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Specialized Funds: Alternative

Alternative mutual funds can provide access to a wide variety of investments and investment strategies, such as absolute return, market neutral, and commodity and currency-related funds.

Reasons to consider alternative funds

  • Tend to react differently to changing market conditions than traditional stocks and bonds, providing potential for diversification
  • Potential to enhance a portfolio's risk/return profile

Alternative investments can provide unique benefits to your investment portfolio by diversifying exposure away from traditional asset classes, such as fixed income and equities. That’s because alternative investment strategies—like absolute return, market neutral, and commodity and currency-related funds—do not move in tandem with more traditional asset classes.

Investors often think of alternative investments as a single asset category or strategy. In reality, alternative funds provide access to a wide variety of investment strategies and types of investments that cross asset classes. These types of funds can broaden your diversification opportunities and potentially widen portfolio correlations.

As part of a carefully constructed portfolio, alternative investments may provide above-average returns and potentially reduce your overall portfolio risk since they invest in areas more traditional investments cannot, like unlisted securities and leveraged loans.

Research alternative funds.

Understanding the risks of alternative funds

Investors should be aware of the unique risks associated with these types of funds. Alternative investments are often less liquid, especially during periods of market stress. Since they tend to be complex investments with potentially complicated tax implications, they are best suited to a sophisticated investor.

Although alternative investment funds may be highly diversified, this diversification may lead to a flattening of returns and less transparency in portfolio holdings. Furthermore, since many alternative investment funds are newer products, they may have a limited performance history. In addition, these funds may have higher operating expenses when compared with traditional mutual funds and as a result, over time, these fees could detract from long-term returns.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.
Past performance is no guarantee of future results.
Diversification does not ensure a profit or guarantee against loss.
Alternative investment funds can invest in securities that may have a leveraging effect (such as derivatives and forward-settling securities) which may increase market exposure, magnify investment risks, and cause losses to be realized more quickly. These funds may invest in commodity-linked investments which may be more volatile and less liquid than the underlying instruments or measures.
The commodities industry can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Commodity-linked investments can be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities basket as well as weather, disease, and regulatory developments. The risk of loss in trading foreign currency can be substantial and may be magnified if trading on margin.
Customers should therefore carefully consider whether such trading is suitable for them in light of their financial condition, risk tolerance and understanding of foreign markets. These risks include foreign currency and liquidation.
Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Sector funds can be more volatile because of their narrow concentration in a specific industry.
Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks. Short positions pose a risk because they lose value as a security's price increases; therefore, the loss on a short sale is theoretically unlimited. As a result, these funds may not be suitable for all investors.