The creation of the first absolute return fund can be dated back to 1949 in New York by Mr. Alfred Winslow Jones.
From this humble beginning absolute return funds have become a dominant and established form of investment and have now become more commonly known as hedge funds.
There is a stark contrast between an absolute return funds differ from mutual funds as they are not interested in comparisons to any benchmark but with the return of a particular asset.
Absolute return funds are viewed as a great deal more aggressive if compared to mutual funds as they look to generate revenues by employing risk management techniques such as short selling, futures, options, derivatives, arbitrage, leverage and unconventional assets.
Hedge Fund Index (HFRX) as a measure
An absolute return stock Index was created to measure the performance of absolute return funds.
This index is also more commonly known as the Hedge Fund Index (HFRX).
This index is a composite of 5 other indexes and is used as a tool that allows individual hedge funds and the wider investment community to compare performance.
Funds that use the absolute method of investing all seek to obtain a market advantage by capitalizing on their unique and proprietary trading methods.
As such the Hedge Fund Index is a measure of performance of all the strategies used by this fund.
