FidelityConnects: Alternative investing strategies in 2026

[00:05:32] Lauren Gardy: Hello, and welcome to Fidelity Connects. I'm Lauren Gardy, Vice President of Strategic Partnerships. Market volatility and shifting rate expectations are pushing investors to rethink how they diversify portfolios. Our next guest points out that liquid alternative strategies are playing a growing role as investors look to balance diversification with flexibility. That evolution is changing how investors are thinking about sizing, liquidity, and portfolio construction. With Fidelity's growing lineup of alternative strategies investors have more choice across Canadian and global markets. Joining me now to unpack how alternatives may fit effectively in one's portfolio and how the landscape is unfolding is alternative strategist, Brendan Sims. Welcome, Brendan, thank you for joining us today.

[00:06:19] Brendan Sims: Lauren, happy to be here. Happy Friday.

[00:06:21] Lauren Gardy: Great, yeah, happy Friday to you too. Why don't we start off our conversation on something that's very topical in the headlines right now. That's within private markets and specifically private credit. Curious what your thoughts are on liquidity in this space and what is really just noise and what should investors be paying attention to?

[00:06:37] Brendan Sims: It's an interesting topic to kick it off with for sure. I think we're seeing a lot of main big brand labels out there experiencing turmoil to some extent, whether that's observable and measured by their publicly traded share price, maybe some announcements with regards to gating of capital, where they're sort of restraining investors from accessing or getting liquidity on their underlying investments. Again, that's always to preserve the integrity of the underlying portfolio and in the best interest of all unitholders. It could also be on the private equity side, for example, where you're seeing sort of delayed exits where the average age of a private equity vintage sort of ageing up as sort of vintages are not able to get the exit valuation that they once saw so you delay until the marketplace is in such an area that can absorb at the level in which they would hope to get.

[00:07:22] There's a number of different things happening on both private equity, private credit side. In fact, most recently, we can sort of observe that some of the loans that have been extended to, say, hyperscalers of sorts, those that are looking to spend dollars to build data centres and sort of harness and grow compute, a lot of those loans that are being made privately have, ironically enough sort of in a roundabout way, dampened the private equity side of the portfolio where some of these portfolio companies, if we look at what's happened to software in the public equity world, there's been a material rerating or sort of a question about the future viability or terminal value of some of these names that are, I would say, less vertically integrated software names and more horizontally integrated in a sense that portfolio companies on the private equity side have taken a hit because of all the capital that's been put out to fund compute and sort of power LLMs that serve to be a threat. Really, really interesting times in the world of privates and there's never a dull moment.

[00:08:15] Lauren Gardy: Yes, lots of change in every aspect of the market currently. Let's take a look at Fidelity's shelf in the private space. We're not in credit or equity in Canada at this time but we are in real estate. Could you talk to us a little bit about that offering and how liquidity is treated within that fund?

[00:08:29] Brendan Sims: Just about a year ago Fidelity Alternative Real Estate Trust became available to Canadian investors. What we did was we rolled out a 70/30 vehicle whereby we're 70% or more invested in private Canadian real estate, and then up to 30% in publicly traded REITs. What we've done there is we've devised a 70/30 hybrid structure to ensure that across different market cycles we've, to the extent we can control, mitigated the opportunity for liquidity to present as a problem. Ultimately, over the past few years we've partnered with Brookfield to sort of stand up this private vehicle. They've gone out and purchased seven properties that comprise the portfolio at present across each multi-family as well as industrial logistics. What I would say at the highest level is there's about a billion dollars, or just shy of a billion dollars, of gross asset value. Again, we are using a degree of leverage in this fund that is sort of fueling the exposures that are provided in that 70% of the portfolio.

[00:09:26] So do take a look at Fidelity Alternative Real Estate Trust. It's really exciting. The one thing I would sort of plug to that solution is that for the time being we do have a competitive advantage of sorts but that window of opportunity won't be around forever in a sense that all properties in this portfolio have been methodically procured in this environment, or at least in the last two, three years. The same can't be said for legacy product where there might be assets that are on there 10, 15 years old, made sense to lever up in previous credit environments, and/or product that made a lot of sense in different market environments. Obviously, we're seeing a ton of change in office, retail, the way the world around us works with sort of fulfilment centres and other areas of industrial logistics for sure.

