Most traditional funds make money when markets are rising and lose it when they are falling.

As such they are judged by the returns that they achieve relative to their peer group. However absolute return funds are judged on their ability to generate positive returns regardless of market conditions and the performance of other funds. They may, for example, set a target of achieving returns above a benchmark such as LIBOR. In order to thrive when markets are trading sideways or down they often employ derivatives and may allocate a significant proportion of the fund’s assets to cash to preserve capital.

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