How do absolute return strategies differ from other investments?
LB Absolute return strategies aim to deliver consistent returns irrespective of broad stock market moves. To do so, these strategies rely on relatively sophisticated views of financial markets and the corresponding advanced trading techniques required to capture such views – this is why they are also called “skill strategies”. In fixed income markets, for instance, one might take the view that the difference between long term and short term yields will increase (a “yield curve steepening” view). Such a strategy will be broadly immune to a general rise or fall of yields, but will deliver returns on the predicted outcome. In stock markets, one might search for short term price misalignments between stocks and bet that they will disappear – this is often referred to as “mean reversion of residuals”. Trading of such a strategy requires a means of selling stocks short and the technology infrastructure to rapidly identify such discrepancies and trade. The examples above are very different fr