[00:10:09] Lauren Gardy: Very interesting. It's a good way for maybe renters in Toronto to get exposure to real estate as an asset class within their portfolios as well.

[00:10:17] Brendan Sims: There's two tails here in Canada. There's those that are grossly overexposed in their total net worth profile to Canadian real estate and those who are underexposed. We won't sort of dive down that rabbit hole but for those that are looking to eventually one day gain exposure to real estate here in Canada it's a great way to be exposed to the footprint as opposed to just having it blank because you haven't yet entered through a principal residence.

[00:10:39] Lauren Gardy: That's a great point. Looking at the landscape generally, I mean, we started our conversation talking about privates because of how big the space has become in Canada. I'm curious from your perspective, what really has driven this growth that we've seen within private investments and do you think it will continue going forward?

[00:10:53] Brendan Sims: It's a good question. I would say that there is an allure to put the private side in a sense that investors are often looking to go beyond or get more of a white glove service with regards to their portfolio. I would jump in to say private investments due to their illiquid nature are not for every single investor and we need to delineate who has the liquidity profile to lock up capital longer term and maybe who does not based on what their goals are, whether that's retirement roadmap, plans for capital in the interim, home purchases, more of a corporate investment strategy, you name it. Not everyone is an institutional endowment fund, a CPP or a pension fund of sorts. These are very large entities with large pools of capital that have forecastable future liabilities.

[00:11:35] Of course, every individual will say I can handle the liquidity until you can't, right? No one knows the crunch that's coming in three, five, seven years from now. Whereas if you are a large pool of capital with known future liabilities it's a lot easier to run your portfolio 30, 40, 50% private assets. I do think that in the Canadian retail space, that number is probably a lot less. I'm not here to necessarily put a number to it. We've run some simulations to sort of look at and observe liquidity characteristics and that would likely be some number that's like a 5, a 10, or a 15, would allow for a sleep at night allocation to illiquid vehicles.

[00:12:13] Lauren Gardy: That's a great segue to the next bit of our conversation. If we stay within alternatives but move back to public markets, could you talk to us a little bit about the risk and return expectations, similarities and differences investors might need to consider whether they're looking at privates versus a public, say, a long/short alternative strategy?

[00:12:31] Brendan Sims: Interesting question in the sense that they contrast with their liquidity profiles but they don't necessarily contrast with the risk profiles. I'll say it through such a lens that you can have high risk illiquid funds or privates and low risk alternatives and vice versa. There's a risk spectrum to each side of the fence. I think that that's often a misconception but illiquidity is a risk in and of itself that we need to be mindful of. I know that there's a lot of dealers out there that do bring liquidity considerations into sort of the overall product risk rating for how how they rate it internally within their shop.

[00:13:03] With respect to liquid alternatives I think that that spectrum is wide. You can get some very low risk products out there that would be competing with the lowest risk bond funds and/or sort of lower risk equity mandates out there in long-only world. But then you also have capabilities to utilize derivatives, whether that be puts, calls, forwards, futures, to obtain what we'd say synthetic exposures to an underlying or using a form of leverage to gain exposure without actually tying up and committing capital. You can also use those same derivatives to hedge and derisk portfolios. I think that flexibility is a big characteristic within alternatives, and where you use that flexibility to toggle on the risk spectrum is really up to the manager and the mandate.

[00:13:48] I think that part of what I do is stay abreast the competitive landscape, not only our own Fidelity funds, and seeing what's out there. There are funds that have more of a requirement to stay in their lane and funds that sort of carte blanche, if you would, with respect to what they're going to use under the hood and how they'll be positioned through different market environments.

[00:14:10] Lauren Gardy: Very fascinating. I'm sure this rapidly changing space you're working in keeps you very busy staying abreast of all the new products coming to market.

[00:14:16] Brendan Sims: To an extent. We get an update here internally of sort of what new products are being filed for and/or receded, as well as sort of what's coming to the marketplace. Yes is the answer. There were, I think it was 300 and some odd new ETFs launched just last year. Of course, not all of those were alternatives. I think that if you look a lot of shops, Fidelity included, have legacy product shelves that are well built out and established. We have a long runway on the alternative side. I think with respect to where we can go and take alternatives we're really excited about some of the future capabilities.

