An absolute return fund is a type of investment fund which aims to deliver profits on investments regardless of market conditions.
Absolute return funds generally do not guage their performance against standard benchmarks (such as market indexes), but use absolute return benchmarks instead. These funds typically make use of numerous investment vehicles and strategies to hedge against risk and secure ongoing returns.
Typically, the returns achieved by absolute return funds are below average in growing markets, but the losses made by absolute return funds are also below average in shrinking markets. The reason for this is that absolute return funds hedge investments by spreading risk and by hedging using long and short investment positions.
The term absolute return fund is often used synonymously with the term hedge fund. However, a hedge fund may aim to simply protect wealth against loss, while an absolute return fund aims to make capital gains.
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