MarketWatch's Chuck Jaffe recently slammed absolute return funds as the "Stupid Investment of the Week": http://bit.ly/fENX3GIn his column, he says:
- It’s becoming so clear that Main Street investors understand so little about how absolute-return funds work that they are heading for disappointment.
The idea behind absolute return strategies is that they're supposed to deliver positive returns no matter what the market conditions. But according to Jaffe:
- the average fund that had absolute return in its name in 2008 — and there were only about a dozen of them — lost 12.7% compared to a market loss of 37%.
- While the funds did their job in a down market, they still posted losses — which hardly seems an “absolute return” — and the typical investor would have walked away from that experience feeling let down by the fund.
In a recent article posted on Registered Rep. ( http://bit.ly/hdMMiA), Stan Luxenberg reported that these funds, with their short track records, have failed their first tests, as most suffered losses in 2008. But fund families are rolling out these products like crazy, he reports. In November, I reported that advisor appetite for these types of strategies was up, according to a survey. Does absolute return have a future with advisors? http://bit.ly/i5J7ac