Our friends over at eVestment Alliance, a major database of institutional money managers, recently provided us with some interesting 130/30 data hot off the presses for a presentation Alpha Male delivered in Europe.
Firstly, check this out. Back-testing has shown that 130/30 funds would have performed better than their long-only analogs over the past several years (see related posting). But does this match reality? Unfortunately, there simply haven’t been enough funds around long enough to paint a complete picture. However, eVestment Alliance has been collecting data from managers of institutional funds for some time now. While the pre-2006 numbers are a little thin, annual return data shows that 130/30 funds have indeed outperformed the S&P 500 every year since they started tracking such funds (the white number shows the number of 130/30 funds tracked by eVestment Alliance).
By press time in mid-January, only half of the 130/30 funds had reported their performance to eVestment Alliance. But assuming the early birds are somewhat representative of the entire population, it appears as it 130/30 funds will beat the S&P for the 5th year in a row. (Then, again, perhaps the early birds were just the top performers who were particularly proud of their results and called them in as soon as they could).
eVestment Alliance has also been tracking the fees being charged for 130/30 funds. Apparently the average 130/30 institutional mandate charges about 75bps while the average 130/30 mutual fund in their database charges about 120 bps. This compares to about 50bps for large cap core mandates tracked by the firm (see 2006 fee study).
But this only tells part of the story – the management fee part. Heath Wilson, CEO of eVestment Alliance tells us that 68% of institutional money managers provide at least the option of performance fees (presumably with a commensurately lower management fee), while 32% charge only a traditional management fee (see related posting about 130/30 fees).