Where do absolute-return funds fit in a portfolio?

When faced with the plethora of absolute-return (AR) funds available, the manager of a fund with a m...

When faced with the plethora of absolute-return (AR) funds available, the manager of a fund with a more traditional mixture of assets - perhaps equities and bonds in a 60/40 combination - faces a confusing choice. When the perceived risk of many AR fund strategies is added to the mix, it is unsurprising that many fund advisers prefer to keep to the status quo. The benefits of AR funds are often stated as: • Steadier return stream • Risk reduction • Diversification benefits • Exposure to non-traditional asset classes As seen in Chart 1, the CS Tremont hedge-fund index, a widely used AR...