Jeff Benjamin on the Absolute Return Scam

With markets grinding sideways in exaggerated oscillations, all of a sudden everyone is an “Absolute Return” guy these days.  Except they’re not, as Jeff Benjamin at Investment News reminds us…

The idea of a fund that strives to achieve a positive return, as opposed to one that aims to beat a benchmark regardless of its performance, is a wonderful idea and something for which all money managers should be striving.

But in adopting the name “absolute return,” as a growing number of mutual funds are doing, it seems that the fund industry is pushing the limits of marketing by implying that a fund will generate positive returns all the time, regardless of market conditions.

“I think calling a mutual fund “absolute return’ borders on a scam,” said Bert Whitehead, a fee-only adviser and president of Cambridge Connection Inc.

“I think it’s pretty blatant misrepresentation,” he added. “I wouldn’t touch them.”

The trouble with “absolute return” as a strategy is that it’s more difficult to define than you’d think and when the markets stage a rally, you feel like your portfolio is stuck in first gear.  People plowed into “absolute return” funds following the Great Debacle of 2008 – at exactly the wrong time.  It appears that after this summer’s rough-n-tumble macro environment they are now doing the same.

Investors are always fighting the last war.  This time around they ought to be very careful about which products claim to be absolute returns-oriented and which really are.


Absolute Returns is Absolute Nonsense (Investment News)



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