130/30: Learn How to Short Stocks with OPM

The first major asset gathering skirmish between long-only managers and alternative managers is taking place as traditional long shops roll out 130/30 funds. Big money is at stake.  It been estimated that these products have garnered over $50 Billion in assets and mutual fund complexes continue to roll out new offerings as they try to compete with their aggressive hedge fund rivals.

While the track records of these funds are still limited, good managers are starting to separate themselves from the bad:

Of the six separately managed accounts tracked by Morningstar that employ a
130/30 strategy and have been around at least a year, all but one—ING
Investment Management Americas 130/30—have beaten the total returns of
the Russell 1000 index and the S&P 500, the research firm says. The returns
Morningstar provides for these separately managed accounts are gross, not
net, because fees are customized for each investor.

The best performer over one year is the JP Morgan Large Cap Core 130/30
account, which had a total return of 19.3% through March 31, compared with
an 11.8% total return for both the Russell 1000 and the S&P 500, Morningstar
said. The next-best performers were Martingale Enhanced Alpha Large Core 500 and SSgA Index Plus Edge Strategy, which gained 16.8% and 16.4%,respectively. UBS Global U.S. Equity 130/30 was up nearly 14.8%. ING Investment Management Americas 130/30 returned about 8.4%. WSJ

Are these your Mutual Fund Managers?

Still, not everyone is buying into these strategies, particularly given the depth of the talent pool that currently exists on the Street. But that does not stop lousy long-only managers from trying to generate “enhanced alpha” on the short side.

Doing some shorting is a step in the right direction away from long only but why slightly adjust the performance straitjacket instead of removing it entirely and selecting skilled managers to produce alpha in the SAFEST way they see fit? 130/30 is not a hedge fund strategy, not a portfolio diversifier and not a new thing. It might “look” cheaper than a hedge fund but what are investors REALLY getting? People wary of hedge funds should remember that this “innovation” remains much riskier than a proper hedge fund. Veryan Allen

Bottom-quartile long only managers are unlikely to shine long/short.

Caveat emptor!

Some managers show knack for 130/30
Wall Street Journal (sub req’d)

130/30
Veryan Allen’s Hedge Fund Blog
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No position in securities mentioned

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