How to improve the risk/return potential of your portfolio

Downside protection can result in long-term market outperformance.

Alternative mutual funds widen the scope of strategies available to investors beyond long-only investing, providing a broader opportunity set within which to capture returns. As a result of their additional flexibility in using certain investment techniques, many alternative mutual fund strategies target lower correlation with broad market factors compared with long-only investing, which can help during moments of volatility.

Including an allocation to such strategies in a traditional retail portfolio can lead to diversification benefits that could result in an improved risk/return profile  - and help create a smoother ride.

Improved risk/return tradeoff

The chart below outlines the benefits of portfolio diversification, illustrating that adding a modest 15% allocation to market neutral strategies to a traditional 60/40 equity/bond portfolio has historically resulted in an improvement in the risk/return tradeoff over the past 20 years (as represented by the Sharpe ratio of 4.2%).

Chart described within the article text.


Sharpe ratio is a common measure of risk-return trade off. A higher Sharpe ratio indicates a higher return per unit risk, which is good for investors.


Looking to add alternative strategies to your portfolio?

Consider the following fund:

Fidelity Global Value Long/Short Fund → 

Fidelity Long/Short Alternative Fund → 

Fidelity Market Neutral Alternative Fund →