High return investments are considered to have a high risk by their very nature, but its not as simple as that.

Risk is not just related to the investment medium, but also how the investment is managed.

We all want high return investments and we all want low risk. Lets look at how to choose a manager that can make you higher returns and keep risk low.

Risk of an investment

The risk of any investment (not just a high return investment) is determined by the following equation.

Investment medium + management = return

Driving a high performance racing car is risky, but in the hands of a skilful driver the risk is reduced considerably, as they know how to drive correctly and not crash!

You will often see high risk investments with lower downside volatility than a supposed low risk investment.

For example, a mutual fund or unit trust can be more volatile than a higher risk futures or hedge fund.

The reason for this is its all down to management:

So when looking at high return investments look for managers who reduce risk. So what should you look for?

The following list will put you in the right direction. Some are obvious and some are not!

1.Growth to drawdown

Which would you rather have a manager with 40% annual returns and 15% drawdown or one with 50% and 40% drawdown? Look for the best balance of risk / reward.

When looking at high return investments look for a balance to comfortable risk you can tolerate.

2.Length and representative track record

Look for track record of reasonable length.

Lets face it, anyone can have a lucky streak.

In addition, many mutual funds do test accounts i.e. they start off managers with small equity, pick the best and then present it to the public, so look for 3 -5 years minimum.

Also make sure that you check out all accounts that are managed by the asset managers, so you know performance is representative

3.Drawdown to recovery

Look at any track record and look at recoveries to new peaks in equity from them. Obviously the quicker the recovery the better and look for drawdown recoveries of under 12 months.

4.Active investment

Avoid buy and hold investments. This is not the way to make big long term gains, look for managers who are active and not always in the market.

5.Look for performance only managers

Although it doesnt guarantee success, look for managers who will actively take performance fees only. At least they have confidence in their skill, which is a good sign. Lots of companies have high management and broking fees that eat into your gains and they will make money regardless if you win or lose.

A high return investment is no good if you lose large amounts in fees.

6.Conflict of interest

Look for an investment manager that does not earn a cut of dealing fees. If they do they may be tempted to trade just to make dealing commission and this may not be in your interest.

Getting a high return investment that performs is a combination of all of the above and you will do well to do your homework, keep in mind it is sometimes the smaller asset managers who work on performance based fees, who will make you the biggest gains.

Use the above and hopefully you will find a high return investment that will perform for you and give you the capital growth you are looking for.