Morningstar: 'Absolute Return' Nothing More Than Marketing

Aug 29 2011 | 12:01pm ET

There is no such thing as an absolute return, one of the most influential research firms in the world has claimed.

Chris Douglas, who heads fund research in the Asia-Pacific region for Morningstar Inc., has dismissed the claims of the hedge fund industry as mere marketing. Investors who expect hedge funds to be able to produce positive returns in all market conditions will be disappointed.

"We believe that absolute return is not a categorization," he told Asian Investor. "It is a marketing term."

Douglas said that the explosive growth of absolute return funds—more than 700 have launched in the last two-and-a-half years—reminds him of 1987, a parallel that should worry investors.

"Thinking there was going to be a market correction, a lot of investors ended up on the wrong side and from a capital preservation point of view they lagged a lot of the more fully invested funds that were looking to participate on the upside."

"From a marketing perspective, absolute return is very easy to sell," Douglas added. "It's something that people can really feel more comfortable about investing back into the markets. But, if anything, that's a reason to be wary about investing in these products."

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