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What Are Absolute Return Funds And Should You Invest In Them? · Merryn Talks Money

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  Speaker 1: the personal finance edition of Marin Talks Money. In these
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  Speaker 2: Are making the most of your money. I'm Maren sum Zep,
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  Speaker 2: Web Editor at Large for Bloomberg. Okay Wealth and with
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  Speaker 2: me senior reporter and author of the Money Distilled newsletter, John.
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  Speaker 3: Steppek, John Hi mel.
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  Speaker 1: Well.
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  Speaker 2: More questions, more questions keep coming. We do love them,
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  Speaker 2: and also they're often incredibly interesting because you know, listeners
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  Speaker 2: often look at things from a slightly different angle to us.
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  Speaker 2: If they're sending questions to make us go, oh yeah, all.
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  Speaker 3: That, yes, intelligent questions. All we have some very high
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  Speaker 3: quality a lesson and I have to see people we
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  Speaker 3: good tease.
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  Speaker 2: Well, we don't know that for sure, do we? We
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  Speaker 2: know we have some good quality Listeners's other ones to
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  Speaker 2: send the questions. Do we know anything about the rush?
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  Speaker 2: But there are lots of you and we'd like there
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  Speaker 2: to be more, so, you know, think about it sending
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  Speaker 2: questions all good. This one is actually one that I
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  Speaker 2: think is really interesting. We haven't talked about this for
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  Speaker 2: a while and it's one of our bug bears of courses.
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  Speaker 2: Is something that comes out of this. But here's the question.
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  Speaker 2: The outlook seems quite gloomy from many of your podcasts. Yes,
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  Speaker 2: I'm afraid. So we try to be optimistic, but you know,
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  Speaker 2: times are tough. It's tempting to allocate much more heavily
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  Speaker 2: to absolute return funds. Funds like are Going to Absolute
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  Speaker 2: Return and akr Apex have been there in great returns
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  Speaker 2: for a number of years now. In fact, we've had
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  Speaker 2: Barry Norris of the album absolutely return on and that
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  Speaker 2: has been going great guns and based on all the
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  Speaker 2: doom and gloom I'm hearing about the global outlook, I'm
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  Speaker 2: wondering why I'm invested in anything else. Fair absolute return
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  Speaker 2: sounds rather nice yeat. Typically people don't invest more than
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  Speaker 2: about twenty percent of their portfolio in such funds. What
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  Speaker 2: factors should I consider when I'm thinking about allocating more?
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  Speaker 2: Unusually like this, and this is from Tim right, Well,
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  Speaker 2: the first thing to say is to try and explain
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  Speaker 2: exactly what an absolute return is.
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  Speaker 1: Right.
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  Speaker 2: So, normally, when you look at a fund of any kind,
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  Speaker 2: it will judge itself relative to an index. So you
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  Speaker 2: will hear that a fund is outperformed even if it's
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  Speaker 2: gone down ten percent. If the index to which it
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  Speaker 2: benchmarks itself has gone down twelve or thirteen percent, they'll go, well,
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  Speaker 2: look we are performed. And you'll look at it and
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  Speaker 2: you'll goobal, but I have less money than I did before.
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  Speaker 2: What do you mean you unperformed? But that's the way
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  Speaker 2: the industry works. It's all relative benchmarking. It's not about
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  Speaker 2: whether you managed to beat inflation. It's not about whether
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  Speaker 2: you managed to have more money at the end of
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  Speaker 2: the year than you did at the beginning of the year.
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  Speaker 2: Is about how you did relative to an index or
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  Speaker 2: relative to other funds. And that's actually quite irritating, isn't it.
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  Speaker 3: Yeah, because for the retail investor, for us, for the
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  Speaker 3: end user, we don't care. We basically would like earn
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  Speaker 3: money to go up faster than inflation on a consistent basis,
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  Speaker 3: so that when we come with a tire, we get
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  Speaker 3: more money in real terms than we started by.
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  Speaker 2: Yeah, that seems entirely fair. And if you give your
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  Speaker 2: money to someone to take care of it seems entirely
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  Speaker 2: reasonable that you should be able to say to them,
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  Speaker 2: do you know whatever you want out of that? It
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  Speaker 2: is to beat inflation. I want to be richer in
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  Speaker 2: real terms, I inflation injusted terms at the end of
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  Speaker 2: the year than I was at the beginning of the year,
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  Speaker 2: or maybe not over one year, maybe over two years,
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  Speaker 2: maybe over three years, maybe over five whatever it is.
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  Speaker 1: That works for you.
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  Speaker 2: But the whole idea should be not that I did
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  Speaker 2: less badly than some other guy, but that you don't
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  Speaker 2: make me poorer, that my capital is protected in real terms.
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  Speaker 2: That seems like the apps absolute first priority of investing.
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  Speaker 3: Yeah, I mean, certainly, I can see why it's not
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  Speaker 3: like that. I can see why if you're if you're
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  Speaker 3: told you're invested in a FUTSI one hundred based active fund,
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  Speaker 3: then clearly doing a bit better than the Futzier one
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  Speaker 3: hundred is actually all you can expect if does go
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  Speaker 3: doing one. But it's just a preceding that deference, and
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  Speaker 3: I'm not sure that people always do appreciate that. That's
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  Speaker 3: how it works.
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  Speaker 2: So that is what we're talking about about. Absolutely absolute
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  Speaker 2: returns different to an ordinary fund. And then an absolute
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  Speaker 2: return fund manager says to you, my aim is to
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  Speaker 2: make sure that by the end of this year or
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  Speaker 2: the end of a five year period or whatever the
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  Speaker 2: period they're talking about is you have more money in
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  Speaker 2: absolute terms, and my plan is to be inflation every year.
