130/30 Funds

Abstract

The authors analyze the confluence of factors contributing to the momentum in the 130/30 space, including the product's strong theoretical underpinnings and appropriateness for investors' objectives in the 21st century. They discuss quantitative and fundamental approaches to 130/30s and present evidence on product performance and fees, which will also influence the pace of adoption of active extension strategies. Aggregate performance data indicates that 130/30s have outperformed long-only portfolios by 300–350 basis points per year over the past 3–5 years. Based on these factors, we predict that 130/30s will continue evolving as a key component of investors' equity allocations and that investors are on their way to becoming as comfortable with 130/30 funds as they are with other approaches to active investing.