The Bloom Is Off 130/30 Funds
130 Minus 30 = -40
When 130/30 funds first came out, I was amused by the ideas I heard from reporters and a few investors that these funds would be good for choppy or down markets because they have long and short positions. True they do have shorts, I pointed out, but they're still 100% long whereas the typical equity fund is 95% long and 5% cash. It's an interesting idea, but don't look for a free lunch, was my response.
So, I'm not surprised that 130/30 funds as well as 120/20 funds are down like the rest of the world this year. But I am surprised by just how gosh darn bad they've been.
For background, 130/30 funds are funds that use leverage to have long positions equal to 130% of assets and shorts equal to 30%. The idea is that the manager is able to take advantage of research that indicates a stock is overpriced as well as stocks that are underpriced. Essentially you are leveraging up your bet on a manager's ability to add value though taking on only a bit more market risk than with a regular fund. The tricky part is that the manager has to be quite good at both longs and shorts to make it work.
Russel Kinnel 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:
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.