Last month offered a stark reminder of the unpredictability inherent in financial markets as President Trump’s ‘Liberation Day’ tariff announcement on 2 April triggered significant volatility, leading to a sharp sell-off in equities. The S&P 500 index, for example, experienced its worst one-day drop since June 2020, shedding 4.8%.
For their part, bond markets presented a more mixed picture – while some segments offered modest gains, others fell, with the Bloomberg Global Aggregate Bond index declining by 0.5% in sterling terms. This simultaneous challenge across traditional asset classes underscored the limitations of conventional approaches to diversification.
Amid this turmoil, absolute return strategies – particularly market neutral and long/short equity approaches – demonstrated resilience. The Kepler AH Market Neutral UCITS index posted a 0.6% gain, for example, while its Long/Short counterpart rose by 0.5%. These performances highlight the potential of these strategies to provide uncorrelated returns and lower volatility, serving as effective diversifiers in turbulent markets.
“As traditional asset classes grappled with the volatility that resulted from the US tariffs announcement, absolute return strategies showcased their resilience.
Market neutral and long/short
Market neutral strategies aim to eliminate market risk by taking offsetting long and short positions – focusing on stock selection to generate returns, irrespective of broader market movements. Long/short strategies, while also employing both long and short positions, typically maintain a net market exposure, allowing them to benefit from market trends while hedging against potential downturns.
Given this resilience, one might well ask why absolute return strategies are often overlooked by investors precisely when their benefits are most needed? It is a question worth pondering – especially for those aiming to build robust client portfolios capable of withstanding market turbulence.
Absolute return strategies, by design, seek to generate positive returns regardless of market direction, offering diversification benefits that traditional asset classes may not provide during periods of market stress, such as we saw last month. Their low correlation to traditional assets can enhance multi-asset portfolio returns with modest or no additional risk.
The performance of absolute return strategies in April underscores their potential role in diversified portfolios, especially during periods of heightened uncertainty. By focusing on relative value and maintaining flexibility, these approaches can offer protection against market downturns while still seeking positive returns.
As traditional asset classes grappled with the volatility that resulted from the US tariffs announcement, absolute return strategies – particularly market neutral and long/short approaches – showcased their resilience. For investors seeking to navigate uncertain terrains, incorporating such strategies could provide a valuable hedge against unforeseen market shocks to come.
Ian Willings is a portfolio manager and partner at Apollo Multi Asset Management, experts in researching and investing in absolute return and liquid alternative strategies. CIO, Steve Brann, is the author of Absolute Vision, a book that sets out the thinking behind the firm’s strategy and looks to demystify the asset class for a wider audience.
Fund in the Spotlight
Name: Iguana Investments Long/Short Equity
Sector: Long/Short Equity 2025
YTD performance: +8.5%
In April 2025, the Iguana Investments Long/Short Equity fund delivered a standout performance, achieving a positive net return of 3.4% against a backdrop where the MSCI World index declined 2.6% in sterling terms.
This impressive result contributed to a year-to-date return of +8.5%, underscoring the fund’s adeptness in navigating volatile market conditions. The fund’s success was driven by a stock selection process that combines fundamental analysis with contemporary quantitative techniques to identify companies undergoing significant operational transformations.
With cautious positioning through 2025, the fund entered April maintaining a low beta to equities but also held defensive exposure via a range of index ‘put’ options, as well as a basket of goldminers, which acted as a hedge when gold rallied amid the initial chaos in April. Demonstrating the focus on stock selection, the fund saw a number of holdings make positive returns despite the broader market declines.
Key contributors to April’s performance included defence manufacturer Saab, which reported solid first-quarter numbers and a strong order book; European airline Ryanair, which benefitted from strong fares and lower oil prices; and a short position in a US oil and gas producer amid declining oil prices. Additionally, some UK holdings performed well during the earnings season – indeed, the unloved and cheap UK market remains a key source of long ideas for the fund.
On the short side, alongside the index ‘put’ options, the fund focused on sectors anticipated to underperform in the prevailing economic environment, including consumer discretionary – and particularly the autos segment – and energy.
In an environment where traditional diversification strategies are challenged by rising correlations between equities and bonds, the Iguana Investments Long/Short Equity fund exemplifies the benefits of absolute return strategies. With a beta to the MSCI World index of just 0.049 since its launch, its strategic agility and robust performance make a compelling case for investors to consider such approaches in their portfolio construction.
