Absolute Return Investing: Achieve Consistent Returns in All Market Environments

Updated: Oct 25

When it comes to investing, there are a lot of different strategies that can be employed in order to try and achieve strong returns. One such strategy is known as absolute return investing. Absolute return investing is a bit different from more traditional approaches in that it isn't focused on benchmarking performance against a specific index. Instead, the goal of absolute return investing is simply to generate positive returns in any kind of market environment. In this guide, we'll take a closer look at absolute return investing and some of the pros and cons of this approach.


What is Absolute Return Investing?

Absolute return investing is a strategy that seeks to provide a positive return on investment over a specified time period, regardless of market conditions. This type of investing typically uses a combination of long and short positions in various asset classes, as well as derivatives and other financial instruments, to generate profits.


How Does Absolute Return Investing Work?

In order to achieve consistent positive returns, absolute return investors must have a deep understanding of both the markets and the financial instruments they're using. They also must have strict risk management protocols in place to protect their capital.


Absolute return strategies typically involve concurrently taking both long and short positions. For example, an absolute return investor might buy shares of stock in a company that they believe is undervalued by the market. At the same time, they might also sell short shares of stock in a company that they believe is overvalued by the market. By taking both long and short positions, absolute return investors are able to profit no matter which direction the markets are moving.


The Pros of Absolute Return Investing

One of the biggest advantages of absolute return investing is that it can help investors to diversify their portfolios. By taking an absolute return approach, investors can add investments that may not necessarily move in lockstep with the overall market. This can help to reduce volatility and provide some protection against down markets.


Another big advantage of absolute return investing is that it can help investors to focus on the long term. With other approaches, investors may be tempted to sell off investments at the first sign of trouble in order to avoid losses. However, with an absolute return approach, investors can maintain a longer-term perspective and ride out short-term fluctuations in order to achieve their desired results.


The Cons of Absolute Return Investing

Of course, no investment strategy is perfect and there are some potential drawbacks associated with absolute return investing. One such drawback is that this approach requires a significant amount of expertise and experience in order to be successful. Without a deep understanding of how different investments interact with one another, it can be difficult to generate consistent positive returns using this strategy.


Another con is that absolute return investing may result in returns that are less than the overall market. This is because such strategies typically use both long and short positions, which offset each other. Thus, absolute return investing may not be suitable for investors primarily looking to maximize returns.


The Case for Absolute Return Investing

There are a few reasons why you might want to consider using an absolute return investing strategy. First of all, it can help you protect your capital during periods of market volatility. Secondly, it can provide you with consistent growth over the long term. And lastly, it can give you peace of mind knowing that your investments are working for you no matter what the market conditions are like.


How alphaAI Can Help

Absolute return investing requires extensive expertise and time that not everyone has. If not done right, you could be introducing a significant amount of risk into your portfolio. That’s why we have built a variety of strategies that automate the absolute return investing process. All of our absolute return strategies are designed to deliver consistent returns across all market environments. Learn more about our strategies here.

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