* 130/30 funds

130/30 funds are similar to long-only funds to the extent that they build a portfolio as normal, allocating 100% of net asset value to long positions. They differ, however, from traditional long-only portfolios to the extent that they then short sell securities to the value of 30% of net asset value. The proceeds from the short sale are then used to acquire additional long positions, thereby bringing the total exposure to 130% long and 30% short. The 130/30 product provides market exposure or “beta” but also enables the fund to generate additional “alpha”.

The introduction of a product which incorporates a mechanism for generating alpha has got to be an appealing proposition for investors. There is, however, a real danger that managers with little or no experience in shorting will bring products to the market which underperform the market and not only fail to deliver alpha but also have a negative impact on the managers’ ability to produce beta.

Furthermore, in current market situation, eliminating short selling, will have direct effect on this investment strategy. However, hedge funds will come up with other innovative strategies to counter this move.

see detail:
(AIMA) 130/30 funds - a new middle ground?
Hedgeweek Comment: Short selling ban not the solution