Fidelity Launches 2 New Ways to Invest in Alternative Assets, But There’s a Catch

Investors looking to diversify their portfolios with alternative investments have two new options courtesy of Fidelity.

The financial services giant is expanding its lineup of alternative investment products with the launch of two liquid alternative mutual funds that will invest in both traditional and non-traditional asset classes. The funds, known as “liquid alts,” will rely on more complex investment and trading strategies compared to more conventional mutual funds.

However, there’s a catch. The funds are only available through financial advisors and intermediaries. If you’re looking to hire a financial advisor to help you manage your portfolio, plan for retirement or meet other financial needs, SmartAsset can help you find one.

“In any market environment, we believe that portfolio diversification is critical and see liquid alts as a potential opportunity for advisors to round out an investor’s portfolio through alternative sources of alpha and strategies that are generally less correlated with broader financial markets,” said Vadim Zlotnikov, president of Fidelity Asset Management Solutions.

What Is an Alternative Investment?

An alternative investment is an asset that falls outside the traditional investment categories. While traditional investments include stocks, bonds, mutual funds and exchange-traded funds (ETFs), alternative investments can be:

Alternative investments typically have no correlation to conventional investments, and as a result, can help diversify an investor’s portfolio. However, this can also make them difficult to value. While their returns can be more robust than traditional assets, alternative investments can carry significant risks and higher barriers to entry. For instance, hedge funds are typically reserved for accredited investors, meaning those with an earned income of at least $200,000 during each of the last two calendar years or a net worth of $1 million and above.

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Alternative assets also tend to be illiquid in comparison to traditional assets, meaning it isn’t as easy to convert them to cash. For example, it may be more difficult to sell a piece of real estate compared to selling 500 shares of Apple stock.

By owning shares of a mutual fund that invests in alternative assets, investors can add greater diversity to their portfolios while also benefiting from the liquidity that traditional investments provide.

Fidelity’s New Funds

In a press release announcing the rollout of its two new funds, Fidelity said its liquid alts “seek to offer uncorrelated investments to help provide increased portfolio diversification from the broader equity and fixed income markets.”

Here’s a glance at the two funds, how their managed and what they invest in:

• Fidelity Macro Opportunities Fund: Using fundamental analysis to evaluate macroeconomic themes and trends, the manager allocates the fund’s assets across mutual funds and exchange-traded funds, derivatives, cash and cash equivalents. Assets are also spread across various market sectors and countries, including emerging markets.

• Fidelity Risk Parity Fund: Using quantitative analysis, the fund manager will seek to balance risk across four factors: growth, inflation, real rates and liquidity. The fund will also invest in mutual funds, exchange-traded funds, derivatives, cash and cash equivalents. However, its holdings may also provide exposure to leveraged loans, commodities and real estate.

Bottom Line

Investors looking to gain exposure to alternative investments may consider a pair of new liquid alternative funds from Fidelity. However, access to the funds is only available through financial advisors and intermediaries. While alternative investments can carry substantial risk, they can help an investor diversify and generate larger returns than traditional assets.

Tips for Finding a Financial Advisor

• A financial advisor can help you with a variety of needs, including retirement planning, investment management, estate planning and more. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• When you’ve identified some advisors you may be interested in working with, be sure to look them up on FINRA’s BrokerCheck website, as well as the SEC’s Investment Adviser Public Disclosure site. Be on the lookout for disclosures of any legal or regulatory violations.

• Identifying your own needs is a vital step in the process of finding a financial advisor. After all, you need to work with someone who provides services that align with your needs. If estate planning is your primary area of need, you’ll have to find an advisor who offers that service and has some degree of expertise in it.

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