Skip to Content
Fund Spy

Is this New Fund Type Worth the Hype?

Find out whether 130/30 funds are all they're cracked up to be.

Mentioned:

The so-called "130/30 fund" is new and rare enough that this article may be your introduction to the species. That said, expect to hear a lot more about it in the coming months; asset managers are starting to roll the funds out, and all signs point to an impending flurry of launches in the not-too-distant future. Supporters include some investors and plenty of marketers who breathlessly describe the 130/30 structure as a breakthrough that will revolutionize investing and amp up returns. Ultimately we think that investors should understand--but look past--the hype and bring a healthy amount of skepticism to the table when judging this group.

Nuts and Bolts
The mechanics underlying such funds explain the curious name. First and foremost, as the name suggests, the fund's assets are split into two parts: a long portfolio and a short portfolio. Most investors, even if they don't know it, understand what a long portfolio is. When a fund buys a stock that it expects to appreciate, that is buying it "long." The reverse of this, attempting to profit from a stock that drops in value, is called "selling short." When an investor sells short a stock, he borrows shares of that stock, sells them in the market, and expects (or at least hopes) to buy them back after its share price falls.

The numbers in the name of this group refer to the weightings of the long and short portfolios. That is, a 130/30 fund invests 30% of its assets in a short portfolio and 130% of its assets in a long portfolio. It runs as follows. Let's say such a fund has $1 million in investor assets. It buys a $1 million portfolio of stocks long and establishes a $300,000 short portfolio. So when one shorts, one receives cash for the just-sold shares--in this example, $300,000. The 130/30 manager will then reinvest that cash, thus adding a 30% long stake to the existing 100% long stake and the 30% short stake. And voila, a portfolio is 130% long and 30% short.

Todd Trubey does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.