Absolute Return funds - a useful Portfolio Diversifier

Absolute Return funds are a relatively new concept and we are seeing more funds of this type launched into the investment market, particularly since the Credit Crunch.

Many investors are sceptical about these type of funds, and much of this sceptism is justified, with some funds just not performing as expected. However, if you do your research correctly, there are some good funds available and they should allow you to hopefully achieve positive terms over a year, independent of economic conditions. 

The reason I like these funds is that they can help diversify returns within a portfolio, as they are often uncorrelated with other assets classes. Also consistent absolute positive returns can underpin a portfolio nicely and provide downside protection in falling markets. 

Many of these type of funds don't target large returns, maybe only 5% above cash and it is important to have expectations of returns to help avoid disappointment. Some will also exhibit more volatility than others, so make sure you pick a fund to suit your style. 

Whilst not for everybody I would definitely consider a portion of my portfolio to be allocated to absolute return funds. Insight have good products; Insight UK Market Neutral fund is a very consistent fund and should return around 4% per annum with at current interest rates. Standard Life have their juggernaught fund, GARS, which is £25bn in size! It is a little more volatile but again has exhibited very strong past performance and has a credible strategy and process.