BROWSE

Absolute Return

What is 'Absolute Return'

Absolute return is the return that an asset achieves over a certain period of time. 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 of time. Absolute return 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 benchmark.

Explaining 'Absolute Return'

The 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 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 mutual fund seeks to produce returns that are better that its peers, its fund category and the market as a whole. This type of fund management is referred to as a relative return approach to fund investing. The success of the asset is often based on a comparison to the chosen benchmark, industry standard or overall market performance.

History of Absolute Return Fund

Alfred Winslow Jones is credited with forming the first absolute return fund in New York in 1949. In recent years, this so-called absolute return approach to fund investing has become one of the fastest-growing investment products in the world and is more commonly referred to as a 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 as limited partnership or 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 long equities, such as common stock.


Further Reading


The myth of the absolute-return investor
www.tandfonline.com [PDF]
… 2 (May). Page 8. The Myth of the Absolute-Return Investor March/April 2006 … 2005. “Hedge Funds: Risk and Return.” Financial Analysts Journal, vol. 61, no … 1977. “Estimating Betas from Nonsynchronous Data.” Journal of Financial Economics, vol. 5, no. 3 (February):309–328 …

A VaR Black–Litterman model for the construction of absolute return fund-of-fundsA VaR Black–Litterman model for the construction of absolute return fund-of-funds
www.tandfonline.com [PDF]
… 2 (May). Page 8. The Myth of the Absolute-Return Investor March/April 2006 … 2005. “Hedge Funds: Risk and Return.” Financial Analysts Journal, vol. 61, no … 1977. “Estimating Betas from Nonsynchronous Data.” Journal of Financial Economics, vol. 5, no. 3 (February):309–328 …

Absolute return portfoliosAbsolute return portfolios
www.sciencedirect.com [PDF]
… 2 (May). Page 8. The Myth of the Absolute-Return Investor March/April 2006 … 2005. “Hedge Funds: Risk and Return.” Financial Analysts Journal, vol. 61, no … 1977. “Estimating Betas from Nonsynchronous Data.” Journal of Financial Economics, vol. 5, no. 3 (February):309–328 …

Polish absolute return funds and stock funds. Short and long term performance comparisonPolish absolute return funds and stock funds. Short and long term performance comparison
content.sciendo.com [PDF]
… 2 (May). Page 8. The Myth of the Absolute-Return Investor March/April 2006 … 2005. “Hedge Funds: Risk and Return.” Financial Analysts Journal, vol. 61, no … 1977. “Estimating Betas from Nonsynchronous Data.” Journal of Financial Economics, vol. 5, no. 3 (February):309–328 …

Modelling the absolute returns of different stock indices: exploring the forecastability of an alternative measure of riskModelling the absolute returns of different stock indices: exploring the forecastability of an alternative measure of risk
onlinelibrary.wiley.com [PDF]
… 2 (May). Page 8. The Myth of the Absolute-Return Investor March/April 2006 … 2005. “Hedge Funds: Risk and Return.” Financial Analysts Journal, vol. 61, no … 1977. “Estimating Betas from Nonsynchronous Data.” Journal of Financial Economics, vol. 5, no. 3 (February):309–328 …

Some properties of absolute return: An alternative measure of riskSome properties of absolute return: An alternative measure of risk
www.jstor.org [PDF]
… 2 (May). Page 8. The Myth of the Absolute-Return Investor March/April 2006 … 2005. “Hedge Funds: Risk and Return.” Financial Analysts Journal, vol. 61, no … 1977. “Estimating Betas from Nonsynchronous Data.” Journal of Financial Economics, vol. 5, no. 3 (February):309–328 …

Risk Control Through Dynamic Core-SatellitePortfolios of ETFs: Applications to Absolute Return Funds and Tactical Asset AllocationRisk Control Through Dynamic Core-SatellitePortfolios of ETFs: Applications to Absolute Return Funds and Tactical Asset Allocation
jai.pm-research.com [PDF]
… 2 (May). Page 8. The Myth of the Absolute-Return Investor March/April 2006 … 2005. “Hedge Funds: Risk and Return.” Financial Analysts Journal, vol. 61, no … 1977. “Estimating Betas from Nonsynchronous Data.” Journal of Financial Economics, vol. 5, no. 3 (February):309–328 …

Do Absolute-Return Mutual Funds Have Absolute Returns?Do Absolute-Return Mutual Funds Have Absolute Returns?
joi.pm-research.com [PDF]
… 2 (May). Page 8. The Myth of the Absolute-Return Investor March/April 2006 … 2005. “Hedge Funds: Risk and Return.” Financial Analysts Journal, vol. 61, no … 1977. “Estimating Betas from Nonsynchronous Data.” Journal of Financial Economics, vol. 5, no. 3 (February):309–328 …



Q&A About Absolute Return


What is profit?

Profit is a gain made by a person from any kind of business transaction involving monetary or non-monetary compensation.

What is absolute return?

Absolute return is the return that an asset achieves over a certain period of time. 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 of time.

Who was Alfred Winslow Jones?

Alfred Winslow Jones was credited with forming the first absolute return fund in New York in 1949.

How do you raise funds for hedge funds?

A manager raises funds by working with outside investors who invest in these types of investments based on their declared strategy involving only the purchase of long equities such as common stock."

How do wages differ from interest and profit?

Interest and profit are both forms of revenue, whereas wages are costs to employers.

What are wages?

Wages are income received for labor or services rendered.

How does absolute return differ from relative return?

Absolute returns are concerned with the performance of one specific asset and do not compare it to any other measure or benchmark. Relative returns are concerned with comparing one investment to another and can be used to determine if an investment has performed better than its peers, its category or overall market performance.

What is the definition of Absolute Return?

The return on an investment that does not take into account the value of the initial investment.

What is hedge fund investing?

Hedge fund investing involves buying stocks based on various strategies including long equities. These funds are structured as either limited partnerships or limited liability companies (LLC).