In an investment landscape shaped by macroeconomic uncertainty, shifting monetary regimes and a growing demand for true diversification, the absolute return asset class has never been more relevant – or more misunderstood.
That being so, Wealthwise approached Apollo Multi Asset Management to produce a regular feature designed to cut through the noise around the asset class – and Absolute Insight is the result. As practitioners with deep, hands-on experience managing absolute return portfolios, we aim to offer a clear, independent and data-driven perspective on this critical but often overlooked corner of the market.
With each instalment, Absolute Insight will go beyond surface-level commentary to explore the structural evolution of the sector, the performance dynamics of key sub-strategies and the positioning of leading funds. Our goal is simple: to equip asset allocators, advisers and institutional investors with the insights needed to make confident, informed decisions.
We will examine the real gap between expectations and outcomes – and outline the characteristics we believe define a genuinely robust absolute return approach today. Along the way, we will spotlight areas of innovation, inefficiency, and risk that we believe deserve close attention in the months ahead. We look forward to helping you navigate the evolving world of absolute return with clarity, expertise, and conviction …
An evolving landscape
Despite early enthusiasm, many single-strategy absolute return funds that once dominated the UK market ultimately failed to deliver on their promises. Inconsistent performance, narrow strategies and limited downside protection induced profound scepticism among fund selectors – a scepticism that persists to this day.
The investment landscape has, however, shifted fundamentally. In a world where traditional asset classes are increasingly correlated and bond yields are volatile or structurally low, relying on the conventional 60/40 portfolio is no longer sufficient to deliver consistent, risk-adjusted returns.
The diversification benefits that government bonds once offered have been eroded by inflation risks, interest rate shocks and a more unstable macroeconomic regime. Against this backdrop, the case for absolute return investing is stronger – and arguably more urgent – than ever.
For more from Apollo, watch CIO Steve Brann on Choice Words here
Absolute return strategies are designed to offer an alternative source of uncorrelated returns, targeting positive performance independent of market direction. Whether through macro positioning, market-neutral equity trades, tactical credit, or event-driven strategies, absolute return funds aim to provide smoother return profiles, enhanced downside protection and genuine diversification.
Importantly, well-constructed absolute return allocations can: diversify portfolio risk; reduce volatility; preserve capital during equity market drawdowns or fixed income sell-offs; and provide positive returns even in challenging macro environments. In short, absolute return investing can play a vital role in helping portfolios adapt to today’s market realities – and protect and grow capital through cycles of uncertainty.
The world has changed; asset allocation should too – and absolute return investing, properly understood and carefully applied, has a crucial role to play. Stay with us each month as we explore this evolving landscape – and help you harness the full potential of absolute return for the years ahead.
“The world has changed; asset allocation should too – and absolute return investing, properly understood and carefully applied, has a crucial role to play.
Beyond the label – understanding the real differences
Let’s be clear from the start: absolute return is not one single thing. Rather, it is a label applied to a diverse set of strategies – each with different processes, risk profiles, market exposures and return drivers. Treating them as a single, homogeneous category is not just misleading – it is one of the main reasons this sector is so widely misunderstood.
To illustrate this point and bring it more to life, we will split the funds available to UK investors into the following distinct categories.
Macro strategies: These aim to profit from broad economic trends by taking positions across asset classes such as currencies, interest rates, commodities and equities – often driven by macroeconomic views or geopolitical events.
Long/short equity: This involves buying stocks expected to rise (going long) and selling stocks expected to fall (going short), aiming to generate alpha while managing market exposure.
Market neutral: These strategies seek to eliminate broad market risk by balancing long and short positions, focusing purely on capturing relative performance between securities.
Rates/Credit/FX: These target inefficiencies in fixed income markets by taking views on interest rate movements or credit spreads, often using instruments like bonds, swaps or credit default swaps.
Event-driven: These strategies capitalise on price movements resulting from corporate actions such as mergers, restructurings, bankruptcies or spin-offs, where outcomes can drive valuation shifts.
Absolute return snapshot – Q1 2025
The first quarter of 2025 opened with caution as markets faced persistent inflation, volatile rate expectations and rising geopolitical tensions. Hopes for early rate cuts faded as central banks held a hawkish line, while equities were mixed following a strong rally in the last three months of 2024.
Bond yields swung on shifting policy signals, while global growth concerns increased amid weak European PMIs and soft US consumer data. Escalating trade rhetoric ahead of the US election had only added to the uncertainty, setting a cautious tone for the quarter.
Highlighting the key point that this is not a homogeneous sector, there was a wide divergence in returns over the quarter, with the best-performing fund in the IA Targeted Absolute Return grouping returning 13.4% while the worst-performing fund lost 3.4%. (Source: FE Analytics 31/12/24 – 31/03/25). Looking at Q1 Sub Index data from Absolute Hedge by Kepler Partners, which analyses the wider Ucits universe, the performance of the five subsectors outlined above saw returns of:
AH Macro: 2.2%
AH Long/Short Equity: 0.7%
AH Market Neutral: 2.0%
AH Event Driven: 1.6%
AH Credit: 1.1%
On the whole, absolute return strategies delivered solid gains in Q1, navigating a volatile macro backdrop with mixed market signals. Macro strategies (up 2.2%) led the pack, capitalising on big-picture shifts in rates and currencies. Market Neutral (up 2.0%) also performed well, aided by strong stock dispersion.
Event Driven returned 1.6% on steady deal flow, while Credit strategies posted 1.1%, finding pockets of value in a choppy fixed income space. Long/Short Equity lagged slightly at 0.7%, held back by style rotations and equity market indecision. A reminder, then, that not all absolute return strategies move the same – and diversification across the sector matters.
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: GMO Equity Dislocation
Sector: Long/Short Equity
Q1 2025 performance: +3.6%
After a challenging 2024, in which growth stocks continued to dominate and value-oriented strategies struggled to gain traction, it is encouraging to see GMO Equity Dislocation showing signs of life in early 2025. The fund, which seeks to capitalise on extreme valuation spreads between growth and value equities, is well-positioned to benefit as market conditions begin to normalise and investors rotate back toward fundamentally undervalued names. With valuation dispersion still at historically elevated levels, the strategy offers genuine upside potential – especially in a more rational, fundamentals-driven market environment. For UK investors looking to diversify away from growth-heavy portfolios, the GMO Equity Dislocation Fund could finally be entering its moment.
