What Are Absolute Return Funds And Should You Invest In Them?

Summary

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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.

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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]

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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." |

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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.

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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

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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.

Transcript

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[Meryn Sums Up Webb]

Welcome to Marin Talks yous Money, the personal finance edition of MARY TALKS Money in these bonus podcasts, we talk about the best strategies of making the most of your money. I'm Meryn Sums Up Webb, editor at large for Bloomberg UK wealth. And with me, senior reporter and author of the Money Distilled newsletter, John Stepek. Hi, Jon.

[John Stepek]

Hi, Mel. Well, more questions, more questions keep coming.

[Meryn Sums Up Webb]

Yeah, 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. They're sending questions to make us go,

[John Stepek]

oh, yeah, I'm sort of that, yes, intelligent questions. We have a very high quality listener, I have to say, people with good taste.

[Meryn Sums Up Webb]

Well, we don't know that for sure, do we? We know we have some good quality listeners because they're the ones that send the questions. So we know anything about the rest. 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 bugbears, of course, is something that comes out of this. But here's the question. The outlook seems quite gloomy from many of your podcast because. Yes, I'm afraid so. We try to be optimistic, but times are tough. It's tempting to allocate much more heavily to absolute return funds. Funds like Argonaut Absolute Return and AQR Apex have been delivering great returns for a number of years now. In fact, we've had Barry Norris of the Argonaut Absolute Return on, and that has been going great guns. And based on all the doom and

[Podcast Host (Bloomberg)]

gloom I'm hearing about the global outlook,

[Meryn Sums Up Webb]

I'm wondering why I'm invested in anything else.

[Podcast Host (Bloomberg)]

Fair.

[Meryn Sums Up Webb]

Absolute return sounds rather nice, yet typically people don't invest more than about 20% of their portfolio in such funds. What factors should I consider when I'm thinking about allocating more unusual 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 10%. If the index to which it benchmarks itself has gone down 12 or 13%,

[Podcast Host (Bloomberg)]

they'll go, oh, look, we outperformed.

[Meryn Sums Up Webb]

And you'll look at it and you'll go, but I have less money than I did before. What do you mean you outperformed but that's the way the industry works. It's all relative benchmarking. It's not about whether you manage to beat inflation. It's not about whether you manage to have more money at the end of the year than you did at the beginning of the year. It's about how you did relative to an index or relative to other funds. And that's actually quite irritating, isn't it?

[John Stepek]

Yeah, because yeah, 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.

[Meryn Sums Up Webb]

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 what I really want out of this is to beat inflation. I want to be richer in real terms, inflation adjusted terms, at the end of the year than I was at the beginning of the year.

[Podcast Host (Bloomberg)]

Or maybe not over one year, maybe

[Meryn Sums Up Webb]

over two years, maybe over three years, maybe over five.

[Podcast Host (Bloomberg)]

Whatever it is that works for you.

[Meryn Sums Up Webb]

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 absolute first priority of investing.

[John Stepek]

Yeah, I mean, certainly I can see why it's not like that. I can see why if you're told you're investing in a FTSE 100 based active fund, then clearly doing a bit better than the FTSE 100 is actually all you can expect if the FTSE does go down one year. But it's just appreciating that difference. And I'm not sure that people always do appreciate that that's how it works.

[Meryn Sums Up Webb]

That is what we're talking about when we're talking about absolute return funds. It's different to an ordinary fund in that 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. So my plan is to beat inflation every year. Now, this is difficult, by the way, and a couple of decades ago, I don't know if you rem that there used to be an absolute return sector. You could say absolute return funds listed below. But 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 I say, I like the idea of someone saying, gee, 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.

[John Stepek]

Yeah. And it's the right aim and it's absolutely what to go for. I think the problem that you then come to low from a fund selection point of view is that the way that this writer has described the sector, it is like, okay, I'm going to allocate 20% of my funds, say two absolute return funds. And you're like, well actually, what does that mean? And in practice they all do something different because they're benchmarked 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 actually are more akin to hedge funds than anything else because 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 Argonaut example is a really good one because Barry's fund is a very interesting fund, but it's certainly not on the low risk end of the spectrum. He's invested in some pretty spicy stuff like Argentina, because that's where he saw the kind of money coming in. Clearly he's been right about that. Whereas other absolute return funds are maybe more tilted towards the kind of gold bonds, slightly dull kind of stuff.

[Meryn Sums Up Webb]

Well, I suppose I say you can end up with a sort of very conservative, effectively a multi asset fund. And there's that. And you can just say, well, this is the conservative ballast for my portfolio. Not aiming for relative anything, it's just aiming to keep going, giving me a couple of percentage points over inflation over the long term, which of course is incredibly valuable. But that's, you know, that's like the Trojan fund for example, or personal assets in, in the investment trust world, which we've written about a lot over the years, is the classic example of that. And one that's really going to help you out is good ballast in a bare market normally. Right. You're that kind of thing. And then as you said, the at the other end you've got super spicy stuff. Yeah. So there is no one definition of an absolute return fund beyond the aim, the original aim, which is not relative, but absolutely there's nothing more than that. So should you have absolute return funds in your portfolio? Well, sure, but 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 hedge fund like returns or are you looking for a conservative ballot?

[John Stepek]

And you do need to look into them. And the other thing is, again, remember that just because it promises an absolute return doesn't mean it's going to manage to do it. Because I remember I was reading an article before we came in and there was something like There was about 60, slightly more than 60 funds in the sector and this was written last June and about half of them had managed to make a real return over the previous year. And then the guy was referring to that's a lot better than the last time I wrote this because last time I wrote this, only 7 of the funds in the sector. So I mean, I think that comes back to that point. It's like, okay, it's the rate target, but it's fairly hard to do because if it was easy to do, then, well, everybody should go.

[Meryn Sums Up Webb]

There is no such thing as a

[John Stepek]

guaranteed absolute, Guaranteed absolute return fund.

[Meryn Sums Up Webb]

All you can have is a target to be an absolute return.

[John Stepek]

Aspirational, Aspirational, everyone.

[Meryn Sums Up Webb]

Aren't we all right, I think that's about it. All we can say on absolute return funds without getting too much into the weeds of individual funds, which we don't want to do right here. Thanks for listening to this week's Marin Talks yous Money. If you like our show, rate, review and subscribe wherever you listen to podcasts. Also, be sure to follow me and John on X or Twitter erinsw and johnstepek. This episode was produced by Sama Saadi and Moses Andam. Questions and comments on this show and all our shows are always welcome. Thank you Tim, for yours. Our show. Email is marianmoneylumberg.net.

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[Meryn Sums Up Webb]

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