[00:14:49] Lauren Gardy: Very exciting for sure. On that topic a new interesting area is the multi- alt product. Could you talk to us a little bit about how advisors should be thinking about that and where it really fits within a well diversified portfolio.

[00:15:02] Brendan Sims: Fidelity has been present in the alternative or liquid alternative space since October of 2020. We sprung forward with three liquid alternative mandates in October of 2020. That was in response to some changes in late 2019 that granted these flexibilities, the ability to sell stock short, use leverage against the funds NAV, derivatives for non-hedging purposes, you name it. Within a reasonably short period we sprung into action, as did many competitor asset management solution providers. I think that with regards to multi-alternative solutions you need that product shelf within the alternative space before you can roll out a fund of fund structure in alternatives, that's quite intuitive. I think that five, six years later we're at a great point where we have a longer shelf. We now have eight underlying liquid funds and one private mandate for a total of nine alternative solutions that we can tap into to procure a portfolio in such a way where we methodically devise what is a strategic neutral mix.

[00:16:01] In this case we launched Fidelity Multi-Alt Equity. Fidelity Multi-Alt Equity's been around for five months. It's garnered over 100 million in total assets across the ETF, which is FMAE, and the mutual fund versions of the product. It's clear that there is investor and advisor demand for an alt of alt products of sorts. I think there's a few reasons for that. First one that comes to mind would be that the overall risk rating for a product like this, sometimes you might have high risk, medium risk solutions, but when you package them together and when they have lower correlations to one other, which is by design when we're devising this strategy, you can come up with a solution that has a relatively low volatility profile where those solutions tend to offset and complement one another.

[00:16:46] We are able to come out with a low to medium risk rating on Multi-Alt Equity. I think that that's a great thing and a great tool. As vol has crept upwards over the last decade, as we sort of roll off the 2015s and '16s, the lower vol years, into sort of where we've been hanging out lately the overall product landscape is shifting upwards from a risk rating. I know a number of different dealers and advisors have sort of encountered that. Not to draw too much attention there but I think the ability to bring forward a low to medium solution that plays only in equities is a great, great tool to help achieve objectives.

[00:17:18] Lauren Gardy: When you work with advisors and maybe they're building their alternatives portfolio would you typically recommend the Multi-Alt or see advisors use it as a standalone or does it get paired with other alternatives in a portfolio too?

[00:17:27] Brendan Sims: I think most commonly it's a great starting point. That's where we've seen a lot of that uptick or the ask or demand from our advisor partners. They're looking for a starting point. If you're going to build out, say, a 20% allocation to liquid alternatives in a given client portfolio or model it's great place to start with a five or a ten, like a chunkier one-ticket allocation to get that tranche of one's portfolio started in a diversified manner as opposed to doing due diligence across the broader space to piece together four, five, six independent solutions, which are then not self-rebalanced. You would need to do that whether that be quarterly or annually to sort of monitor those allocations. This rebalances, in the case of Multi-Alt Equity, using daily fund flows. We allocate to Dave Way's Long/Short fund, Reetu Kumra's Canadian Long/Short, Brett Dley's Market Neutral, as well as Dan Dupont's Global Value Long/Short, and a small allocation to digital assets. Daily fund flows are going to stand to offset and keep those really tight to their strategic neutral.

[00:18:26] Lauren Gardy: Very interesting. Moving beyond that, you did mention that the fund is comprised of a lot of long/short equity products which seemingly has been Fidelity's main focus or bread and butter within the alternative space. What is our competitive advantage when it comes to long/short equity investing?

[00:18:41] Brendan Sims: I would say the research advantage. We've been doing this for a long time and I like to think that we've proven to be reasonably good at it. In fact, I don't think, I've seen the data. We have a strong suit in equity research where from a buy, sell and hold rating we do have a strong suit in identifying great companies subject to sort of have tailwinds to accelerate relative to their peers and, quite simply, those that are going to face headwinds. It was a no-brainer, it was very intuitive for us to move into long/short equity as we had the foundation and the underlying building blocks to tap into already. I think economies of scale is a good sort of one term to describe why Fidelity, why the research advantage, research advantages is more crucial when playing on both sides of the trade.

