The Myth of the Absolute-Return Investor

Posted: 22 May 2006

See all articles by M. Barton Waring

M. Barton Waring

Barclays Global Investors - Client Advisory Group

Abstract

The notion of absolute return investing is spreading like wildfire. Many people believe that superior returns can be achieved by managers with strong views and little regard for benchmarks. This article attempts to define absolute-return investing and figure out whether it exists. The conclusion is that all investment returns consist of a beta part (representing the correlation of the active portfolio with one or more market benchmarks or normal portfolios) and an active alpha part. Thus, all investing is relative-return investing in which active returns are earned relative to an appropriate benchmark or mix of benchmarks.

Keywords: Portfolio Management, Hedge Fund Strategies, Alternative Investments, Hedge Fund Strategies, Investment Theory, Portfolio Theory

Suggested Citation

Waring, M. Barton, The Myth of the Absolute-Return Investor. Financial Analysts Journal, Vol. 62, No. 2, pp. 14-21, April 2006. Available at SSRN: https://ssrn.com/abstract=903766

M. Barton Waring (Contact Author)

Barclays Global Investors - Client Advisory Group ( email )

45 Fremont Street
San Francisco, CA 94105
United States

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