Absolute return funds are a type of alternative investment that aims to provide positive returns regardless of market conditions. They employ various strategies such as long/short equity, managed futures, global macro and multi-strategy to achieve this objective. Alternative investment partners (AIP) offers absolute return funds to institutional investors and pensions. This article analyzes AIP’s absolute return fund price and performance benchmarked against competitors. Factors assessed include risk-adjusted returns, downside protection in bear markets and ability to preserve capital.
AIP’s Absolute Return Fund Ranks in Top Quartile for 5-year Annualized Returns
AIP’s absolute return fund has delivered a 5-year net annualized return of 6.2%, putting it in the top quartile relative to peers. This top quartile performance demonstrates the fund’s ability to generate consistent positive returns across market cycles. The fund aims to provide equity-like returns with significantly less volatility through its multi-strategy approach utilizing strategies like equity long/short, managed futures and fixed income arbitrage.
The Fund Displays Low Correlation to Equity and Bond Markets
AIP’s absolute return fund exhibits a 5-year correlation coefficient of just 0.11 to global equities and 0.05 to the aggregate bond index. This low correlation highlights the diversification benefit the fund provides to traditional stock/bond portfolios. By having returns driven by manager alpha rather than market direction, the fund acts as an effective portfolio stabilizer during equity bear markets and periods of rising interest rates.
Downside Protection Evident in Stress Periods
The fund has demonstrated resilience during periods of market stress, significantly outperforming equity and balanced fund peers. For example, during the COVID pandemic drawdown from February to March 2020, AIP’s absolute return fund was down just 2.5% while global equities fell 34% and balanced funds lost 15% on average. By preserving capital better in down markets, the fund is able to consistently compound returns over full market cycles.
MER of 1.5% in Line With Alternative Fund Category
AIP charges a management expense ratio (MER) of 1.5% on its absolute return fund, which is reasonable relative to the alternative fund peer group average MER of 1.4-1.6%. The MER is justified by the diverse group of specialized managers and strategies employed in the fund that requires significant due diligence. Overall, AIP provides a top quartile absolute return fund in terms of net returns, risk-adjusted metrics, downside resilience and cost.
AIP’s absolute return fund ranks in the top quartile over the past 5 years owing to its ability to generate consistent positive returns of 6.2% above cash with equity-like returns but significantly less volatility. The fund provides diversification to traditional portfolios given its low correlation to equities and bonds. Moreover, its downside protection during bear equity markets enables superior compound growth over full cycles.