Investing in Liquid Alternatives

Liquid alternatives seek to enhance returns, diversify and/or provide risk mitigation by investing in public markets such as equities, fixed income, commodities and currencies, or in derivatives tied to the performance of those markets. Unlike traditional "buy and hold" strategies, liquid alternatives usually have the flexibility to take both long and short positions, the latter seeking to benefit from declining asset values. Liquid alternatives are typically offered in liquid structures such as mutual funds and ETFs. They pursue a range of strategies, such as long-short equity, relative value, options-based strategies, and global macro strategies.

Liquidity refers to how easily you can sell an investment. Alternative investments are offered in a range of liquidity levels, where your ability to sell or redeem an investment can be limited. The liquidity of an investment can be considered across two dimensions—the liquidity of the fund (i.e., ability to sell) and the liquidity of the underlying assets within the fund. It is important for you to understand a fund’s liquidity terms and risks before investing.

• Liquid alternatives
  Liquid alternatives usually invest in securities that primarily trade in public markets. Structured as ETFs and mutual funds, they are valued on a daily basis and can be sold at your discretion based on the current NAV or market price.
• Intermittent liquidity alternatives
  These types of funds may offer share repurchase programs that allow you to redeem a portion of your investment, often known as tender windows or repurchase offers. The key differentiator of intermittently liquid funds is that typically investors can only sell their shares back to the fund periodically, on a specified redemption schedule and only at specified intervals. However, in exchange for limited liquidity, these funds may offer the potential for higher returns, referred to as an "illiquidity premium."
• Illiquid funds
  These funds invest in assets through private market transactions. Illiquid funds may also be subject to a "lock-up period," during which time the investment cannot be sold, often for a period of many years. However, in exchange for tying up capital for longer periods of time, illiquid alternatives typically offer the potential for higher returns, referred to as an "illiquidity premium."

Liquidity is important as you consider your overall portfolio and planning, including any potential liquidity needs during the time your investment may be locked up, your household financial situation, your emergency funds, investment time horizon, and your comfort with risk. Before investing in a fund, please review the risk disclosures and liquidity terms, which are described in each fund's prospectus or other offering documents.

Liquid alternatives can be used to pursue different investment objectives, including return enhancement, portfolio diversification, and/or risk management. Their returns generally have low correlation to broad movements in the stock and bond markets, and so liquid alternatives can offer investors a way to complement their exposure to those traditional markets.

At Fidelity, you can purchase a variety of liquid alternatives on Fidelity.com using the Buy button on a specific fund page. Note that for certain funds you may need to review a designated investment agreement and attest that you are an experienced investor who understands the risks that come with that investment.

There are a few ways to search for liquid alternatives on Fidelity.com. From the fund screener use the dropdown menu on the left entitled Asset Class and Category. If you’re specifically looking for liquid alternatives managed by Fidelity, use the Asset Class and Category dropdown and select Expand All, so you can see all the Morningstar^® categories. You can then filter by sub-asset class of alternatives (i.e. Digital Market Neutral, Event Driven, etc.). Then, under Key Criteria, select Fidelity Funds.

You can also find liquid alternatives structured as Exchange Traded Funds (ETFs) using the ETF Screener. On filtering the menu to the left, select Basic ETF/ETP Facts and then Asset Class. Within Asset Class, choose Alternative. If you want to see the screen to prioritize ETFs offered by Fidelity, select the Fidelity icon at the top of the result table.