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.
- 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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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.