130/30, 120/20, 140/40. No, they're not prescriptions from your eye doctor. They are the latest trend in the investing world, that allows traditional, long-term investors to use shorting to boost returns.
Very simply, the funds leverage up to 130% (or 120% or 140%, depending on the flavor of the strategy) long exposure usually to an index or sometimes a basket of stock picks. They then short 30% (or 20 of 40%), betting against the stocks they think are overvalued. And voila! 100% net exposure.
The academic studies are out there, showing that traditional managers get better return when they are freed up to short. But whether it's a winning strategy in practice may not yet be known. Many of these managers, after all, are used to the confines of traditional long-only investing and shorting is a new game for them. Still, many asset managers are making these strategies available to their big institutional investors, including pensions.
|Name||1- Yr Return|
|ING Inv Mgt Americas 130/30||8.4%|
|JPMorgan Large Cap Core 130/30||19.3%|
|Martingale Enhncd Alpha (130/30) LrgCore||13.6%|
|Martingale EnhdAlpha (130/30) LrgCore500||16.8%|
|SSgA Index Plus Edge Strategy (130/30)||16.4%|
|UBS Global U.S. Equity 130/30||14.8%|
As you see, many of the asset managers who offer 130/30 are beating their benchmarks, according to Morningstar.
So, how can you, the average investor, get in on this? Morningstar says there is one open-ended mutual fund that employs this strategy: the ING Fundamental Research 130/30 fund . Check out this link for more information on this fund.
Questions? Comments? PowerandMoney@cnbc.com