“The reason to invest in an alternative product is that it delivers a return that’s not only attractive, but at a different time than everything else in your portfolio,” says Norris. “That is the diversification benefit of investing in an absolute return fund.”
According to Norris, there are two kinds of risk: good risk and bad risk. “Bad risk is things like market direction, which you want to diversify. Good risk is risk we never want to diversify, like our style risk.”
Norris has found it much easier to find stocks for his short book than for his long book during the past years. This is the case because corporate earnings growth has tended to disappoint. “Analysts typically forecast 10% earnings growth at the start of every year, so there have been many more earnings downgrades than earnings upgrades. This has made it much more difficult to find stocks for the long-book than for the short-book,” explains Norris.