[00:19:26] Effectively, and I've said this before, prior to liquid alternatives and the ability to be both long and short if we didn't like a name, if we had a tidbit of information or an insider research advantage that suggested someone was going to underperform materially the best we could do is not own them. Now we can actually exploit and take advantage of that research and all the work that is done.

[00:19:46] One thing to add, on all of our liquid alternative products we do not have a performance fee on any of the underlying. I think that taps into and and speaks to the economies of scale, all of this structure was already here. All of our analysts globally as well as here on the ninth floor out of our Toronto office, it was already built and we're just tapping into it.

[00:20:05] Lauren Gardy: That's very exciting. Do you see any areas where our alternatives lineup might expand into in the future or anything missing from the current product offering, so to say?

[00:20:15] Brendan Sims: There are a lot of different areas that we're excited to expand, if you would. Time will tell, right? We're always busy trying to align our capabilities, whether that's internally here at Fidelity in Toronto in Canada, whether it's our partners in Boston at FMR. We have a lot of capabilities at our disposal. Which ones we line up to bring forward a product methodically, you can only launch so many products in a given quarter or calendar year and we want to balance or optimize that front, if you would. I think an area ... when we divide the world of alternatives there's really five categories. There's alt-equity, credit, market neutral, other, and multi-strategy. The only one in which we are not playing in is alternative credit space.

[00:20:59] I think I'm really excited about what we've been working on or some of the capabilities that we've been looking at within the alternative credit space. When I look across the Canadian landscape there are a number of competitors playing in the liquid alternative space, to my knowledge no given competitor has checked every single box. We're working towards doing that in due time. I think that looking at capabilities across different areas of the spectrum is important to us and alternative credit is something we look forward to bringing forth at some point. With that said, a hot take would be that the multi-strategy space, where Multi-Alt Equity resides, my take is that in 2026 and onwards that will be the fastest growing segment of liquid alternatives on a percentage growth basis, quite simply because we're several years into this liquid alternative industry, if you would, and I think ourselves and a number of competitors are at the point where we have that lineup to draw upon. There has been investor demand that has been untapped within the multi-strategy space so I think that that's an area I see sort of disproportionate growth on a go-forward basis.

[00:22:03] Lauren Gardy: Yes, that will be a very interesting area of the product lineup and the market to keep an eye on. One other trend I did want to touch on today for our listeners is the key theme of US concentration and then advisors looking for US large-cap diversification within clients' portfolios this year. Curious if you can talk to us within our liquid alternatives lineup what specific strategies could advisors look to get exposure, say, to Canada or global equities?

[00:22:27] Brendan Sims: Two come to mind. There's Canadian Long/Short, FCLS is the ticker for the ETF version of the fund, as well as our Global Opportunities Long/Short. It's a new fund with two new PMs, Nic and Max, who have been long term analysts within the Fidelity ecosystem. Fun fact, actually dating back before that they headed up their school's stock picking program. They've been working together, identifying the opportunity in securities for probably the better part of over two decades, most of which was at Fidelity. That's FLSE is the ticker, Fidelity Global Opportunities Long /Short.

[00:23:04] Again, just thinking broadly, one is a Canadian long/short fund, one is global long/short fund, both of them have the ability to play on both sides of the trade. If you're looking to shift from a more Western dominant and/or sort of US growth specific allocation, and you're looking to allocate rest of world, whether that's Canada or beyond, and you want to do it in a long/short framework, either of those would be great options. I would also just plug to the rest of our broader lineup, there a number of great international and Canadian managers that offer that opportunity. We've seen a number of flows sort of migrating from that US-centric growth dominant large-cap heavy into the rest of the world. We've seen a massive broadening of markets in the last, I'd say, three to five months where those trades have sort of taken hold.

[00:23:51] Lauren Gardy: It's great that Fidelity truly can be a one-stop shop for advisors, even on the alternative side now. I did want to point out on the US diversification front, going back to our private lineup here is the Brookfield Real Estate Fund as well that we partnered with. We were saying that there is a little bit of a lock-up or liquidity requirement that's necessary for the investor, is there a way that they can access that private real estate fund without needing to sacrifice liquidity?

