸 be positive or negative and may be considered uncorrelated to other market activities.

Relative and Absolute Returns

In general, a 澳洲幸运5开奖号码历史查询:mutual fund seeks to produce returns that are better than its peers, its 澳洲幸运5开奖号码历史查询:fund category, and the market as a whole. This type of fund management is referred to as a 澳洲幸运5开奖号码历史查询:relative return approach to fund investing. The success of the asset is often based on a comparison to a 🌼chosen benchmark, ind🥃ustry standard, or overall market performance.

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 澳洲幸运5开奖号码历史查询:short selling, futures, options, 澳洲幸运5开奖号码历史查询:derivatives, 澳洲幸运5开奖号码历史查询:arbitrage, leverage, and unconven🥂tional assets. Absolute returns are examined separately from any other perform🔜ance measure, so only gains or losses on the investment are considered.

The History of Absolute Return Funds

Alfred Winslow Jones is credited with forming the first absolute return fund in New York in 1949. In recent years, the absolute return approach to fund investing has become one of the fastest-growing 澳洲幸运5开奖号码历史查询:investment products in the world and is more commonly referred to as a 澳洲幸运5开奖号码历史查询:hedge fund.

Hedge Funds

A hedge fund is not a specific form of investment; it is an investment structured as a pool and set up as either a 澳洲幸运5开奖号码历史查询:limited partnership or澳洲幸运5开奖号码历史查询: limited liability company (LLC). A hedge fund manager raises funds by working with outside investors. The manager uses the funds to invest based on a declared strategy involving only the purchase of 澳洲幸运5开奖号码历史查询:long equities, such as common stock.

Hedge funds may specialize in specific areas, such as real estate or patents, and may also engage in 澳洲幸运5开奖号码历史查询:private equity activities. While anyone may invest in a hedge fund, participants a🍨re traditionally accredited and sophisticated investors.

Example of Absolute Return

As a historical example, the Vanguard 500 Index ETF (VOO) delivered an absolute return of 150.15% over the 10-year period ending Dec. 31, 2017. This differed from its 10-year annualized return of 8.37% over the same period. Further, because the S&P 500 Index had an absolute return of 153.07% over the same period, absolute return differed from the relative ꦏreturn, which was -2.92%.