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Investing Ideas
Considerations when implementing alternative investments in multi- asset class portfolios
Fidelity has developed a framework for allocating to alternative investments based on proprietary research that outlines suggested portfolio mixes across the liquidity spectrum.
Key Takeaways
- Institutions and advisors allocate to liquid and illiquid alternative investments for a variety of potential benefits including enhancing a portfolio’s returns, managing risk, or improving diversification.
- As product and strategy innovation opens the door to broader usage of alternative investments in multi-asset class portfolios, investors of all types are increasingly seeking guidance on suggested allocation levels.
- Fidelity has explored return, volatility, liquidity, and other variables for traditional and alternative asset classes to help develop a potential implementation framework for four investor personas with varied financial considerations and needs.
- The framework suggests allocation ranges based on liquidity needs and the risk/return benefits of investing in alternatives: it includes illiquid allocations of up to 10% for a retiree, up to 15% for a high-net-worth individual, or up to 30% for an endowment; and liquid allocations of up to 20% for an investor with high liquidity needs.
- Institutions and advisors can consider these potential ranges in portfolio construction decision-making for themselves or their clients, while this framework also addresses potential nuances, challenges, and opportunities in implementing alternatives.
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Considerations when implementing alternative investments in multi-asset class portfolios
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INVESTING IDEAS
Alternative Investments and Their Roles in Multi-Asset Class Portfolios
Many investors look to alternatives to broaden the investment opportunity set and help enhance a portfolio’s returns, manage downside risk, and improve diversification.
RESEARCH
A Study of Allocations to Alternative Investments by Institutions and Financial Advisors White Paper
Proprietary research from Fidelity explores emerging trends by segment, and strategies where investors may be under- or over-allocated to alternatives.
RESEARCH
An Advisor's Guide to Alternative Investments
Find out more about alternatives and how allocating to these investments may help strengthen your clients' portfolios.
Investing involves risk, including risk of loss.
Alternative investment strategies may not be suitable for all investors and are not intended to be a complete investment program. Alternatives may be relatively illiquid; it may be difficult to determine the current market value of the asset; and there may be limited historical risk and return data. Costs of purchase and sale may be relatively high. A high degree of investment analysis may be required before investing.
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