130/30

[kronon]

I would be interested to see what the consensus view is here of these so-called 130/30 strategies. Serious threat to pure hedgies or a fee-grabbing gimmick by traditional managers?



From my biased point of view, I can think of no other area of finance which has seen so much parading and pageantry of pseudo-science than these things. The 'optimality' of the strategy seems to have been linked to anything they can find from tracking-error targets to the 'law' of active management. Backtests all look outstanding of course, obviously not matched by actual performance, even before fees.



And yet there seems to be a bit of client interest around, a few RFPs out each week, but nothing significant yet?

[Tradenator]

Serious threat to pure hedgies or a fee-grabbing gimmick by traditional managers?


I would say neither of those extremes, but rather a variation on indexing that offers a little more flexibility for those who are looking for it.  If you are buying and don't like the backtests then find one with an audited track record of sufficient length.  If you are selling then you should consider going back to the bubble chamber because your attitude on the finance-speak will not help you or your employer much.

[HankScorpio]

Lee Munder Cap 130/30 PDF



130-30-fad-or-new-investing-paradigm

[marcos]

IMHO, it is merely a result of the slow but steady process of convergence of hedge funds and mutual funds towards each other. It is as little rocket science as covered call writing. But on the other hand it gives traditional managers a bit more freedom and fun. Think about kids finally being allowed to drive bicycles rather than only three wheelers.



And above all, the nicely dressed guy at your local bank has one more sweet candy to sell. ("Just imagine, this hedge fund strategy is SO GOOD, they even allow retail investors to invest in it!")

[Rookie_Quant]

Ive heard of some 130/30 conferences making it clear they dont want HF/FOFs to be there, so there's an element of competition from their persepctive. So far, though, I've yet to see one actually produce alpha in any measurable way. The concept makes sense as a way to apply some kind of leverage to a process that yields outsized returns, but I just dont see the T Rowe value equity fund manager increasing gross long and trying to short as a viable option that's going to beat the index. If it were that good, why not 150/50?

[kronon]

Think about kids finally being allowed to drive bicycles rather than only three wheelers.



The concern is perhaps that many of the kid's are still a bit shaky on two wheels.



Tradenator, the 130/30 guys like to promote themselves as active managers - I dont think indexing is part of their argument. But you're right, the eventual outcome will probably be within those two extremes. And I'm neither a buyer nor seller.

[kanukatchit]

Think about kids finally being allowed to drive bicycles rather than only three wheelers.



The concern is perhaps that many of the kid's are still a bit shaky on two wheels.



I knew MF managers that were "encouraged" to have 130/30 portfolios and they did know what to short !! Tongue out

[Kutilya]

>>But on the other hand it gives traditional managers a bit more freedom and fun. Think about kids finally being allowed to drive bicycles rather than only three wheelers.



There is some research done in the past which shows that the biggest obstacle in the way of better performance is the constraint of having to be long only.





>>And above all, the nicely dressed guy at your local bank has one more sweet candy to sell. ("Just imagine, this hedge fund strategy is SO GOOD, they even allow retail investors to invest in it!")





This space is dominated and will continue to be dominated by the established quantitative shops like BGI, State Street and AXA Rosenberg. These guys either handle very little or no retail money at all, its probably worth mentioning that BGI runs one of the bigger hedge funds in the world and houses some of the best talent in this space. The local bank guy probably put money in some nice bond funds and guess what they were holding.







RQ,



Have you seen any performance numbers, I’d like to have a look if you could share them (email in profile). There audience is mainly pension funds for whom they already manage sizeable chunks, HFoF money is hot money them.







>>Why not 150/50



The reason I’ve heard is that they are easing there audience into this space, most of the beneficial effect of losing the long only constraint (main selling point) gets captured by 130/30 I’m told, but I’m only telling you what I’ve heard.







Both BGI and AXA Rosenberg have been in the long/short/market neutral space for well over 10 years. The main issue in this space will be size I think, not sure how much these guys can take in there audience allocates in tens of billions so. Right now there is serious fight going on in Europe to become the biggest player in this space.

[Tradenator]

Why not 150/50?  I'm experimenting with a 1xx/xx on the NZSX so we have to determine what xx will be.  At this point, I can see it being a balance between liquidity constraints in a tiny market, and a desire for size on our part.  150/50 would be pretty nice, but I doubt if I will be able to get enough counterparties to be be able to maintain that much heat in a cost effective manner.



I know a 125/25 in Ozstralia that has a track record from Dec99, traditional value, not a quant fund at all.  I guess you could do a 200/-100 in a liquid enough market like NYSE, if you could find the right investors.

[Rookie_Quant]

Kutilya,



Will look for specifics and email if I can find them. Some time ago I did see 2 separate funds with reasonably long return streams (of course, only monthly marks though).