Absolute-return funds strive to achieve these goals and should remain popular as a result. Absolute-return funds aim to produce positive returns in all market conditions and are not benchmarked against a traditional index; rather, they aim to outperform a cash or risk-free benchmark.
Putnam Absolute Return 300 Fund falls into this category. It attempts to provide a 3 percent return over inflation by typically using an allocation of relatively conservative investments, such as investment-grade corporate bonds or Treasurys.
The fund, while significantly lagging the S&P 500's total return for 2013, largely accomplished this objective by returning 4.35 percent. Results such as these will continue to attract assets from those investors who are unsatisfied with fixed-income yields but who also are not comfortable with the risk associated with even conservatively positioned equity income–oriented funds.
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Other similar approaches that should continue to see new funds added include hedge fundlike strategies such as market-neutral. Market-neutral funds often attempt to limit or "neutralize" the impact that market return has on the portfolio by being both long and short. This has appeal for investors who are looking for both diversification and reduced volatility.
Two funds following this approach are PIMCO Worldwide Fundamental Advantage Strategy Fund, which has gathered significant assets over the past two years, and Vanguard Market Neutral Fund.