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Our Ultimate Guide on Absolute Return Investments Назад к блогу
Absolute Return Investments (or Alternative Investments) are believed to be well-known by many. A sharper look however shows that many investors just got familiar about a few main aspects and are still not aware of, for instance, the huge strategic and qualitative differences among the large amount of products. Here an ultimate guide with all relevant information on Absolut Return Investments.
1. What are Absolute Return Investments?
Absolute Return Investments:
• Look for a low or zero correlation level against the development of stock markets, for example.
• Belong to the category of hedge funds, and as the name hedge (protection) proposes, seek a compensation for possible losses on the markets operated by the use of various methods of portfolio management, like short selling.
• Make both short-term cash investments and “long-short” operations in the short term through different instruments. Therefore, these products are not exposed to any particular market during the time of investment.
• Depend on the talent and the strategy of the fund manager for the choice of “long -short” operations.
• Have diversified dimensions and strategies.
• Are also accessible by "non-millionaires" amounts
What are NOT Absolute Return Investments:
• ETF, CFD, structured notes (classic, bonus, discount, with warranty, etc).
• Investment funds.
• Suffer a negative performance, such as investment funds do, when there is seizure, crisis
or crash in the stock markets.
• Are accessible only by the amounts exceeding 1 million dollars.
2. Why Absolute Return?
• Avoid losses when there are falls, convulsions or crashes.
• Ensure predictability of performance (eg 20% per year, with 70% of positive months, absolute maximum drawdown less than the annual average earnings, etc).
• Avoid making investment decisions weekly, monthly, etc.
• Let the true talents work and multiply your money.
• No longer have to evaluate the time of entry into the market (for example, invest now or
wait for a "new drop"?).
• No longer have to make the selection of the best performer (stock picking) (for example:
McDonald `s performance is more promising than Starbucks’?).
Tulip Trend Fund – An Absolute Return example of both long tradition and high returns
3. On what basis do we invest your money?
The objective of our Wealth Management is to achieve a stable, uniform and little changing profit, independent of market oscillations (volatility).
This is only possible through:
|High diversification of financial instruments (asset classes), such as bonds, individual stocks, interest rates, currencies, real estate, futures, options and a variety of commodities (oil, gold, wheat, cotton, etc) with a high degree of independence between these instruments individually. In practice, this diversification is typically reached through the following financial products:
• Hedge Funds
• Direct investments in futures, options, stocks and bonds, usually performed by "managed future accounts"
• Structured Notes (or certificates)
• Classic Investment Funds (stocks, debt security funds, etc.).
|Different individual investment strategies of systemic type (computer trading systems) and / or of discretionary type (non-systemic) that apply to all above instruments.|
|Isolation of emotional factors. The decision making of many individual investments follow strict rules of mathematical analysis and can be up to 100% supported by a computerized system, thus avoiding human errors in assessment.|
The application of our portfolio strategy is obtained in practice by assigning the various individual Absolute Return Funds that combine exactly all previous points, that is: running various financial instruments and have the most diverse investment strategies.
Because these funds benefit from rising and falling markets, they can obtain long-term superior returns with lower risk.
4. How do we choose the most promising investment?
For the election of the Absolute Return funds, following steps are carefully assessed (some of them are in practice only possible through cooperation with specialized partners):
1. Formulation of goals for product selection, for instance, lower volatility through greater diversification of portfolio and higher returns due to the exploitation of special market events, etc.
2. Research: analysis of data from a global universe of funds to determine the best worldwide in the segment „Absolute Return“.
3. Correlation analysis between the potentialities of the „individual investment“ and the portfolio, in order to reduce portfolio volatility and maximal allowable drawdown.
4. Simulations: adjustments of the weight of the „individual investments“ in the portfolio followed by the measurement of performance reactions and volatility.
5. Due diligence (through cooperation with specialized partners): assessment of “management style“, team background, risk management, transparency, conditions for product trading, visit to the fund manager, etc.
6. Asset allocation analysis (through cooperation with specialized partners): determination of the „optimal“ asset allocation for individual investments based on quantitative and qualitative analyses, supported by mathematical algorithms and computational tools.
5. Absolute Return Basics
Quantitative and Qualitative Analysis
Quantitative criteria are based on facts related to historical data (the value or price movement over time), results, percentage of positive months, etc. More important, however, is the analysis of qualitative criteria such as skills and knowledge of fund manager and the possibility of frequent communication with him. These points are crucial for selection. Only this way, we can effectively recognize the situation of operated markets and make periodic adjustments, ensuring a constant portfolio optimization.
Exactly at this point, the strength of Loyal Partners business is shown. Through direct and independent contact with product issuers and fund managers, we can make decisions more rapidly, without conflict of interests or corporate obligations, in contrast to bank managers. And in this business, taking effective early actions frequently means better performance.
Long or Short?
The possibility of investing in falling markets is still reason for scepticism for many investors. However without any reason: „short selling” or speculation in falling markets is possible not only in dealing with futures markets, options or individual stocks, but also through derivative instruments such as structured notes, CFDs, ETFs, etc. Thus, the investor can choose the direction of operations. The short selling transaction is transparent and functionally identical to a “long” investment (bet on high).
Alpha or Beta character?
The measurement of a price change directly compared with developments in its specific market, is known as Beta. Alpha, in turn, represents the extent of a price change independent and uncorrelated with specific market developments.
Factor Alpha (α):
• Usually long-short
• No correlation with reference markets, no accurate benchmarking
• Principle of profit „always“
• Talent (strategy) pays, not the market chosen; manager background makes the difference.
Factor Beta (β):
• Usually long-only.
• “the market runs” (the market moves by itself)
• Indexation to a value (interest rate, gold, Dow Jones index, etc) and search of a price plus against it; well-defined benchmarking
• Typical of „stock picking“, that is, always looking for new „outperformers“
Loyal manages the allocation of its portfolio to achieve a pronounced Alpha character. Thus, until 50% of capital are allocated in individual Absolute Return Investments, provided long-short. Therefore, you can equally benefit from up and down markets, achieving positive performance even during crises and crashes.
6. To Invest with Loyal is interesting for me?
If you one or more of the following points appeal to you, you should consider making an investment with Loyal:
You have all your patrimony located in your country of origin and you do not feel confident that these are safe there.
You want to isolate risks of social-political-economic-currency nature.
You have made investments that only benefit from the rise of the markets (stocks, investment funds, commodities, currencies, etc.).
You do not know how to multiply your money in cycles of down markets.
You only know the universe of alternatives at your local stock exchange and want to invest as the best global investors, i.e., with international diversification.
You want to access all markets, instruments and financial products worldwide (other stock exchanges, international equities, derivatives, commodities, other currencies, ETF, international bonds, etc.).
You want to take advantage of the fantastic growth at other emerging markets, such as China, India, Russia, Eastern Europe, etc.
You are looking for a financial advice 100% neutral and independent, working ONLY for you and that receives no commission from any other person.
You have a capital investment of over $ 100,000.
If you answered at least two of these questions with YES, you should immediately consider the possibility of opening an account with Loyal and investing in Absolute Return products!Закрыть