[00:24:14] Brendan Sims: There is, and it coincides with our broader view that alternatives have a role to play and a place to be had in a multi multi-asset portfolio. We have our private investment pools, our PIP suite of funds for short, where we've made up to a 5% allocation to private Canadian real estate through the underlying private real estate building block that is managed by Brookfield within our private investment pools. If you are a holder of the Canadian oriented private investment tools today you have an allocation to private Canadian real estate that is managed by Brookfield already. If anyone is looking to, through a non-alternative vehicle with daily liquidity, to allocate to that it's our private pools and it's already there. I think that that speaks to our broader house view. We incorporate digital assets into our All-in-Ones. We incorporate our long/short funds as well as our market neutral product into our managed portfolio. I think we are a true believer in alternatives within the multi-asset portfolio.

[00:25:12] Lauren Gardy: And fantastic that we're bringing those forward to investors in sometimes more accessible ways.

[00:25:16] Brendan Sims: Absolutely.

[00:25:17] Lauren Gardy: You just touched on cryptocurrency. I don't think we can have a proper discussion on alternatives without digging into that a little bit. Could we focus on Bitcoin, and I'm really curious to hear your thoughts, Brendan, on what's been happening within the sell-off there this year.

[00:25:27] Brendan Sims: Yeah, absolutely. You said it, the sell-off this year. There was a point in time where Bitcoin was around 126,000 USD per coin and it touched down to about 60,000. I think as of a point this morning it was around 66 so we can call that a sell-off of about 60,000. I think that at a point the sell-off was over 50%. If we look historically going back, let's say, a decade, how many times has this happened? Let's get some context. I would say that this is not completely abnormal. There have been six sell-offs in Bitcoin, in the price of Bitcoin, in the last decade, three of which were actually 75% or more. We're in one of the six that is 50% or more, just for context. I think that the volatility characteristic that is that ability to sort of sell-off is more of a feature than a bug. That might sound really crazy but again, this is an asset that does not have cash flows associated with it, how do you value it? The valuing of it is very controversial, depending on who you ask. I think that there's a ton of price discovery and supply and demand massively shifts the scales with respect to the pricing.

[00:26:40] There's number of different things ongoing right now. Threat of quantum, sort of a more risk-off appetite where gold, silver and sort of other precious and non-precious metals have absorbed some of the opportunity set. If you chart digital asset ETF flows, the US launched spot Bitcoin products in January of 2024 so if we make that our starting point and we go up to date you would look that gold has completely dethroned digital assets, which had a massive head start doing really, really big flows out of the gate in 2024 and onwards. In the last as little as six to eight months gold has completely closed the gap on that. Initially, a lot of the gold buying that pushed the price from, say, 2,000 up to 3,000, up to 4,000, up to 5,000 is believed to be non-retail. It's believed that it'd be central bank activity sort of seeking a safe haven that is not US Treasuries for foreign reserve assets. In fact, we can see that foreign reserve asset gold has surpassed Treasuries for the first time in over 30 years. These are big fundamental shifts or sort of like movements in tectonic plates that happen over a long time, if you would.

[00:27:50] Lauren Gardy: Great analogy.

[00:27:51] Brendan Sims: I think that with respect to digital assets and Bitcoin, if you were someone that had a thesis around it and you were methodically building this into a portfolio in a prudent way, if you're dollar cost averaging I think that thesis is still intact. It's a lot better to be accumulating at 60, 70,000 than it is to be at 120 but yet the lines to get in were so long at 120. There's an irony aspect in that. I think that if you look through the noise when there are drawdowns of this magnitude they typically don't reverse very quickly. If they do it's more oftentimes than not a head fake. I would say this is an allocation that you need to do your homework on. You need to fully understand what it is and sort of the thesis behind this, which I think that as dollars become more abundant they will look for a home. Digital assets tend to do well with expansion of M2, money printing of sorts, injections of capital, tax refunds, stimulus checks, you name it. I think that a lot of that plus the risk-off appearance right now from a number of different geopolitical on goings that we're going to talk about next week, are creating more of a risk-off backdrop that's sort of proliferated the advantage that gold has had over Bitcoin at present.

[00:29:07] On talking gold I'll just point out one thing. Digital assets were at a point in time about 2.4 trillion in size, 120 price tag per coin with about 20 million coins in circulation. So 2.4 has kind of dropped down to about 1.3 trillion in size ,would be the way I see it. We've eroded a trillion dollars of market cap since October of last year. That's a big number. Gold at the end of January wiped out $5.5 trillion in a trading day or two.

