An absolute returns strategy aims at generating positive returns at all costs, regardless of whether the equity markets are rising or falling. It is the primary aim of the investment strategy that the investment portfolio is structured around.
Diversification of portfolio
The absolute returns strategy is centered around generating positive returns at all costs. Hence, it generally hosts a diversified portfolio with the intention of spreading risk, with different investment options generating returns in different ways for different periods of time.
Since absolute return funds are centered around generating positive returns only and are diversified in their structure, the overall risk of investment is spread across the different asset holdings in the portfolio. It, in turn, ensures less overall volatility in the returns.
Actively adjustable to equity market movements
Absolute return funds are actively adjustable to equity market movements. It basically implies that when the equity market is on a decline, or showing negative movements, it shares a negative correlation with absolute return funds. Similarly, when the equity market is rising, or showing positive movements, it shares a higher correlation with absolute return funds.
Independent of benchmarks
Contrary to its opposite, relative return funds, absolute return funds are independent of benchmarks or market indexes. It means that the returns are in absolute terms and not relative to, i.e., in comparison to, a benchmark return or a market index.