The Upside: Exploring alternative investing

[00:01:05] Lauren Gardy: Hello everyone and welcome to The Upside. I'm your host, Lauren Gardy. If you've been hearing a lot more buzz about liquid alts lately and wondering what they are or how an investor like you can use them  this episode is for you. 2025 was a big year for the space, especially for equity-focused strategies. We'll break down what drove that momentum and what stood out. Then we'll share how equity long/ short alts are evolving at Fidelity and how they stack up against private market investing. In addition, we'll discuss how investors can consider combining different alternative strategies into one simple, practical solution within their portfolios. Please welcome Rory Poole, Director of Alternatives at Fidelity Investments Canada to the studio. Rory, welcome and thank you for being here today. 

[00:01:53] Rory Poole: Thanks, Lauren. I appreciate you having me.

[00:01:55] Lauren Gardy: In the intro I mentioned liquid alternatives had such a fantastic year in 2025. Could we look back for a moment, start off our conversation there highlighting what worked well in 2025.

[00:02:06] Rory Poole: It's the biggest year, actually, in liquid alternatives since their inception in 2019, at least in terms of inflows into the space more broadly. That's kind of interesting because as you kind of alluded to in your intro last year, 2025, was a particularly strong period for public markets. If you're an equity investor, depending on where you were positioned, you're probably earning anywhere between, call it a mid-teens type return all the way up to, for Canadian equity investors, closer to 30%. Seeing this mass inflow into an area of the market that is different from that of public markets I think is really encouraging for the space and on a go-forward basis.

[00:03:00] I think in particular there's a few things that kind of drove that growth, if you will. The first thing is no change from what we've been experiencing in the past. Investors are in search for additional forms of diversification for their portfolio. What I mean by that is they're really looking forward. They're not just looking to what's done really well in 2025, they're thinking to themselves, you know what, I'm investing for 5, 10, 15 years and I want to build this portfolio of investments that will serve me well in terms of both risk and return potential over that period.

[00:03:44] Another, I think, driving factor in the liquid alternative market last year, which was extremely prevalent, is this continued fascination with leverage. Leverage is an interesting concept. It is something that can be utilized in a myriad of different ways to achieve different goals for investors. In particular, last year we saw a lot of money moving into some of these leveraged strategies. Those include things like leveraged derivatives or options-based portfolios. Some folks may have heard the term covered call. Even in some cases some of these vehicles are leveraged plays on individual stocks. Clearly, it's an area of focus for investors more broadly but I would say in particular retail investors. We'll see where that part of the market goes in the future.

[00:04:41] You mentioned alternative equity-focused solutions. That's one of the five categories that exist within liquid alternative investing. Last year, and quite frankly for the last couple of years, it's been the most prevalent. I think that looking back at 2025 all five actual categories took in net inflows, a very positive outcome and, will be interesting to see where we go from here. On top of that I would say that not only were dollars big last year but the number of new strategies were massive. Over 120 new liquid alternatives came to market in 2025  which really speaks to the fact that there is a lot of interest in this space and we're excited to see what's to come in 2026.

[00:05:35] Lauren Gardy: That is very exciting. On that note of new strategies coming to market  could you comment, is Fidelity Canada planning to bring any new strategies this year that we're able to share with our audience today?

[00:05:44] Rory Poole: We are. We have big plans for 2026, as I know probably many other manufacturers out there do. For us it's thinking about a whole different type of approaches for investor portfolios, catering to whether it's different risk profiles or different things that we hear directly from the market that they're interested in potentially utilizing Fidelity for in the future. One of those is actually a product, I believe actually on the next episode of The Upside those portfolio managers will be featured, is a fund that we'll be launching at the end of January, Fidelity Global Opportunities Long/Short Fund, which is an equity-oriented solution long/short product. As it mentions in the name it's very much global in nature.

[00:06:38] To give a little bit of background about why we're doing this now and why investors might be interested, it draws similarities to what I mentioned at the top of our conversation. The last three years in particular have been really strong for equity markets.  During that period of time not only have returns been very strong but there's been very little volatility. There's been a couple of moments that have been very acute and short-lived, the spring of last year being a great example, but for the most part it's been a very bountiful period if you're one of those investors that invests particularly in that asset class. And then on top of that in 2025 we saw this  huge re-emergence from a market leadership standpoint of the international markets and companies that are located potentially outside that of North America.

