What's with the 'Absolute' funds?

Robie

I have had two in portfolio (Jupiter and Cazenove) and both are doing negative (real negative)! I thought the Jupiter with Philip Gibbs might actually do well but alas no.

I thought they were suppose to make money (almost) at any time - didn't matter what happened to the market.

I thinking of getting rid of them - seem to be pointless in my eyes unless someone can convince me otherwise.

dunstonh

I thought they were suppose to make money (almost) at any time - didn't matter what happened to the market.

That is not correct. They have the aim but it doesnt mean they will.

seem to be pointless in my eyes unless someone can convince me otherwise.

I agree. They were just a fashion investment. No harm having small amounts maybe but no more than you should for any specialist investment.

mr_fishbulb

Absolute funds intend to make money regardless of whether the market is rising and falling. One way to make money in a falling market is to short shares. Short selling is practised in hedge funds (which are not available to the typical investor), but it is not allowed in funds open to the likes of us (OEICs, UTs, etc).

In 2002 a European directive called UCITS III come into effect, allowing funds to invest in derivatives. One type of derivative is a put option which effectively gives a short position, without actually short selling. Using puts (and other fancy derivatives) an absolute return fund can attempt to make money in a falling market.

Although allowed since 2002, these became popular over the past few years because falling markets were the norm, hence the rise in funds, marketing, and popularity. Although as you have seen, just because they are allowed to make money from falling prices, doesn't mean they always will.

RobertR

The Standard Life Global Absolute Return fund is one the best of the bunch, up 13% over 12 months.

However Ive been following the fund for a few months now with a view to a small punt, and their top ten holdings, sectors and countries still isnt available.

purch

I thought they were suppose to make money (almost) at any time - didn't matter what happened to the market

Absolute Funds are often marketed as minimal risk, when the opposite is true.

They use high risk hedging techniques, which can very easily backfire.

le_loup

... but cost you a fortune in charges if they get lucky and do well.