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Is your portfolio being undermined by the wrong objective?

Hugo: hello and welcome back to Mapping the Markets, the podcast where we talk about the big ideas in investing, and how they impact our portfolios. Today I thought we would discuss investment objectives! I know that doesn’t sound very interesting, but I think its going to be. Investment objectives are one of the areas where we see the most divergence between managers. And surly it must be the most important thing for a portfolio manager to justify – why does the objective that they have set their fund make sense. To that very end, there is only one man worth talking to: its Mr Chris Ellis Thomas, portfolio manager for the MyMap portfolios. Chris, welcome.

Chris: very happy to be here Hugo.

Hugo: so Chris, for the benefit of new listeners, you are a multi asset investor, meaning you create portfolios that contain a mix of government bonds, equities and alternatives, with the aim of helping customers grow their money over time. Is that fair to say?

Chris: yes I think that pretty much summarizes it.

Hugo: so what are the stated investment objectives of your funds?

Chris: well generally speaking we have risk targets as objectives. That allows us to run ranges of portfolios, which contain options for clients with different risk appetites. For example, we have portfolios for conservative clients that target volatility as low as 5%, we have portfolios for moderate clients targeting more like 8% volatility, and then portfolios for very ambitious clients that target risk levels as high as 15 or 20%.¹

Hugo: okay, there is so much to unpack there, and I want to get onto what exactly volatility is and why we use it in a moment. But first let me start by asking a really simple question, why aren’t you targeting return? It is not uncommon for our peers to have a range of portfolios just like us, but with each targeting a different level of return each year. If what we want to do is help our clients grow their wealth over the long term, shouldn’t our investment objective be a specific return target?

Chris: the simple answer to that question is that the feasibility of reaching a given level of return changes over time. Take a 5% return objective as an example, today you could easily hit that by just holding UK Government Bonds, but back in 2020, not a chance, you would have needed to be holding High Yield Bonds, or equities to have any hope of hitting that target.

Hugo: okay, so portfolio managers solely aiming for a specific return are going to have to really vary their client’s experience of risk through time in order to hit it across all market environments

Chris: exactly, and we don’t think that makes sense for clients with long term investment horizons.

Hugo: But what about a ‘cash plus’ target, say the return on investing cash +2% for a moderate investor. Having that cash component of the objective ensures that it is sensitive to the prevailing returns available in markets, and presumably allows for more stable portfolio holdings?

Chris: well that raises another problem: creating expectations that are almost impossible to meet. If you wanted to achieve a cash return, you would be able to do it almost perfectly every year right?

Hugo: you mean if I just wanted to receive ‘cash’. Yeah I could go out and put my money in a savings account and guarantee myself that return.

Chris: but a portfolio manager targeting cash +2%.... they are not going to give you 2% more than a savings account every year. The annual returns will look something like +10%, -5%, +7%, -1%. An investor with a ‘cash plus’ benchmark will almost never get a year that is close to that target.

Hugo: happiness is reality minus expectation, and cash + investment targets are setting a very very big expectation…

Chris: And I also have a sort of philosophical objection to return objectives for portfolios. I don’t think they really make sense. If you ask 100 people what return they want from their portfolio you are going to get basically the same answer every time…

Hugo: …‘as much as possible’

Chris: exactly. What changes from one person to the next isn’t how much return they want, its how much risk they are willing to take in order to get it.

Hugo: that is actually really clever - our approach seeks to align the goal of our portfolio managers with the desires of different clients?

Chris: yes, the portfolios are segmented in the same way as people are: by their willingness to take risk. And then within that risk budget, my goal is actually rather simple - deliver as much return as possible.² That means that in the really good years, even cautious investors could see strong returns, but in the bad years, those cautious people know that their money is being managed in a prudent way.³

Hugo: I suppose targeting a specific level of return could in some market environments actually curtail the performance that clients receive. Okay Chris, I am sold on why we target risk. Now lets go back to what exactly we mean by risk – you mentioned volatility earlier. First what is volatility?

Chris: volatility is imperfect, that’s what it is! But it’s the best we’ve got. Put very simply, it is a measure of the fluctuation in returns over time.

Hugo: how wiggly the line is basically?

Chris: yes exactly.

Hugo: but for want of a better term ‘line wiggliness’ isn’t of concern to most people is it? When I talk to clients what they really think of as ‘risk’ is how likely they are to lose money.

Chris: yes, but volatility is actually a pretty good proxy for the likelihood and magnitude of short term losses. If the value of your portfolios ‘is more wiggly’, it is going to drop by more during difficult periods.

