“Absolute return funds aim to make money in every market environment, but that’s simply not possible,” says Van de Ven. He doesn’t like the focus absolute return funds put on limiting short-term volatility, and the high turn-over of their portfolios this entails. “This limits their future opportunities to make money on financial markets.”
Besides this, Van de Ven has a few more issues with absolute return funds. “They are not transparent and they are complex and expensive. That’s why we don’t invest in absolute return at Accuro.”
Cash is king
Instead, he believes the best way limit risk on the portfolio level is to have a sizeable allocation to cash. “Some cash on the sidelines as a buffer gives much better protection than absolute return funds or bonds.”
So the ideal portfolio has lots of cash, combined with a strong overweight to equities, believes Van de Ven. This overweight to equities might result in elevated volatility on the short term. However, this is not a problem for him, as he explains in part one of the video interview.