Do Absolute-Return Mutual Funds Have Absolute Returns?

Abstract

The authors study the universe of absolute-return mutual funds and find no evidence that they deliver positive alpha. Additionally, these funds can have significant factor exposures. Compared with ordinary equity funds, absolute-return funds have much higher fees and turnover. They perform worse than their hedge fund counterparts. Overall, the results indicate that investors seeking absolute returns using mutual funds are likely to be disappointed.

TOPICS: Mutual fund performance, analysis of individual factors/risk premia, performance measurement