More high net worth clients seek absolute returns and diversity

ABSOLUTE RETURN IS defined as a measure of the appreciation or depreciation, expressed as a percentage, that financial instruments such as stocks or mutual funds face over time.

Absolute return products or solutions should make positive returns whether the overall market is up or down. If there has been a 10 per cent increase in the price of HSBC shares over the past year, then the holders of HSBC shares have achieved an absolute return of 10 per cent in that time.

For high and ultra high net worth individuals, an absolute return is the simple expectation of a return on their investment whatever the underlying asset, whether it is structured products, property, hedge funds or private equity.

Compared with the traditional discretionary portfolio of mutual funds, portfolios based on absolute return products are up when the market is up, and down when the market is down.

'As long as they are up more than the index or down less than the index, which is their benchmark, then they are doing a good job,' Barclays Wealth Asia chief executive Nigel Sze said.

For high and ultra high net worth clients looking for absolute returns, the necessity of looking to alternative asset classes is paramount for three reasons: investment diversification; markets are more sophisticated and becoming more volatile so having instruments that can hedge even in a downturn could be useful for total portfolio return; and these clients now demand alternative asset classes and wealth managers must be able to select and recommend appropriate instruments.