Extending the Alpha Universe: 130/30 Short Extension Versus Portable Alpha
| Oct 18th, 2006 | Filed under: 130/30 | By: Alpha Male |
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By: Ric Thomas, State Street Global Advisors
Published: April 13, 2006
State Street provides us with a public service here by helping us figure out if 1X0/X0 strategies are really just hedge funds in drag. They set out to compare 130/30 “short-extension” strategies with “equitized long/short funds” (i.e. dollar-neutral long/short portfolios sitting on top of a whack of beta):
“…one could argue that short extension strategies are no different than equitized long-short strategies in terms of effective active exposures. A manager could easily replicate a short extension portfolio by shorting the underweighted stocks, purchasing the overweighted stocks, and equitizing the final portfolio with index futures or swaps. The equitized method is simply one variation of portable alpha, which many investment managers already practice.”
While they acknowledge the striking similarities between these two strategies, they also argue that “subtle differences” do exist:
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