What you need to know about multi-strategy liquid alternatives
Traditional portfolios built around stocks and bonds do a lot of heavy lifting, but they don't cover every scenario. That's where alternative strategies can play a pivotal role, by adding different sources of return and helping smooth out volatility.
Investing in today’s markets can be challenging as the market backdrop continually evolves, leading many investors to look for alternatives in addition to the traditional stock and bond offerings. Alternative investments can help diversify portfolios away from a reliance on traditional asset classes by tapping into different investment strategies, assets and markets.
What is a multi-strategy liquid alternative fund?
A multi-strategy liquid alternative fund is designed to put several different alternative strategies to work in one package. Instead of relying on a single investment approach, like long/short equity or global macro, it blends multiple approaches that can respond differently to changing markets.
The benefit for investors is convenience and balance: you get a mix of alternative return sources without having to build and monitor them individually. This can help smooth out performance over time, add diversification beyond traditional assets, and provide flexibility as market conditions evolve.
How multi-strategy liquid alternative funds differ from traditional balanced funds
While both multi‑strategy liquid alternative funds and traditional balanced funds often invest in many of the same underlying assets and seek diversification, they do so in different ways.
Traditional balanced funds primarily diversify across asset classes, with portfolio outcomes largely driven by overall market direction.
Multi-strategy liquid alternative funds expand on this by diversifying across multiple alternative strategies, each with distinct sources of return, risk profiles, and sensitivities to market movements.
|
Traditional Balanced Fund |
Multi-Strategy Liquid Alternative Fund |
How the fund invests |
Invests primarily in stocks and bonds (long positions only) |
Invests across asset classes using both long & short positions |
Use of leverage |
Typically has low leverage flexibility |
Leverage flexibility via shorts, borrowing & derivatives |
What drives returns |
Mainly driven by overall market movements (equity & interest rates) |
Driven by a range of strategies (e.g., long/short, relative value, macro) |
Exposure to market direction |
Typically has high exposure to overall market direction |
Can have flexible exposure (lower or higher depending on strategy) |
Correlation with broad markets |
Typically moderate to high |
Typically low to moderate |
Role in a portfolio |
Serves as a core portfolio holding for growth and income |
Serves as a diversifying allocation with differentiated sources of return |
For illustrative purposes only.
How multi-strategy liquid alternative solutions can fit in a portfolio
Multi-strategy liquid alternative funds are designed to complement traditional portfolios consisting primarily of stocks and bonds. They can be included in a portfolio to:
Enhance overall portfolio diversification beyond stocks and bonds
Multi-strategy liquid alternative funds blend different alternative strategies, offering exposure to return drivers not directly tied to equity or bonds markets, in a single solution.Manage risk
Historically, there has been evidence that alternative strategies tend to experience less severe drawdowns over time compared to equities.Add potential for improved risk-adjusted performance
By combining multiple alternative strategies, these solutions can support more consistent performance over time by capturing multiple sources of alpha and reducing overall portfolio volatility.
A multi-strategy liquid alternative solution can act as a “third pillar” in traditional portfolios alongside stocks and bonds. It can serve as an additional tool to enhance overall portfolio diversification, help manage risk, and potentially improve risk-adjusted returns.
Interested in learning more about multi-alternative strategies? Speak to your Fidelity representative or visit Fidelity.ca/multialtsuite
