What are absolute return strategies?
They are investment strategies that aim to generate returns and control volatility in negative market environments. They tend to balance investments that increase in value as markets go up (long positions) with those that increase in value as markets go down (short positions). This means they invest in a broader range of instruments than a typical equity or fixed income fund.
Benefits of investing in absolute return
Absolute return strategies can differ from traditional investments in a number of ways, as they:
Can profit when markets
Are unconstrained by
Offer different levels
Types of absolute return strategies
There are many different types of absolute return strategies, however these can be broadly split into: market neutral strategies that aim to eliminate all exposure to the market and produce positive returns; and long/short strategies that use many of the same techniques but have some exposure to market movements.
What are the risks?
We believe that absolute return strategies offer great potential for investors. There are risks however, and it’s therefore important to find an experienced manager to manage these.
Investments in fixed income may be subject to the default/credit risk of issuers, interest rate risk as bond prices move inversely to changes in interest rates, and liquidity risk. Investing in higher-yielding or non-investment grade bonds might mean the risk of the issuer defaulting on the capital repayment is higher.
These strategies could also invest in emerging markets, where investments can be higher risk and more volatile, or denominated in a foreign currency meaning a change in exchange rates could affect their value. They may also use derivatives which carry similar risks, or use leverage.
Investments are subject to the risk of material losses resulting from human error, systems failures or the incorrect valuation of the underlying securities.
Past performance is not a guide to future performance. The value and income of an investment can fall as well as rise and you may not get back the amount originally invested.
WAYS TO INVEST
We offer two types of absolute return equities strategies: market neutral and directional.
Equity market neutral
Our market neutral strategies are hedged to remove market exposure and focus on extracting performance from individual equities. We manage two strategies, one focused on Europe, and one on Asia. Both strategies seek to achieve attractive risk-adjusted returns with low correlation to broader equity markets.
Our equity directional strategies aim to achieve long-term capital growth and to protect capital in down markets. They are long/short strategies but, unlike our market neutral strategies, do not aim to reduce all exposure to the market. We offer three strategies, focusing on: Europe, Asia(, as well as a global strategy.
Absolute return fixed income
Traditional fixed income strategies seek to provide a relative return in excess of a benchmark index. ASW-Absolute Return Fixed Income and ASW-Global Fixed Income Opportunities, on the other hand, are unconstrained by benchmarks and so can invest wherever our managers see the best opportunities. Each has a different risk-return profile designed to meet different investor needs, and we place particular emphasis on liquidity and reducing volatility.
Global credit hedge fund
Investors who want to protect against a market correction in the current low-yield, high-valuation environment might consider a global credit hedge fund strategy. The strategy can act defensively by allocating less when assets are expensive, and can extract the relative value from taking long/short positions in credit.
Global macro emerging markets fixed income
The case for investing in emerging markets is clear, but emerging market assets are too often subject to volatility – emerging stocks, bonds and currencies can all experience bouts of turbulence. ASW offers a solution which provides access to these assets for investors, but with lower volatility. The strategy aims to generate a positive risk-adjusted return in all market conditions by the use of long/short positions, as well as the ability to invest in a broad selection of assets.
Multi-strategy market neutral
By seeking to maintain low market risk, our multi-strategy market neutral approach can help investors secure returns that are uncorrelated to the movements of bond and stock markets. Used as part of a wider, diversified portfolio, we believe it can provide an improved risk-adjusted return whilst also helping to protect capital during periods of market stress.
Each of our strategies is run by a specialist, focused team who benefit from the wider resources and oversight of the firm, including access to wider investment teams and research capabilities.