Episode Overview
Podcast: Merryn Talks Money
Episode Title: What Are Absolute Return Funds And Should You Invest In Them?
Date: March 18, 2026
Host: Merryn Somerset Webb (Editor at Large, Bloomberg UK Wealth)
Guest: John Stepek (Senior Reporter, Author of the Money Distilled newsletter)
Main Theme:
In this engaging discussion, Merryn Somerset Webb and John Stepek tackle the concept of absolute return funds: what they are, how they differ from typical investment funds, what investors should expect, and key considerations before allocating more of your portfolio to these vehicles. Prompted by a listener’s question, they demystify terminology, examine fund diversity, and offer candid, accessible investment advice.
Key Discussion Points & Insights
1. Listener Question: The Appeal and Role of Absolute Return Funds
[03:29]
- The episode kicks off responding to a listener, Tim, who wants to know whether it makes sense to allocate more (even all) of one’s portfolio to absolute return funds, especially given current market uncertainties.
- Funds like Argonaut Absolute Return and AQR Apex are cited as delivering impressive performance, heightening interest in the sector.
Quote:
"Based on all the doom and gloom I'm hearing about the global outlook, I'm wondering why I'm invested in anything else. Absolute return sounds rather nice..."
— Merryn Somerset Webb (reading Tim’s question) [04:11]
2. What Are Absolute Return Funds?
[04:13–05:10]
- Traditional funds: Benchmark themselves against an index—even negative returns are deemed “outperformance” if they fall less than the index.
- Absolute return funds: Their goal is simply to deliver a positive return over a set period, irrespective of broader market performance—a concept that’s much more aligned with what retail investors genuinely want.
Quotes:
"Normally when you look at a fund... it will judge itself relative to an index... But I have less money than I did before. What do you mean you outperformed?"
— Merryn Somerset Webb [04:48]
"For the retail investor, for us, for the end user, we don't care. We basically would like our money to go up faster than inflation on a consistent basis, so that when we come to retire, we've got more money in real terms than we started with."
— John Stepek [05:10]
3. The Nature and Challenges of Absolute Return
[06:30–07:33]
- Benchmarking to inflation: Absolute return funds aim to beat inflation, not an index. However, consistently achieving this is extremely challenging.
- Sector rebranding: Regulatory bodies recognized the difficulty in delivering absolute returns, rebranding the sector to "Target Absolute Return" to reflect aspirations, not promises.
Quote:
"All you can have is a target to be an absolute return."
— Merryn Somerset Webb [10:31]
4. Diversity Within the Absolute Return Sector
[07:33–09:48]
- The sector is extremely varied:
- Some funds pursue very low-risk, conservative strategies (multi-asset, trust-based).
- Others resemble hedge funds, adopting higher-risk, opportunistic bets.
- Examples:
- Barry Norris’s Argonaut Absolute Return (riskier, seeks bold returns).
- Trojan and Personal Assets (conservative investment trusts; act as portfolio ballast in downturns).
- Key point: There’s no one-size-fits-all; investors must closely examine each fund’s strategy and risk profile.
Quotes:
"There is no one definition of an absolute return fund beyond the aim, the original aim, which is not relative, but absolute. There's nothing more than that."
— Merryn Somerset Webb [08:45]
5. What Should Investors Keep in Mind?
[09:48–10:35]
- Diversity means due diligence is vital: Not all absolute return funds are built the same.
- Many do not actually deliver; half or fewer regularly beat inflation.
- No guarantees: The “absolute” refers to the target, not the actual outcome.
Quotes:
"Just because it promises an absolute return doesn't mean it's going to manage to do it."
— John Stepek [09:48]
"There was about 60... funds in the sector... and about half of them had managed to make a real return over the previous year... Last time I wrote this, only 7..."
— John Stepek [09:54]
6. Concluding Advice
[10:35–10:37]
- Absolute return funds can have a place in a diversified portfolio.
- The real question is what role you want them to serve: safety-net/balancer vs. high-octane returns.
- Be clear about your goals and read the details of any absolute return fund before investing.
Quote:
"There is no such thing as a guaranteed absolute return fund. All you can have is a target to be an absolute return. Aspirational, everyone. Aren't we all."
— Merryn Somerset Webb [10:27–10:37]
Notable Quotes & Moments
| Timestamp | Speaker | Quote | |------------|------------------------|---------------------------------------------------------------------------------------------------------------------------------| | 04:11 | Merryn Somerset Webb | "Based on all the doom and gloom I'm hearing about the global outlook, I'm wondering why I'm invested in anything else..." | | 05:10 | John Stepek | "We basically would like our money to go up faster than inflation on a consistent basis, so that when we come to retire, we've got more money in real terms than we started with." | | 07:33 | John Stepek | "They’re actually more akin to hedge funds than anything else because that’s what hedge funds basically do as well..." | | 09:48 | John Stepek | "Just because it promises an absolute return doesn't mean it's going to manage to do it..." | | 10:31 | Merryn Somerset Webb | "All you can have is a target to be an absolute return." | | 10:35 | John Stepek | "Aspirational, everyone." |
Key Takeaways (TL;DR)
- Absolute return funds aim to deliver a positive return regardless of underlying market indices; in practice, they merely target this outcome.
- The sector is highly diverse, ranging from conservative multi-asset funds to high-risk, hedge-fund-like vehicles.
- There are no guarantees—in reality, only a fraction of funds consistently beat inflation.
- Investors should scrutinize individual strategies and be clear about what role absolute return funds are to serve in their own portfolio.
- Do your due diligence: Not all funds labeled “absolute return” are equal in process, risk, or likelihood of success.
Timestamps for Important Segments
- 03:29 - Introduction to Tim’s listener question and the appeal of absolute return funds
- 04:13–05:10 - Explanation of absolute vs. relative return and what traditional funds offer
- 06:30–07:33 - Why absolute return is a target, not a guarantee, and sector rebranding
- 07:33–09:48 - The diversity of absolute return strategies and suitability for portfolios
- 09:48–10:35 - The reality of performance and the importance of analysis before investing
This concise yet comprehensive discussion from Merryn and John cuts through industry jargon, making clear why absolute return funds aren’t a panacea—but could be a useful, if carefully chosen, part of a diversified investment strategy.