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Absolute Return Index

Absolute Return Index

What Is the Absolute Return Index?

The term absolute return index alludes to a stock index intended to measure absolute returns on investments in hedge funds. Hedge funds are viewed as alternative investments that utilization pooled funds to earn returns for their investors. The index was made to compare the performance of an individual hedge fund against the hedge fund market as a whole. It is a composite index comprised of five different indexes.

How the Absolute Return Index Works

Hedge funds are alternative investments that pool money together from various investors. These investments ordinarily utilize riskier investment strategies and investments that increase the possibilities of losses. Since they require a larger initial investment, they target accredited investors as opposed to the average investor. These funds utilize the absolute return approach to investing.

Some hedge funds have a benchmark, or performance standard, which they are attempting to accomplish to be viewed as a triumph. Others will have a set rate which they aim to deliver. For instance, a 20% return north of 12 months might be viewed as exceptionally fruitful for a fund that invests vigorously in real estate. This equivalent return isn't as promising for a fund that invests in a foreign currency.

With an. absolute return index, investors can undoubtedly perceive the achievement or shortfalls of a specific investment as it stacks facing the market as a whole and can do as such without filtering through the multifaceted subtleties of every transaction. The absolute return index is just helpful while dealing with the hedge fund market. Different markets, including mutual funds, stocks, and securities have their individual decimal standards for measuring to compare products and determine profits and risks.

Investors may likewise utilize the absolute return index to compare one hedge fund to another. Due to the idea of hedge funds, and the different strategies they use to earn a profit, achievement can appear to be unique from one fund to another. Hedge funds can invest in just about anything, which further confounds the ability to compare funds in view of their earnings.

Hedge fund investors can utilize the hedge fund absolute return index to measure the returns of their investments.

Absolute Return Index versus Different Factors

Investors have different factors they can consider outside of indexes to compare funds. These incorporate the amount of fund capital accessible to invest and costs associated with dealing with the hedge fund. A hedge fund manager can survey these different metrics and prompt investors on the best markets for their investment. Contingent upon long-term objectives and accessible capital, hedge funds may not be the best investment for everybody.

The risk profile is somewhere else where an investor might wish to compare one fund against another. There are different layers of risk associated with some investment funds. While one fund might have a more substantial return on investment (ROI), the risk might be higher. This additional risk can be beneficial, as the profit will be higher on the off chance that the investment pays off, yet investors have the potential for higher losses in the event that it doesn't.

Due to the numerous complexities of hedge funds, there are extra risks for the investor to consider. These risks incorporate the requirement for funds to be tied up for long periods of time, large amounts of capital placed in a single venture with little diversification, and the utilization of borrowed money. These will increase the risk, yet may likewise increase the reward.


  • The index compares an individual hedge fund's performance against the hedge fund market as a whole.
  • It is a composite index comprised of five different indexes.
  • The absolute return index is a stock index intended to measure absolute returns on investments in hedge funds.