The absolute return or simply return is a measure of the gain or loss on an investment portfolio expressed as a percentage of invested capital. The adjective "absolute" is used to stress the distinction with the relative return measures (often used by long-only stock funds) that are based on comparison to a benchmark.[1]
The hedge fund business is defined by absolute returns. Unlike traditional asset managers, who try to track and outperform a benchmark (a reference index such as the Dow Jones and S&P 500), hedge fund managers employ different strategies in order to produce a positive return regardless of the direction and the fluctuations of capital markets.[2] This is one reason why hedge funds are referred to as alternative investment vehicles (see hedge funds for more details).
Absolute return managers tend to be characterised by their use of short selling, leverage and high turnover in their portfolios.[3][4]
- ^ Absolute return – Financial theory – Moneyterms: investment definitions and explanations. Moneyterms. Retriev ed on 2013-10-23.
- ^ Robert A. Jaeger, "All about Hedge Funds", Mc Graw Hill, pp.3–4.
- ^ Jérôme Teïletche, "Les Hedge Funds", collection répères, pp.11–13.
- ^ Robert A. Jaeger, "All about Hedge Funds", Mc Graw Hill, pp.133–145 and 184–185.
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