The 130/30 strategy is an investment strategy in which a portfolio manager uses 130% of the assets under management to buy long positions in securities that they believe will increase in value and 30% of the assets under management to short sell securities that they believe will decrease in value. The strategy is designed to generate returns that are not correlated to the overall market, meaning that the portfolio manager aims to make money regardless of whether the market is going up or down.
The basic idea behind the 130/30 strategy is that by short selling securities, the portfolio manager can offset losses in the long positions, and by increasing the amount of long positions, they can increase the potential for gains. By using a combination of long and short positions, the portfolio manager is able to achieve a higher level of diversification, which can help to reduce risk.
The 130/30 strategy is considered to be a form of active management, as the portfolio manager makes investment decisions based on their own analysis and research. It’s considered to be a form of enhanced indexing, as the manager is trying to improve the performance of the portfolio relative to a benchmark index.
It’s important to note that the 130/30 strategy can be risky, as it involves short selling, which can result in unlimited losses if the security increases in value. Additionally, the strategy may not be suitable for all investors, as it may require a higher level of risk tolerance.