Managing the risk of absolute returns

Absolute returns

Key to choosing the right absolute return fund is understanding its performance target and ensuring it is not taking more risk than necessary to achieve that goal. By Mark Mathias, chief executive, Dawnay Day Quantum Limited

Fund managers are finding that absolute return investing and the management of target return funds is a lot more difficult than they originally envisaged. A number of funds aim to deliver a target return of Libor plus a certain percentage per year. This creates the impression in the investor's mind that they will receive that level of return year in and year out. In actual fact, the promise of greater than risk-free returns (especially after fees) contains the implicit assurance that the investment manager has got to take risk in order to generate the returns. This is a given, since the h...