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130/30 Guide

 

Advantages for investors

We have already touched on one of the major benefits: the leverage provided by shorting increases the level of participation, and boosts the potential level of Alpha outperformance of the market. In effect, managers that had been constrained by a long-only strategy are now able to profit from securities that lose value, as well as those that rise.

The arrival of this model gives investors access to the kind of investment strategy that was formerly only available to institutions because of the high cost of entry set by minimum investment levels. Further, it bridges a gap by taking the kind of long/short strategy employed by hedge funds and placing it within a transparent, UCITS-regulated framework.

So the strategy should allow greater diversification – and mitigation of risk – within a portfolio, since 130/30 funds can spread their investments further.

From preliminary studies – and it must be stressed that these cannot present a time-tested picture – it appears that the additional Alpha generated by a well-constructed portfolio can be achieved without increasing its volatility.

But if these products seem to offer a better option to long-only funds, please read on.
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Data provided by FE. Care has been taken to ensure that the information is correct, but FE neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.

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