Relative return

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Woodford glossary

If you compare the return from your investment with a benchmark’s return, then the measure you are using is relative return. For example, if your fund delivered 10% in absolute return terms but the benchmark delivered 12% then the relative return of your fund will be -2% (the fund’s absolute return minus the benchmark’s absolute return).

Over the course of the last 30 years, the fund management industry has become increasingly focused on relative returns, as opposed to absolute returns which measure the actual return of an asset. This is seen to be a product of short-termism, disintermediation and, sometimes, a lack of the conviction that is required to deviate substantially from the market.

The oddity of a focus on relative returns is that a fund manager may be seen to have done a good job even if he or she has lost investors’ money. For example, if a benchmark declines in a given year by 15%, but a fund declines by 10%, the fund is deemed to have delivered relative outperformance.

It is important to remind you at this stage that we deploy an absolute return focus, so we don’t believe we’ve done a good job if a fund falls in value, even if the market has delivered an even worse outcome. At Woodford, protecting our investors’ capital is key.

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address: 27 Old Gloucester Street, London, WC1N 3AX.

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