Mixed verdict from market on benefits of 130/30 strategy

Assets under management in 130/30 or similar type equity strategies, also known as short extension products, are currently estimated by a variety of sources at around $75bn on a worldwide basis. In these strategies the manager shorts a certain percentage of the portfolio with this balanced with extra long positions so the overall portfolio has full market exposure.

The bulk of these strategies are offered by quantitative managers at large traditional companies. As traditional managers increasingly compete by providing 130/30 and related strategies, hedge funds will also face tougher competition for investors, stock borrowing, prime broker finance and margins. Industry estimates expect active extension strategies could grow to $1-$2trn by 2010.

These funds display many of the characteristics of long-only funds. They are designed to be 100% exposed to the