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  Speaker 2: That's difficult, by the way, and a couple of decades ago,
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  Speaker 2: I don't know if you remember that there used to
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  Speaker 2: be an absolute return sector. You could say absolutely return
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  Speaker 2: funds a little below that the Investment Association changed that
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  Speaker 2: and started calling them target absolute return funds. To make
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  Speaker 2: it clear that actually making more money than inflation every
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  Speaker 2: year is really hard. It's really hard. So you can't
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  Speaker 2: say that you will do it. You can only say
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  Speaker 2: that you target it. But again, I mean, it's an
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  Speaker 2: idea that I appreciate because as as I say, I
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  Speaker 2: like the idea of someone saying, you know, I'm not
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  Speaker 2: judging myself against other funds. I'm not judging myself against
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  Speaker 2: an index. I'm judging myself against the real value of money.
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  Speaker 3: Yeah, and it's the right aim, and it's absolutely what
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  Speaker 3: to go for. I think the problem that you then
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  Speaker 3: come to law from a fund selection point of view
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  Speaker 3: is that the way that this rate has described the sector,
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  Speaker 3: it is like, okay, I'm going to allocate twenty percent
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  Speaker 3: of my fund, say two absolutely ton funds, And well,
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  Speaker 3: I said, what does that mean? And in practice they
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  Speaker 3: all do something different because because they're bench s mark
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  Speaker 3: to making real returns, it doesn't matter how they go
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  Speaker 3: about that. So they all go about it in different ways.
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  Speaker 3: And so I mean, to be honest, they are probably
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  Speaker 3: I am more akin to hedge funds than anything else.
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  Speaker 3: That's what hedge funds basically do as well. They just
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  Speaker 3: try and make money any way that they can. And
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  Speaker 3: so I mean, the argonotic example is a really good
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  Speaker 3: one because Barry's found is a very interesting fund, but
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  Speaker 3: it's certainly not on the low risk end of the spectrum.
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  Speaker 3: And he's invested in some pretty spicy stuff like Argentina
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  Speaker 3: because that's where he sort of kind of money coming in.
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  Speaker 3: Clearly he's been right about that, whereas others can absolutely
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  Speaker 3: turn funds are maybe more tilted towards the kind of
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  Speaker 3: gold bonds, slightly dull kind of stuff.
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  Speaker 2: Well, I suppose you can end up. You can end
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  Speaker 2: up with this very conservative, effectively and multi asset fante.
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  Speaker 2: And there's that when you can just say, well, this
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  Speaker 2: is the conservative ballast for my portfolio. It's not aiming
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  Speaker 2: for relative anything. It's just I mean to keep going
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  Speaker 2: giving me a couple of percentage points over inflation over
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  Speaker 2: the long term, which of course was incredibly valible. But
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  Speaker 2: that's like the Trojan fund, for example, a personal asset
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  Speaker 2: in the investment trust world, which we've written about a
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  Speaker 2: lot of the years, is the classic example of that,
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  Speaker 2: and one that's really going to help you out as
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  Speaker 2: good ballot in a bad market. Normally you're that kind
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  Speaker 2: of thing. And then, as you said, at the other end,
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  Speaker 2: you've got super spicy stuff. So there is no one
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  Speaker 2: definition of an absolute return fund beyond the aim the
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  Speaker 2: original name, which is not relative but absolute. There's nothing
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  Speaker 2: more than that. So should you have absolute return funds
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  Speaker 2: in your portfolio, well, sure, just be aware that this
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  Speaker 2: is an incredibly diverse sector and you need to be
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  Speaker 2: very clear on what it is that you want that
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  Speaker 2: to do in your portfolio. Are you actually looking for
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  Speaker 2: highly leveraged has fund light returns or are you looking
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  Speaker 2: for a conservative ballot?
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  Speaker 3: Yeah, and yeah, you do need to look at them.
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  Speaker 3: And the other thing is again remember that just because
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  Speaker 3: it promises an absolutely tone doesn't mean it's going to
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  Speaker 3: macee it do it. Because I remember I was written
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  Speaker 3: an article before we can there was something that was
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  Speaker 3: a bit sexty slightly more than sexty ones in the sector,
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  Speaker 3: and this was written last June, and about half of
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  Speaker 3: them had nice to make every all the time over
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  Speaker 3: the previous year, and then the game was a failed
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  Speaker 3: into that's a lot better than the last time I
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  Speaker 3: wrote this, because last time I wrote, there's only seven
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  Speaker 3: of the funds in the sector that so me it
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  Speaker 3: comes back to that point. It's like, okay, it's the
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  Speaker 3: rate target, but it's very hard to do because if
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  Speaker 3: it was easy you do, then help everybody who.
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  Speaker 2: OK, there is no such thing as a gun inteed guaranteed,
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  Speaker 2: absolutely return fund. All you can have is a target
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  Speaker 2: to be an absolutely inspirational apperation everyone won't we all right?
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  Speaker 2: I think that's about it all we can say on
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  Speaker 2: absolutely return funds without getting too much into the ways
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  Speaker 2: of individual funds, which we don't want to do right here.
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  Speaker 2: Thanks for listening to this week's Maren Talks to Your Money.
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  Speaker 2: This episode was produced by Samasai and Moses and Question.
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  Speaker 2: The comments on this show and all our shows are
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  Speaker 2: is merin Money at Bloomberg dot net.