Following the double stock market decline in the first decade of the twenty-first century, investors are now being lured by the promise of absolute returns by several mutual funds - all falling under the category of "Absolute Return Funds". The claim from these funds is that they will keep your portfolio growing in good times and bad. What is left unsaid frequently is that, in any given year, the value of these funds may decline. In other words, there is no promise that the fund (and hence your portfolio) will rise in value year after year.

Absolute Return funds are being offered by Putnam, Fidelity and other mutual fund organizations. The degree of freedom that most of these funds have is that they need not track to a particular index as a benchmark - such as the S&P 500. Instead, their goal is to assure you that you get positive returns for your investment over a 3-5 year period. The assurance that is given may be either a few percentage points above Treasury bill returns, or some other similar "safe" investment.

The methodologies that may be used however are frequently borrowed from how hedge-fund managers operate, thus giving the fund manager an opportunity to go long or short, or take on convertibles as securities and so forth.

It is also worthwhile contrasting absolute return funds against offerings from some Insurance companies with variable annuities who offer a minimum percentage of return but also set a ceiling on the maximum return in any given year. Of course insurance offerings usually come with load fees (frequently hidden away) and thus eat away at the returns through that mechanism.

Absolute return funds did not perform too well during the 2008 downturn and thus their value is yet to be fully realized, and in fact, many independent financial advisors did significantly better in recognizing, predicting and positioning their clients' portfolios during that downswing.

Our suggestion has always been to either trust independent financial advisors or even better, independent newsletters with many years of experience behind them to guide you through the difficult times in the stock market.