[00:07:33] Having a diversified product for investors that can utilize both longs and shorts to either continue to take advantage of  the persistence of those trends that I mentioned, or be well-equipped if we go through a bit of a change in direction we're hoping will be of appeal to investors. Beyond that we're looking at various other alternative strategies, whether those are credit-oriented products, multi-strategy funds, the list goes on and on. I'm certainly very busy.

[00:08:07] Lauren Gardy: No shortage of new innovation going on at Fidelity, that's for sure. I'll highlight what Rory focused here to our listeners. Do make sure you tune in for the next episode of the liquid alternative-focused Upside for that conversation with the portfolio managers. Back to you, Rory. You mentioned public markets specifically. I wanted to take a minute focusing on comparing and contrasting private markets versus public. I've been hearing a lot more about private markets, whether it's through private equity, private credit, could you help our listeners differentiate between these markets and what the emergence of more and more private options really means for the end investor.

[00:08:42] Rory Poole: There's a huge push for a lot of private market providers to cater more towards retail markets or retail investors nowadays. The media is certainly playing a part in that. To answer your question more directly, there's lot of things that are different between private market funds or investments and that of anything in the public market. I'll name a few. The first simply is access. If we compare and contrast private market offerings with liquid alternatives, which are more public market alternatives, if you will, liquid alternatives are available to everyone. You can access them through an advisor, you can access through a discount brokerage. The barriers to entry there are very low.

[00:09:31] Alternatively, on the private market side of things access for a long period of time was fairly restricted, I would say, to certain market participants, whether those be larger institutional investors, whether those be folks that are more what we consider like ultra-high net worth where you can only invest in a product with a hefty sum of money, or based on your income or the assets that you have, the ability to access those types of products in the past was fairly constrained. That's slowly starting to change now. There is a desire for the industry to start breaking down some of those barriers and allowing all investors to participate in some of those private market investments. I'm sure it'll be a topic of conversation in years to come.

[00:10:25] Some other differences are things like liquidity and valuation which are somewhat related to one another in a way. Liquidity refers to how liquid an investment is, how easy is it for someone to turn an investment from its current state into that of cash through liquidation. Public market investments and even most liquid alternatives, they're very liquid vehicles which means that it is fairly applicable for most retail investors out there because they want to be able to buy or sell those investments fairly quickly, whether that's on an intraday basis or at the very least at the end of the business day.

[00:11:07] Private market funds are typically very illiquid investments. They're more direct consumer in a sense, i.e. they don't trade on an exchange. As a result of that the assets that are underpinning these private market solutions are, as I said, typically illiquid in nature. It could be an apartment building and valuing that apartment building on an intraday basis simply just doesn't happen. One, because there's not enough market participants that are actually investing in that unique asset and second because going through a full scale valuation process on a daily basis would be extremely expensive and probably take away from investors' returns. As a result of that reduced liquidity those assets, as I mentioned, are valued on a less frequent basis and that carries over to the actual fund or the vehicle that investors purchase.

[00:12:05] Lauren Gardy: That's very helpful, thank you. Sounds as though if you're a little bit unsure of your financial plan or value the flexibility public markets definitely are the place to be.

[00:12:13] Rory Poole: There's pros and cons with both, for sure, but to your point it just boils down to that individual investor and working with someone that you trust whether that be an advisor or someone else to figure out what's best for you.

[00:12:24] Lauren Gardy: We just touched on liquidity a little bit but could you highlight for our investors what should they really consider if they're looking at where alternatives could fit into their portfolio, if there's a quick summary of that, and also if there's a product in the marketplace or at Fidelity that can help simplify this, put maybe a few strategies into one line item or one product.

