Why allocating to absolute return strategies can benefit a portfolio of traditional assets

Absolute return funds come in many shapes and sizes. Together they form a heterogeneous industry characterized by a diversity of investment strategies that seek to generate returns that are less dependent on the direction of traditional bond and equity markets.

Absolute return strategies operate with significant variations in risk and are most often associated with hedge funds.

New and complementary sources of risk and return

Allocating to absolute return strategies can provide downside protection as managers often seek asymmetric return profiles and focus on capital preservation. By providing access to new and complementary return drivers that are uncorrelated to traditional asset classes, these strategies may further provide diversification benefits that can improve a portfolio’s risk-adjusted returns.

9-year track record in providing returns uncorrelated to the equity markets

For many investors, the primary reason to invest in absolute return funds is alpha generation where returns are driven by exposure to specific risks rather than market beta.

This objective is also emphasized in the absolute return strategies managed by DNB Asset Management. DNB launched its first absolute return fund in 2010 with an ambition to manage equity long/short strategies in a market-neutral portfolio construction with the purpose to deliver returns driven by alpha. Our global sector-focused DNB Fund TMT Absolute Return Fund now has a nine-year track record in providing returns that have been largely uncorrelated to global equity markets.

Exploiting investment opportunities while constraining market beta

With a strong belief in the merits of absolute return strategies, DNB is excited to be extending our absolute return offering through the upcoming launch of a new Multi-Asset fund. This fund will blend discretionary and systematic strategies and will invest across several markets such as equities, currencies, rates, and credit, drawing on the expertise of multiple investment teams within DNB Asset Management.

The underlying investment strategies may be expressed through both long-only and long/short strategies as well as relative value trades. The Multi-Asset Fund will thereby provide investors a broader set of investment opportunities than traditional balanced funds and will target a limited correlation and beta to traditional asset classes.

Absolute return strategies have a role to play in a wider investment portfolio

Allocating to absolute return strategies allows investors to tailor their traditional portfolios to meet individual objectives concerning returns, volatility and market correlation. Through access to non-traditional return drivers and active strategy allocation, our Multi-Asset strategy will seek to offer investors a valuable source of return and provide diversification benefits that do not rely on a negative correlation between equities and bonds which is generally the case in traditional balanced funds.

Considering the low bond yields we currently have, we believe the benefits of diversifying a broader portfolio with non-traditional return drivers will prove an efficient way to provide downside protection.

Disclaimer: Nothing contained on this website constitutes investment advise, or other advise, nor is anything on this website a recommendation to invest in our Funds, any security, or any other instrument. The funds mentioned may not be available in the markets you represent. The information on this blog is posted solely on the basis of sharing insight to make our readers capable of making their own investment decisions. Should you have any queries about the investment funds or markets referred to on this website, you should contact your financial adviser.