Thought it would be a good idea to open up the discussion and see what everyone feels the differences between the two are and how/why each would be used.
An abosolute Benchmark would be I want to earn 5% over the next year or I want enough money to buy a house for $300K in 5 Years. A relative Benchmark could be the S&P, Russells, Libor, Libor + %, anything you want to compare your performance to.
BW, you are talking about absolute return strategies? is it the same thing?
No I’m talking about an Absolute Benchmark. An Absolute Return Strategy is “supposed” to earn a Positive rate of return, NO MATTER what the Markets do. If hte markets are down 15%, then you should still be positive. A good example of this for the most part are Fund of Funds. BUT, lets not forget that HFs and FoFs do have negative months and are NOT immune to the markets. Those who think otherwise are fools and are the ones that will give you the most headaches!
What do you guys think about this:
https://www.youtube.com/watch?v=S8c8YEeYpgM
?
I’m wondering whether absolute returns are viable? Seems everyone loses sometimes. No? What would be an example of absolute return funds? I don’t think I’ve bumped into an example of an absolute return fund. Most seem to be relative? And relative to their respective country’s stock index.
How do you think Hedge Funds measure their performance? HFs would be absolute return as finding a benchmark is challenging…as well as information leakage on your strategy if you were to benchmark your returns and constrain yourself.
Makes sense.