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First 130/30 index unveiled

GLOBAL - Standard & Poor's has launched the first 130/30 strategy index, and begun by linking to activity of S&P 500 stocks.

While the concept is still somewhat new, the 130/30 investment strategy has gained real momentum within the last 12 months, and caught the attention of both institutional and retail investors looking for a mixture of long-short equity investments.

As a result, S&P has launched an index which is designed to measure the performance of the US stocks S&P 500 index which includes a 30% over and underweight position, in a bid to improve transparency of the concept and give investors a reference point to their investments.

Assets will be rebalanced each quarter to give a core 100% long position in the S&P500, along with details of basket of long stocks, the 1% overweight positions in 30 S&P500 constituent equities, alongside the short stocks basket of 1% underweight positions in another 30 stocks.

Further details on how the index is created and measured are available on S&P website - www.standardandpoors.com/indices - but assessing how it matches the performance of actual 130/30 funds could still be complicated.

According to data gathered for IPE by Morningstar, there were 32 US 130/30 funds on the market to August 31, 2007 which describe themselves as long-short, the majority of which were 130/30 in label.

Srikant, Dash, head of global research and design at S&P Index Services, told IPE it is still extremely difficult to quantify exactly how many funds are on the market, but it is understood assets now reach $100bn (€75bn) globally within 30-50 funds.

That said, it is very excited about the development of the long-short growth potential, and predicts the arrival of new funds types within this space.

"Our aim is to establish a framework for 130/40 indexation and we intend to launch the S&P Global 100 index early next year. Then depending on the market response, we could apply that concept to any of the markets where S&P indices have a dominant position, be it Australia, Canada, Italy or India," said Dash.

He continued: "I think the concept of 130/30 emerging markets is very exciting, because emerging markets are usually seen as being less efficient."

At this stage, it is thought there are no emerging markets 130/30 investments available to investors, however Abn Amro Asset Managment told IPE - in its October 2007 130/30 supplement - it was planning to launch an emerging markets fund by June 2008. It is also understood an ETF linked to the S&P 500 130/30 stategy index will be launched within Q1 2008.

That said, the 130/30 concept is still relatively young in most cases, as many funds have just one year's performance data, and many large investment houses are still developing their own funds for launch.

Moreover, assessing whether a fund can be benchmarked to a particular index could become complicated as investment officials noted earlier this year the concept 130/30 moves from its defining label, depending on how little or widely the fund house shorts stocks.

Speaking at the Fund Forum International Conference in Monaco earlier this year, delegates of a 130/30 workshop were told while 130/30 is being interpreted as an exact definition of how the products work, the consensus of investment experts suggested another label may be needed to reflect what is really a "prescriptive technique", given positions can move as little as 105/5 up to 150/50.

Have Your Say: Patrick Burns of Burns Statistics, commented:

In terms of measuring performance it makes much more sense to use random portfolios to compare a particular fund's returns to rather than a single index.

The random portfolios would obey the same (or at least similar) constraints as the fund does, and a large number of random portfolios would be generated.

In contrast the index is just the generation of one portfolio, and it may not even be a portfolio that a particular fund could (or would) hold.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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