Stress is a constant companion in the fast-paced relationship management world, and burnout is an all-too-frequent occurrence. The relentless pressure to perform and deliver results is ever-present, with expectations of sustained success from higher-ups. Itโs hardly surprising that many relationship managers find it challenging to detach from their work, leaving them struggling to strike a harmonious balance between their professional and personal lives.
So, what investment strategy provides peace of mind in these turbulent times? Enter the โabsolute returnโ approach. While you might be familiar with the term, have you honestly considered its fundamental principles, benefits, and applicability? Itโs high time for a closer look.
Understanding Portfolio Strategies: Relative vs. Absolute Returns
If youโre a portfolio manager, your primary focus is likely on achieving โrelative returnsโ rather than โabsolute returns.โ This entails striving to outperform a benchmark index or a specific market segment. You actively oversee a portfolio of assets that mirrors your chosen benchmark, aiming to surpass it through strategic adjustments, such as altering asset weights and employing various active management techniques.
Conversely, an โabsolute return strategyโ is designed to generate positive returns regardless of prevailing market conditions. This involves diversifying investments across various asset classes, including equities, fixed-income securities, commodities, currencies, and derivatives. The ultimate aim is to achieve favourable returns over a specified period, irrespective of whether the broader market is up or down.
Another key distinction lies in their risk management approaches. In an absolute return strategy, the primary focus is on minimizing downside risk. It prioritizes capital preservation and aims for consistent performance across various market environments. Conversely, the relative return approach manages risk differently. It strives to outperform a benchmark or specific market segment while adhering to predefined risk parameters.
To summarise, both strategies entail active management and risk mitigation, but they diverge significantly in their ultimate objectives and methodologies for attaining those goals. Explore the โabsolute returnโ approach to enhance your financial portfolioโs resilience and potential for success.
Source: LinkedIn (partially)
