Bloomberg Audio Studios, Podcasts, radio news, Maren Talks Money Listeners. Are you a Bloomberg subscriber. If you're not, here's why you should be. You'll get ad free episodes of this podcast and access to my Marin Talks Money newsletter, as well as access to John's award winning newsletter, Money Distilled. And you'll get access to subscriber only events such as the one we'll be hosting on March to seventeenth. See the link in the show notes below to sign up
to that. And of course, you will get unlimited access to Bloomberg dot com and the Bloomberg App, including exclusive stories and premium market tools. Subscribe now at Bloomberg dot com slash podcast offer. Welcome to Marrion Talks Your Money, the personal finance edition of Marin Talks Money. In these bonus podcasts, we talk about the best strategies.
Are making the most of your money. I'm Maren sum Zep, Web Editor at Large for Bloomberg. Okay Wealth and with me senior reporter and author of the Money Distilled newsletter, John.
Steppek, John Hi mel.
Well.
More questions, more questions keep coming. We do love them, and also they're often incredibly interesting because you know, listeners often look at things from a slightly different angle to us. If they're sending questions to make us go, oh yeah, all.
That, yes, intelligent questions. All we have some very high quality a lesson and I have to see people we good tease.
Well, we don't know that for sure, do we? We know we have some good quality Listeners's other ones to send the questions. Do we know anything about the rush? But there are lots of you and we'd like there to be more, so, you know, think about it sending questions all good. This one is actually one that I think is really interesting. We haven't talked about this for a while and it's one of our bug bears of courses. Is something that comes out of this. But here's the question.
The outlook seems quite gloomy from many of your podcasts. Yes, I'm afraid. So we try to be optimistic, but you know, times are tough. It's tempting to allocate much more heavily to absolute return funds. Funds like are Going to Absolute Return and akr Apex have been there in great returns for a number of years now. In fact, we've had Barry Norris of the album absolutely return on and that has been going great guns and based on all the doom and gloom I'm hearing about the global outlook, I'm
wondering why I'm invested in anything else. Fair absolute return sounds rather nice yeat. Typically people don't invest more than about twenty percent of their portfolio in such funds. What factors should I consider when I'm thinking about allocating more? Unusually like this, and this is from Tim right, Well, the first thing to say is to try and explain exactly what an absolute return is.
Right.
So, normally, when you look at a fund of any kind, it will judge itself relative to an index. So you will hear that a fund is outperformed even if it's gone down ten percent. If the index to which it benchmarks itself has gone down twelve or thirteen percent, they'll go, well, look we are performed. And you'll look at it and you'll goobal, but I have less money than I did before. What do you mean you unperformed? But that's the way
the industry works. It's all relative benchmarking. It's not about whether you managed to beat inflation. It's not about whether you managed to have more money at the end of the year than you did at the beginning of the year. Is about how you did relative to an index or relative to other funds. And that's actually quite irritating, isn't it.
Yeah, because for the retail investor, for us, for the end user, we don't care. We basically would like earn money to go up faster than inflation on a consistent basis, so that when we come with a tire, we get more money in real terms than we started by.
Yeah, that seems entirely fair. And if you give your money to someone to take care of it seems entirely reasonable that you should be able to say to them, do you know whatever you want out of that? It is to beat inflation. I want to be richer in real terms, I inflation injusted terms at the end of the year than I was at the beginning of the year, or maybe not over one year, maybe over two years, maybe over three years, maybe over five whatever it is.
That works for you.
But the whole idea should be not that I did less badly than some other guy, but that you don't make me poorer, that my capital is protected in real terms. That seems like the apps absolute first priority of investing.
Yeah, I mean, certainly, I can see why it's not like that. I can see why if you're if you're told you're invested in a FUTSI one hundred based active fund, then clearly doing a bit better than the Futzier one hundred is actually all you can expect if does go doing one. But it's just a preceding that deference, and I'm not sure that people always do appreciate that. That's how it works.
So that is what we're talking about about. Absolutely absolute returns different to an ordinary fund. And then an absolute return fund manager says to you, my aim is to make sure that by the end of this year or the end of a five year period or whatever the period they're talking about is you have more money in absolute terms, and my plan is to be inflation every year. That's difficult, by the way, and a couple of decades ago, I don't know if you remember that there used to
be an absolute return sector. You could say absolutely return funds a little below that the Investment Association changed that and started calling them target absolute return funds. To make it clear that actually making more money than inflation every year is really hard. It's really hard. So you can't say that you will do it. You can only say that you target it. But again, I mean, it's an idea that I appreciate because as as I say, I like the idea of someone saying, you know, I'm not
judging myself against other funds. I'm not judging myself against an index. I'm judging myself against the real value of money.
Yeah, and it's the right aim, and it's absolutely what to go for. I think the problem that you then come to law from a fund selection point of view is that the way that this rate has described the sector, it is like, okay, I'm going to allocate twenty percent of my fund, say two absolutely ton funds, And well, I said, what does that mean? And in practice they all do something different because because they're bench s mark to making real returns, it doesn't matter how they go
about that. So they all go about it in different ways. And so I mean, to be honest, they are probably I am more akin to hedge funds than anything else. That's what hedge funds basically do as well. They just try and make money any way that they can. And so I mean, the argonotic example is a really good one because Barry's found is a very interesting fund, but it's certainly not on the low risk end of the spectrum.
And he's invested in some pretty spicy stuff like Argentina because that's where he sort of kind of money coming in. Clearly he's been right about that, whereas others can absolutely turn funds are maybe more tilted towards the kind of gold bonds, slightly dull kind of stuff.
Well, I suppose you can end up. You can end up with this very conservative, effectively and multi asset fante. And there's that when you can just say, well, this is the conservative ballast for my portfolio. It's not aiming for relative anything. It's just I mean to keep going giving me a couple of percentage points over inflation over
the long term, which of course was incredibly valible. But that's like the Trojan fund, for example, a personal asset in the investment trust world, which we've written about a lot of the years, is the classic example of that, and one that's really going to help you out as good ballot in a bad market. Normally you're that kind of thing. And then, as you said, at the other end, you've got super spicy stuff. So there is no one definition of an absolute return fund beyond the aim the
original name, which is not relative but absolute. There's nothing more than that. So should you have absolute return funds in your portfolio, well, sure, just be aware that this is an incredibly diverse sector and you need to be very clear on what it is that you want that to do in your portfolio. Are you actually looking for highly leveraged has fund light returns or are you looking for a conservative ballot?
Yeah, and yeah, you do need to look at them. And the other thing is again remember that just because it promises an absolutely tone doesn't mean it's going to
macee it do it. Because I remember I was written an article before we can there was something that was a bit sexty slightly more than sexty ones in the sector, and this was written last June, and about half of them had nice to make every all the time over the previous year, and then the game was a failed into that's a lot better than the last time I wrote this, because last time I wrote, there's only seven of the funds in the sector that so me it
comes back to that point. It's like, okay, it's the rate target, but it's very hard to do because if it was easy you do, then help everybody who.
OK, there is no such thing as a gun inteed guaranteed, absolutely return fund. All you can have is a target to be an absolutely inspirational apperation everyone won't we all right? I think that's about it all we can say on absolutely return funds without getting too much into the ways of individual funds, which we don't want to do right here. Thanks for listening to this week's Maren Talks to Your Money. If you like us show, rate, review, and subscribe wherever
you listen to podcasts. Also be shortful of meeting John on extraor Twitter at Mariners w and John Underscore Step. This episode was produced by Samasai and Moses and Question. The comments on this show and all our shows are always welcome. Thank you Tim for yours. Our show email is merin Money at Bloomberg dot net.