[00:29:38] Lauren Gardy: Oh, my gosh.

[00:29:39] Brendan Sims: Even bigger. It's like it took Nvidia, completely wiped it, 4+ trillion is Nvidia, just wiped it. Movements in gold with a market cap of greater than 30 trillion, movements of gold intraday of, say, 5%, 10% have profound implications on moving that total market cap, wealth creation, wealth elimination. I think that when we look at a number like 1.3 trillion it's obviously not nothing but in the grand scheme of Treasuries, gold, and other sort of areas of the marketplace it is a very small number, and we need to remind ourselves of that.

[00:30:09] Lauren Gardy: Well, thank you for painting that picture, Brendan, that was very helpful. I did want to ask you about yield and for investors who perhaps are looking for income within the alternative space is there anything on our shelf or anything that you would recommend in that area?

[00:30:21] Brendan Sims: One fund comes to mind and it's Fidelity Equity Premium Yield. The ticker for that on the ETF is FEPY, FEPY is how we commonly refer to Fidelity Equity Premium Yield. It's a US-based covered call strategy that aims to own a refined index, so an active take on the S&P 500, 180, 200 names, US equity exposed. On the other side of the portfolio we're writing call options. On any given Friday we're rolling off of a tranche of about 25% and we're re-initiating that. There's four tranches of 25%, we write on 100% of notional, we write calls that are anywhere between 2% to 4% out of the money, and we do so in such a way that we're seeking a yield profile of 6% to 8%. In fact, for 2025 we yielded on the higher end of that. Over the course of the year I believe it to be about 8.3% that we paid out throughout 2025. Again, there's a small div profile associated with owning US equities but we're able to sort of materially enhance that with the premiums from writing calls in a conservative fashion.

[00:31:23] How equity premium yield would differentiate from a number of different call writing solutions is we still want to be there on price return. We do not want to right away, right away meaning we write call options more aggressively in pursuit of higher, higher, high yields at the disadvantage of our price return. We want to be there. We want to own great stocks, ideally not sell them in cap or upside return too-too much but we want to write calls, own stocks, and have a balanced participation across both the premium side and the price return on US equities.

[00:31:55] Lauren Gardy: Well, thank you for that answer, Brendan, so much fantastic information for our advisor audience has been shared today. We're getting close to time, curious if you have any final thoughts for our audience before we wrap up.

[00:32:04] Brendan Sims: I would say that change is inevitable and volatility is certain, it's just a matter of when. I think that alternatives in a big way offer a new tool to those managing client portfolios to layer in a degree of resiliency into your portfolio. Whether it's a flash event that lasts 30 days or an entire calendar year like 2022 I think the more tools you have to build resiliency into portfolio the better. I see a bright future and a lot of growth for the alternative space both on a dollar basis as well as the breadth of capabilities. Thanks very much for chatting today.

[00:32:36] Lauren Gardy: Great note to end off on. Thank you very much for your time, Brendan, very much appreciated. Thank you to our listeners for joining us this week on Fidelity Connects. Coming up next week on the webcast, next Monday Fidelity Director of Global Macro, Jurrien Timmer, is back with the macro themes on his radar to set you up for the trading week ahead.

[00:32:54] On Tuesday Fidelity  US Growth Opportunities Class portfolio manager, Becky Baker, will join Pamela Ritchie for an update on where her team sees the strongest potential for growth, including the catalysts they're tracking across the US equity market. This webcast will be presented in English with live French audio interpretation.

[00:33:15] Next Wednesday you do not want to miss our extended webcast on geopolitics and growth. You told us and we listened. Geopolitics is the number one topic driving your client conversations today and the number macro factor that is expected to impact client portfolios in 2026. Join us for a 90 minute program featuring Fidelity PMs Joe Overdevest and Patrice Quirion, equity research analyst Jim Huang from Fidelity US, Katie Fallon Head of Corporate Affairs and former White House Legislative Director under President Obama, and Greg Lohman, Bice President of Advocacy and Policy Communications. This session is designed to help you clearly explain what's happening in Washington, why it matters, and how to position client portfolios amid ongoing geopolitical and policy uncertainty. The webcast will be presented in English with French, Cantonese and Mandarin interpretation. Thank you for watching. Have a great weekend. I'm Lauren Gardy.