[00:12:42] Rory Poole: Yeah, for sure, and I'll give you my own personal opinion on this. This is, I think, by no means necessary a reflection of Fidelity but given that I spend kind of 110% of my time in this area hopefully I can share some degree of insight with investors out there. Before you get into all the analysis that investors do around the fun stuff like risk and return and a track record, what have you on an investment. I think for me there's four things that I focus on or four kind of questions that I ask in terms of really asking myself the question, is it worth spending a lot of time on this? Those four things are, is the investment differentiated, does it provide diversification, what's the relative cost of the investment, what's the liquidity profile? And I'll give you a short blurb on each one of them.

[00:13:42] So one, is the investment differentiated? Can it bring something different to my portfolio, whether that's additional return, whether that's increased income if that's what I'm looking for, is it better ability to play defence or protect my capital in certain environments? This varies by strategy. Diversification, a term that hopefully most investors are familiar with. Does this provide correlation or lack thereof correlation benefits within my portfolio? That means that as we go through various points in the market cycle I have different eggs in different baskets, if you will. Relative cost, can I access this investment with another provider or in some other form and potentially achieve the same type of thing but pay a little bit less in order to do it, assuming that the value is there. Finally, liquidity. Liquidity, it's not like a yes or no, i.e. if something's illiquid it's not great but you need to assess that when it comes to alternatives because obviously that will play into how you potentially position your portfolio and any implications over a longer period of time.

[00:14:58] When I look at those four kind of variables, if you will, not every box necessarily needs to be ticked for me. If only one of those boxes are ticked, for instance, if it's a cheap investment, i.e. the relative cost is low but it's not very differentiated to the rest of my portfolio, doesn't provide you with diversification and is illiquid, I probably don't need to spend a whole lot of time on it because it's not really doing a whole a lot for me. If two of those boxes are checked it's probably worth me spending a little bit more time on. If I think the argument around diversification is there and I think that the product is liquid and I'm using that for the liquid portion of my portfolio then maybe I spend some time assessing the other two variables.

[00:15:50] Three is the ideal. I think what you want to look for is of those four boxes if you can tick three of them you're usually onto something. Four is rare but is something that, especially for retail investors given the liquidity component, is something they should potentially strive for moving forward. You mentioned talking about potentially one of the products that might tick those four boxes in Fidelity's complex and that is our Multi-Alt Equity Fund which is, in short, a portfolio that invests in a number of different types of liquid alternative strategies that can provide this kind of double-edged sword of trying to generate a somewhat attractive return for investors over time but also deliver very much so on the diversification piece relative to what they may hold in the rest of their portfolio.

[00:16:48] Lauren Gardy: It's a great suggestion, Rory, and a really great matrix for our investors listening to work through when deciding if alternatives are appropriate for them or not. Thank you so much for our conversation today, Rory. As we start to wrap up I did want to ask what you see on the horizon for 2026 if you were to look ahead into the rest of this year.

[00:17:08] Rory Poole: Everyone will tell you this, I don't have a crystal ball either, but what I think I can say is that I'm confident that within the liquid alternative market at least you're probably gonna see more. When I say more  you're gonna see more product proliferation as we were talking about before and some of these solutions becoming better aligned with what investors are particularly looking for with where we are right now. What I would actually encourage investors to maybe think about as they move into 2026 is don't think of these alternative solutions as these one-offs and evaluate them on their own. Evaluate them within the broader context of your portfolio of investments. I think that unless you're someone that's looking to throw in the towel and call it quits on investing tomorrow, despite all this strength that we've seen in public markets and the fact that, hopefully, the rest of your investment portfolio is doing really well, whether it's months or years down the road if we go through some curveballs, by looking into this area you'll really thank yourself in terms of having some of that diversification when the time comes.

[00:18:20] Lauren Gardy: That's a great note to leave off our conversation today, Rory. Thank you so much for your time and wishing you and your team all the best for 2026.

[00:18:27] Rory Poole: My pleasure. Thanks, Lauren.

[00:18:31] Lauren Gardy: Of course. Thank you to our listeners for watching The Upside. You can find more investor content at fidelity.ca under the Investor Education section. Sign up for articles, the Upside newsletter and get more information about upcoming live webcasts. Thanks for watching and I hope you'll join us again. I'm Lauren Gardy.