What are liquid alternatives?
The majority of investment strategies available today to most investors are “long only” and generally made up of two distinct asset classes: equities (stocks) and fixed income (bonds).
But what if you’re seeking greater diversification?
Portfolio diversification is especially important during times of higher market volatility. Correlations among asset classes tend to increase during these periods, making it harder to achieve effective diversification using traditional strategies. That’s where liquid alternatives can help.
How can your portfolio benefit from liquid alternative mutual funds?
Many liquid alternative funds seek returns that are less correlated with traditional asset classes, by using additional investment strategies such as short selling, borrowing or derivatives. This can widen the scope of opportunities available to investors beyond long-only investing, adding them to a portfolio of stocks and bonds may provide several benefits:
Increased opportunity set
There’s opportunity for greater risk-adjusted returns.
You can reduce volatility and risk in your portfolio through increased diversification.
Downside protection in market stress
It may result in better downside protection in times of market stress.
Adding liquid alternatives to your portfolio
Investors can think of liquid alternatives as a third asset class to complement their existing portfolio because alternatives can provide diversification beyond traditional asset classes.
Alternative mutual funds provide investors the ability to access hedge fund–type strategies through a traditional mutual fund vehicle. Alternative mutual funds combine the advantages of hedge funds and conventional mutual funds. They retain the high liquidity, high accessibility, low minimum investment and strong regulatory oversight of a conventional mutual fund, while offering access to the broader scope of strategies available to a hedge fund. The optimal portfolio allocation to alternatives depends on the nature of your portfolio, investment objectives, constraints and specific investment circumstances.
Fidelity liquid alternatives
Fidelity liquid alternative mutual funds have more flexibility in terms of what they can invest in, which can offer a more diverse array of strategies than those available to traditional long-only mutual funds.
Fidelity Global Value Long/Short Fund
A global equity strategy that focuses on value-oriented stocks through a combination of long and short exposures.
Fidelity Long/Short Alternative Fund
A blended “130/30” style product that has a North American equity focus.
Fidelity Market Neutral Alternative Fund
A market neutral fund that aims to achieve absolute returns through a balanced combination of long and short positions.