Morningstar Investment Management
Absolute Return Strategies
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Absolute Return Strategy Characteristics
3 Designed to deliver moderate, consistent equity-like returns
while minimizing volatility
3 Helps investors manage risk independent of the broad
equity markets
3 Provides downside protection in poor market environments
3 Emphasizes non-traditional asset classes, offering
highly diversified exposure across geographies, sectors,
and time horizons
Investor Profile
The Absolute Return Strategies may be appropriate for
investors who:
3 Desire a flexible and nimble portfolio but need to
manage volatility
3 Want to capture opportunities in strong market environments
3 Seek downside protection in weaker markets
Risk-Managed Portfolio Construction
Absolute Return Strategies employ a risk-managed approach
that includes combining open-end mutual funds from
various asset classes that exhibit low correlations with each
other. The strategies also favor funds in which the fund
managers stress capital preservation and set absolute
performance as the primary goal. It is diversified across asset
classes and may invest in global equities, global fixed
income, real estate, natural resources, and cash, as
well as open-end mutual funds that employ hedged and/or
alternative investment strategies.
These strategies may include long-short, hedged equity,
convertible arbitrage, and merger arbitrage. This
broad level of diversification aims to enhance the portfolio’s
risk-adjusted performance. Due to the fairly unique
Inside the Absolute
Return Strategy
To help meet its targeted
risk and return objectives,
this strategy uses funds that
tend to fall into one of
three categories:
Opportunistic Funds
The managers of these funds invest across
multiple asset classes. Each manager may employ
a range of techniques as they seek to generate
targeted levels of absolute, not relative, return.
nature of the securities in which the underlying funds
may invest, the performance of the portfolio may
not be highly correlated to traditional asset classes. While
the portfolio will have exposure to various asset classes
for diversification purposes, the portion of assets dedicated
to certain segments of the market will change to take
advantage of relative opportunities presented in the market.
Superior Portfolio Management
Our investment professionals combine extensive
quantitative analysis with rigorous qualitative due diligence
to identify fund managers that we believe offer the
best chance to consistently add value on a risk-adjusted
basis. We conduct on-site fund manager visits, phone
interviews, detailed portfolio analysis, and performance
attribution. Using a proprietary evaluation system,
we award the highest scores to fund managers who
employ a prudent, repeatable investment process
that has yielded strong results over time.
We strategically select appealing funds that contribute
to our Absolute Return Strategies. We then continually
monitor the portfolio and its holdings to ensure that
it remains consistent with its stated investment objectives.
A Powerful Solution for Investors
What’s the result of combining sophisticated portfolio
construction, discerning manager research, and a variety
of alternative investment strategies?
A low-volatility investment solution that seeks capital
appreciation and protects against loss.
Non-traditional Diversifiers
These strategies focus on minimizing correlations
to broad asset classes—particularly global
stocks and bonds. To select them, we look
carefully at funds’ historical correlations to the
broad markets—and to each other.
Stabilizers
Funds in this category tend to act as “shock
absorbers.” They are designed to minimize
volatility and drawdowns relative to the U.S.
fixed income or U.S. equity markets.
© 2014 Morningstar. All Rights Reserved. These materials are for information and/or illustration purposes only. The Morningstar name and logo are registered marks of Morningstar. For Financial Professional
use only. The Morningstar Investment Management group of Morningstar, Inc. includes Morningstar Associates, LLC, Ibbotson Associates, Inc., and Morningstar Investment Services, Inc., which are
registered investment advisors and wholly owned subsidiaries of Morningstar, Inc. All investment advisory services described herein are provided by one or more of the U.S. registered investment advisor subsidiaries.