Identification

• These investment securities can include bonds, short-term money market instruments, and stocks, among other investments, such as emerging markets.
  Absolute return funds invest in the long side of the stock market and sell some shares short. This is done as a back up in case some of the investments lose money.
  Absolute return funds mostly invest in stock type investments but some also invest in ETFs (Exchanged Traded Funds), distressed debt and equity options. The particular method of investment diversification depends on the strategy used by the fund manager.
  Absolute return funds are sometimes referred to as long-short equity funds.
  
  

History

• Absolute return mutual funds were developed in 1949 in New York City, New York. A man named Alfred Winslow Jones is responsible for its development.
  
  

Benefits

• Investors benefit from mutual funds because they allow for efficient diversification of investments. This means that if one investment fails, investors will not loose everything because not all of the money is invested in the same type of investment.
  Also, the costs of transactions are split between all of the investors, making it less expensive to invest.
  
  

Warning

• Absolute return funds can have risks, no matter how they are managed. One risk is that the adverse effects of any type of investment in a mutual fund will directly affect the fund.
  Another risk involved in mutual funds is that they rely on a benchmark, like the Standard & Poor's 500-stock index or competitor funds, not on the actual money made by the investors. A mutual fund can have a good return but have bad results. This means that even if the fund looks like it's doing well, the investors might not actually be making money.
  With absolute return funds a person is basically investing in the fund manager's skill at picking long term winning investments. The manager may rely upon computer programs specifically designed for investing. This may limit an understanding of a volatile situation.
  
  

Considerations

• Make sure to obtain information on the managers of the fund and the type of system that the absolute return funds utilize.
  Absolute return funds try to be market neutral but not all of them are. Some are just more diverse and invest in things such as emerging markets, currencies and real estate. In this way, an absolute return fund is like a multi-strategy hedge fund.