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With absolute return equity funds, about 90 to 95 percent of the underlying base is traditional fixed income. The balance 5 to 10 percent involves equity trading or arbitrage opportunities.
The opportunities are created by fund managers taking calls on specific stocks moving in certain directions. They do not take duration or credit calls.
Absolute return AIFs give fixed income investors different risk exposures and is complementary to what investors will get from a traditional debt mutual fund.
For many investors, benchmark for a low risk absolute return strategy is between 1.5 to 2 percent more than an arbitrage fund on a post-tax, post-fee basis. In current market, that works to about 7.5 to 8 percent.
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