13 October 2009

Can you eat absolute returns?

We recently stumbled across this interesting quote: 'You can eat absolute return; you can't eat relative return'. This was meant to mean that an investor should invest in funds that target an absolute (hopefully positive!) return rather than a fund that tries to outperform an index but ends up losing money at the same time. The problem is only that a fund manager may aim for a positive absolute return, - but what happens if he still manages to lose money? The investor gets no guarantee that there will not be any loss. So-called guaranteed funds offer this promise - but at a relatively steep cost (and they are only as safe as the bank/fund manager offering this guarantee).