investing

absolute return

An investment objective seeking positive returns regardless of market conditions, rather than outperforming a benchmark index.

Example

“The absolute return fund earned 5% while the S&P fell 20% — achieving its goal of positive returns in all environments.”

Memory Tip

ABSOLUTE RETURN = make money no matter what the market does. Not beat the index — just be positive.

Why It Matters

Absolute return focuses on making money in any market condition rather than just beating an index, which is important for investors who cannot afford significant losses and need consistent positive returns to meet financial goals like retirement or education funding.

Common Misconception

Many people believe absolute return strategies guarantee profits or eliminate all losses, but they simply aim for positive returns and may still lose money during severe market downturns or poor investment decisions.

In Practice

An absolute return fund manager might invest in a mix of stocks, bonds, and alternative assets to target 8 percent annual returns. If the stock market drops 20 percent in a year, the fund could still aim to deliver positive returns by shifting to defensive positions, whereas a traditional fund tracking the market would lose 20 percent alongside the benchmark.

Etymology

ABSOLUTE (in total, regardless of market) RETURN. A RETURN measured in ABSOLUTE terms, not relative to a benchmark.

Common Misspellings

absolute-returnabsolute returnnabsolute returm

Related Terms

hedge fund benchmark

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