Reporting is all about absolute return these days, which is no surprise to most small investors.

While all the chart comparisons of risk, return, and performance are compared to some benchmark, what the client really wants to know is one thing: How am I doing? Do I have more money now than when I started? And maybe one more thing, there is not much of comfort in being told that my portfolio beat the benchmark but is still in negative territory.

In the client's mind, no matter how you manage it, less money is less money.

Portfolio management these days (and it has probably always been so) is also about mitigating ? to the extent possible ? the downside risk on a client's assets.

Since the early days of 2000, it seems to me that client investors have become more conservative about their overall asset allocation, as well as very unreceptive to any downside negativity.

Investors in capital markets know that this is a zero sum game, but they want the other guy to absorb the loss.

Hedge funds are increasingly serving as the alternative asset class to ameliorate the overall volatility of a portfolio, to assist in more consistent (although certainly less exciting) performance as well as focusing on providing absolute returns.

In an investing world where the correlation coefficient of the returns of more familiar indexes such as the S&P500, NASDAQ and the MSCI has moved closer over the last few years, this trend has meant that advisors need to look beyond traditional asset classes to reduce systemic risk.

The term correlation coefficient measures the degree to which two variables are linearly related.

Translating that into layman's terms, if the three indexes above, S&P500, MSCI, and NASDAQ are too closely related, then they may move similarly in market conditions, i.e. all go up when markets are good, all sink into negative territory when markets are bad.

Absolute return products serve as portfolio diversifiers. They are effective because the source of their returns are investment strategies unrelated to directional moves of the market.

The Credit Suisse/Tremont Hedge Index (see chart) is up 5.46 percent in the first quarter ending March, 2006.

By contrast, the S&P 500 index is up 3.7 percent ? its best January through March performance since the first quarter of 1999 ? but lagging behind the 7.3 percent jump in the FTSE all-world index.

The Tremont Hedge Index is made up of relative value strategies: long/short equity, equity market neutral, convertible and fixed income arbitrage; event driven strategies, risk arbitrage, distressed securities, multi-strategy; global macro, emerging markets and managed future strategies in an asset weighted methodology.

Managed futures strategies outperformed many of the other alternative strategies for the last month.

Futures, while sounding exotic, are used far more frequently than is realised and have been part of capital market strategies to hedge risk for a very long time.

A futures contract is a type of derivative instrument, in which two parties agree to transact a set of tangible (aluminium) or intangible (currency, interest rate) commodities for future delivery at a particular price.

If you buy a futures contract, you are basically agreeing to buy something that a seller has not yet produced for a set price.

The commodities markets (Chicago Boarde of Trade, for one) are incredibly active, offering contracts on any number of items, the list of which reads like grocery shopping: corn, rice, soybeans, oats, ethanol, silver, 30-year bonds, 10-year swaps and currencies.

A futures contract is an agreement between two parties: a short position ? the party who agrees to deliver a commodity ? and a long position ? the party who agrees to receive a commodity.

In a futures contract, everything is specified: the quantity and quality of the commodity, the specific price per unit, and the date and method of delivery. In a very basic role, a farmer might be the holder of the short position (agreeing to sell corn at a certain price) while the bread maker would be the holder of the long (agreeing to buy) at some point in the future.

Regardless of the weather or corn price fluctuation, the farmer knows that he will receive his agreed upon price.

The farmer may sacrifice some future profit, but can sleep at night knowing that his corn is sold, regardless.

The same concept can be applied closer to home with currency purchases.

If a restaurant or grocer, for example, orders goods from Europe, they may want to hedge the exchange price by contracting today for deliver of Euros (at today's price) at some future date. The seller (or deliverer) of the Euros figures that they will be cheaper say six months from now and will take the contract.

According to Investopedia, the futures market is both highly active and central to the global marketplace and a good source for vital market information and sentiment indicators.

The futures market has become an important economic tool to determine prices based on today's and tomorrow's estimated amount of supply and demand. Futures market prices depend on a continuous flow of information from around the world and thus require a high amount of transparency.

Factors such as weather, war, debt default, refugee displacement, land reclamation and deforestation can all have a major effect on supply and demand and, as a result, the present and future price of a commodity.

In managed futures strategies, brokers called CTA's Commodities Trading Advisors trade in financial, currency and commodity futures and options markets on a global basis.

Relying on proprietary trading strategies to generate returns that have little correlation even to changing prices, the futures markets are very liquid, facilitating the use of leverage and short selling albeit with very low transactions costs.

Managed futures trade on regulated transparent exchange and are subject to regulation by government and SRO's while detailed disclosure documents must be provided to prospective clients.

For further information: www.investopedia.com, www.cbot.com , www.dailyfutures.com

@EDITRULE:

Martha Harris Myron CPA CFP? is a Senior Relationship Manager at Argus Financial Ltd. She specialises in providing comprehensive financial solutions to businesses, private clients and their families. Direct Line: 294-5709 Confidential e-mail can be directed to mmyronargusfinancial.bm. The article expresses the opinion of the author alone. Under no circumstances is the content of this article to be taken as specific individual investment advice, nor as a recommendation to buy/ sell any investment product.