Chaseside Financial Services Ltd

Talking Money

• Q2 2009
•   2009/10 Tax Tables
•   Housing Market Fortunes
•   Return Funds
•   Where should i put my money?
•   Forced to delay retirement
•   Corporate Retirement Planning
•   Retirement Matters
•   Budget 2009
•   Budget 2009
•   A Budget for business
•   Post-Budget wealth check
•   Financial security

Absolute return funds

Making money during both rising and falling markets

Absolute return funds aim to make money for investors during both rising and falling markets. They look to give a better return than holding cash by using the powers for shorting stocks – that is, selling shares they do not own in the hope that the price will fall –and other hedging techniques that are now open to conventional fund managers under European directives.

Investors should not expect the funds to make money for them month in, month out. Over the medium term they aim to produce positive returns, but not all absolute return funds are that consistent. In the retail market, most absolute return funds aim to be cautiously managed and shouldn’t take on too much risk.

These funds can be expensive, so the onus is on the managers to justify their fees. Most will charge a flat annual fee, plus a performance fee which is generally a percentage of the return above Libor, the interest rate that banks charge each other.

These are very specialist investments and professional advice should always be taken to ensure that they meet your risk-for-reward requirements. Investors should look carefully at the fund in which they invest, as the asset class will include hedge funds, which have a wide range of risk profiles and objectives.

If a fund promises exceptional returns, then it will not be cautiously managed; likewise, if it is cautiously managed, it could underperform in a bull market. These funds should provide stable returns and form part, but not too large a part, of a well-diversified portfolio. They can be used to reduce the volatility of investments, helping to maximise returns.

The value of investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not a guide to future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent finance acts.