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Absolute Return

Absolute Return

What Is Absolute Return?

Absolute return is the return that a asset achieves over a predetermined period. This measure takes a gander at the appreciation or depreciation, communicated as a percentage, that an asset, like a stock or a mutual fund, accomplishes over a given period.

Absolute return contrasts from relative return since it is worried about the return of a specific asset and doesn't compare it to some other measure or benchmark.

How Absolute Return Works

Absolute return alludes to the amount of funds that an investment has earned. Additionally alluded 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 might be thought of as uncorrelated to other market activities.

Relative and Absolute Returns

By and large, a mutual fund looks to create returns that are better than its companions, its fund category, and the market as a whole. This type of fund management is alluded to as a relative return approach to fund investing. The outcome of the asset is in many cases in view of a comparison to a picked benchmark, industry standard, or overall market performance.

As an investment vehicle, an absolute return fund looks to make positive returns by utilizing investment management procedures that vary from traditional mutual funds. Absolute return investment strategies incorporate utilizing short selling, futures, options, derivatives, arbitrage, leverage, and unconventional assets. Absolute returns are inspected separately from some other performance measure, so just gains or losses on the investment are thought of.

The History of Absolute Return Funds

Alfred Winslow Jones is credited with forming the primary absolute return fund in New York in 1949. In recent years, the absolute return approach to fund investing has become one of the quickest developing investment products in the world and is all the more commonly alluded to as a hedge fund.

Hedge Funds

A hedge fund is definitely not a specific form of investment; it is an investment structured as a pool and set up as either a limited partnership or limited liability company (LLC). A hedge fund manager raises funds by working with outside investors. The manager utilizes the funds to invest in light of a declared strategy including just the purchase of long equities, like common stock.

Hedge funds might represent considerable authority in specific areas, like real estate or patents, and may likewise take part in private equity activities. While anybody might invest in a hedge fund, participants are traditionally accredited and sophisticated investors.

Illustration of Absolute Return

As a historical model, the Vanguard 500 Index ETF (VOO) delivered an absolute return of 150.15% over the 10-year period ending Dec. 31, 2017. This varied from its 10-year annualized return of 8.37% over a similar period. Further, on the grounds that the S&P 500 Index had an absolute return of 153.07% over a similar period, absolute return contrasted from the relative return, which was - 2.92%.


  • Returns can be positive or negative and might be thought of as unrelated to other market activities.
  • Absolute return, in contrast to relative return, makes no comparison against other potential investments or to a benchmark.
  • Absolute return is the return that an asset accomplishes over a certain period.