In finance, the term relative return refers to a measure of an investment’s performance. This measure indicates the gain or loss in the value of an investment, an investment portfolio or an investment fund in relation to one or more benchmarks (such as market indexes).
Relative returns are widely used by investment funds when setting benchmarks for performance or when indicating fund performance. For example, an investment fund might publish its performance in relation to the performance of a major index, such as the Dow Jones index or the Swiss Performance Index.
An absolute return, on the other hand, indicates the actual capital gain of an investment. For example, an absolute return investment fund might publish its performance in relation to its original capital at the beginning of an investment term. This is a clearer indicator of the actual capital gains achieved.
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