Hugo: it is probably also interesting to note that regulators tend to like volatility as a metric of risk, and it has become pretty standard across our industry as a way of communicating how spicy or otherwise a portfolio is.

Chris: yes, and that is ultimately because it is considerably easier to forecast portfolio volatility than it is a ‘likelihood’ of loss.

Hugo: Right Chris, I have another awkward question for you: why don’t we just have a benchmark and then our objective can be to beat that?

Chris: well what would you pick as a benchmark? For simple investments, like US stocks, a benchmark is reasonably easy, you could use an index like the S&P 500. But we aren’t just holding US stocks, we have UK credit, we have gold, we have Brazilian debt⁴ - we can invest in basically anything, what do you want to compare me to Hugo!?

Hugo: how about something simple, like a mixture of global equity and global government bonds?

Chris: well not to sound like a broken record, but because of risk! If you are managing to a benchmark like that, your risk is going to be all over the place.

Hugo: why?

Chris: The risk of any given investment, and the relationship between those investments, is dependent on a whole load of external factors. Like the political climate, the economic cycle, and what’s happening with interest rates. So the risk of global equities and global government bonds is going to change from one investment period to the next.

Hugo: yes we have seen that recently happen with bonds actually. For years after the global financial crisis government bonds were like the ultimate defensive investment, any time stocks fell, bonds came to the rescue. But since the War in Ukraine that has all changed, bonds are much much riskier now – their volatility is higher.

Chris: the other problem with trying to beat a benchmark, is that it can result in abysmal total returns. If we were managing our portfolios based on a benchmark, and that benchmark fell by 20% over a five year period, but our funds only fell by… 18%, then we would have done a good job right?

Hugo: well… I don’t think clients would see it that way!

Chris: exactly, when people are investing with us they want to grow their wealth over time, its as simple as that, and managers anchoring their portfolios around benchmarks are not thinking about absolute return.

Hugo: its interesting, clients often comment on how well our solutions have fared when markets have fallen.⁵

Chris: well that is because we have established that what matters to clients, and therefore what we use in our objective, is risk. And the final advantage of avoiding benchmarks is that we are able to make much more intuitive investment decisions.

Hugo: you mean like with Japanese government bonds? Japan is the second largest country in the government bond index, so lots of investors hold very large allocations to that market.⁶ But we don’t hold any Japanese government bonds.

Chris: precisely, that’s because intuitively we don’t like them: they are yielding almost nothing, rates are probably going up, its return-free risk. And we can’t ‘hide’ behind a benchmark as justification for that unintuitive decision.

Hugo: and presumably its not just about what we avoid holding, its also about what we buy into?

Chris: yes, we don’t have to worry about deviating from an arbitrary benchmark, so we are able to diversify really effectively. Take the ‘defensive’ portion of our portfolios, we aren’t just thinking about government bonds, because there are market environments when we know they might not work very well. So instead we can hold allocations to cash, or add Gold or increase exposure to high quality corporate bonds.

Hugo: and you aren’t just talking in hypothetical terms here Chris, we have actually been implementing exactly what you describe over the past couple of years with our holding in Gold. It has done a really good job of providing downside protection, like during Liberation Day in early 2025, or the escalating trade tensions at the start of this year.

Chris: yeah exactly. It is for all of the above reasons that we have chosen to include volatility targets. It aligns portfolio manager and client objective, it focuses the return that is being delivered, and allows for the according flexibility. I think the last thing to say is that BlackRock as an organisation has risk management very much in its DNA. We are trusted by millions of institutional investors, because of focus on controlling portfolio risk. We use tools like Aladdin – our proprietary portfolio management software – to develop an understanding of portfolio risk and seek to control it accordingly.⁷

Hugo: Aladdin is a fascinating topic, might even be worth doing a whole separate podcast on. However, for today, I think we are just about out of time. Chris, thanks as ever for your time and insights, it was really very interesting. If you enjoyed this podcast, then please subscribe to be notified whenever we release a new one. Finally, please remember any return figures mentioned above relate to past performance. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Risk Warnings

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

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¹Source: BlackRock, 31/01/2026

²Portfolio Managers’ current process, which is subject to change without notice.

³There can be no guarantee that the investment strategy can be successful and the value of investments may go down as well as up.

⁴Source: BlackRock, 31/01/2026. Portfolio Managers’ current process, which is subject to change without notice.

⁵Source: BlackRock, 31/01/2026

⁶ Source: BlackRock, 31/01/2026, Bloomberg Global Aggregate Treasuries Index

⁷While proprietary technology platforms may help manage risk, risk cannot be eliminated.

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