When we talk about absolute return, we mean the outright return for a period whatever it may be (positive or negative).
Absolute return strategies aim to produce a positive return, even when share markets are volatile, flat or falling. The strategies absolute return portfolio’s use is less constrained than that of a portfolio which can only buy and hold stocks.
It is the norm in the industry for a fund to measure its performance relative to an equity benchmark index. For example, an Australian equity fund will compare its returns for a given period to the ASX 200 Index (the performance of the top 200 stock in the Australian market by size). In certain cases when the market is falling a fund can lose money, but still have positive relative performance.
In these cases, the fund will still usually charge its investors performance fees for outperforming the market.
So, the question remains, what is an alternative to benchmarking performance of an equity market?
The answer is to compare returns to what an investor could earn if they invested the funds into cash. By focusing on beating returns on cash, the portfolio will be positioned with the aim of generating positive returns, and returns may differ significantly from the broader market.