Fidelity moves into liquid alts space with two new mutual funds

Fidelity Investments is jumping on the liquid alternatives bandwagon with two new mutual funds that represent the beginning of an enhanced focus on strategies that take investors beyond plain vanilla stocks and bonds.

“Fidelity is making a significant strategic commitment to creating world-class alternative investment capabilities and leveraging its strength and scale to develop and deliver innovative products and solutions that help meet the evolving needs of our clients,” said Vadim Zlotnikov, president of Fidelity Asset Management Solutions.

Adviser share classes of the two new funds that began trading Tuesday, Fidelity Macro Opportunities Fund (FAQFX) and Fidelity Risk Parity Fund (FAPZX), appear to be perfectly timed for current market conditions.

Fund flow data tracked by Morningstar shows liquid alt funds are on track to break last year’s record of $38.3 billion worth of net inflows. Through May, the $192 billion category saw more than $21 billion worth of net flows.

“If you’re Fidelity and looking at the road map ahead, 60/40 looks like trouble for a while,” said Eric Balchunas, fund analyst at Bloomberg Intelligence.

“This makes sense to me, plus you can charge more for alternative strategies,” he added.

On the matter of the Boston-based asset management behemoth only now entering the liquid alts space, Balchunas confessed to being a bit perplexed.

“Even Vanguard has a market-neutral fund, and it’s very rare that Vanguard would be more edgy than Fidelity, or anyone,” he said. “But the last 15 years had everybody not focused on alternatives. My guess is their wholesalers need something to sell that isn’t 60 or 40.”

Zlotnikov said the liquid alt funds will be run through the sub organization Fidelity Diversifying Solutions, which was recently established to launch a broad set of products.

“These two funds are the first of many we hope to launch in this space,” he said. “We want to provide vehicles and strategies that fit well with the way advisers and institutions use them.”

Zlotnikov said the new funds have been operating on a pilot basis for at least 18 months leading up to the July debut.

“In any market environment, we believe that portfolio diversification is critical and see liquid alts as a potential opportunity for advisers to round out an investor’s portfolio through alternative sources of alpha and strategies that are generally less correlated with broader financial markets,” he said.

Morningstar fund analyst Bobby Blue said Fidelity’s slow and steady move into the liquid alts space is in line with what he has come to expect from the asset manager.

“They’ve been pretty deliberate about product expansion outside of their equity franchise,” he said. “They pivoted nicely into ETFs and other passive options several years ago, and that business is now a significant part of the firm. Given the limited demand and mixed track record of a lot of liquid alts over the past decade, a lot of traditional asset managers haven’t felt the need to push into the space. I know Fidelity kicked off this push last fall, ahead of the surge of interest in these types of strategies, which makes it seem less like they’re scrambling to catch a brief spark of investor interest and more like a thoughtful and deliberate effort.”