Absolute Return Funds

maradonash

Being a young and relative newbie to investing with Fund Managers, i still find it all quite exciting particularly with some of the gains made since the markets bottomed in March.

That said, i am realistic and i am aware that i need to reign myself in sometimes in the knowledge that the bull run will not be never ending nor predictable (who'd even have thought about Dubai before yesterday?).

What i would like to do though is find a realistic alternative to cash and i wondered if Absolute Return funds suit this need? Essentially, i want something relatively cautious that will have a 90-95% chance of outperforming cash over the next 12 months, regardless of uncertain market conditions. Given the low interest rates, i wouldn't have thought this would be too difficult but as i said at the top....i am just a newbie!!

Grateful for any comments.

dunstonh

What i would like to do though is find a realistic alternative to cash and i wondered if Absolute Return funds suit this need?

No. They are not an alernative to cash. Some of them can be low risk but some can be quite high risk. Most tend to fall around the cautious mark or cautious to medium.

Essentially, i want something relatively cautious that will have a 90-95% chance of outperforming cash over the next 12 months regardless of uncertain market conditions.

You could also say that they have a 90-95% chance of underperforming cash over the next 12 months as well and giving back less than you pay in. If you accept that risk then that is fine. If it is only 12 months you are looking at then you shouldnt really be looking at investments but stick to savings.

Given the low interest rates, i wouldn't have thought this would be too difficult but as i said at the top....i am just a newbie!!

Potentially it isnt. However, potential is that they can go down as well as up. Even a low risk absolute fund can lose 20% in 12 months.

Jonbvn

Absolute funds are not a good alternative to cash. They may form part of a more diversified potfolio.

If you are looking for a better return than cash, then bonds are probably the best bet. Of course bonds go from gilts all the way to junk corporate bonds.

maradonash

dunstonh wrote: »

If it is only 12 months you are looking at then you shouldnt really be looking at investments but stick to savings.

Good point. I should perhaps have pointed out that the rest of my portfolio is very much based on the long term and i know time should smooth out any loses.

That said, i thought that the mantra for an Absolute Return Fund was to return gains in any market conditions. I know nothing is certain but this bold statement implies that it should make gains even in the short term.

I will of course still be keeping a good lump in cash but it just pains me to have too much sat there earning next to nothing.

The other option i was considering was the Invesco Perpetual Distribution fund which is 65% bonds. On the face of it, this would appear to be the more cautious.

Reaper

maradonash wrote: »

That said, i thought that the mantra for an Absolute Return Fund was to return gains in any market conditions. I know nothing is certain but this bold statement implies that it should make gains even in the short term.

That's only an aim and depends on the manager making the right calls. For example a while back I read about one manager saying he expected gilt prices to fall and was going to short them. No long afterwards the government announced extra quantitative easing which pushed prices up making his gamble backfire.

Managers can make money in both rising and falling markets, but only if they correctly guess which way it is going to go.

ses6jwg

I have £1200 in the blackrock absolute return. held for 3 months and fluctuates between a 2.3 and 3.5% gain.

purch

The aim/remit of Absolute Return Funds might be Cautious, but the methods they can employ to achieve the Cautious Return can in many ways be considered quite high risk.

I would better term them, Absolute Faith in the Manager Funds, as the fund manager probably has a bigger influence on overall return in these funds than any other sector.