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130/30s - Analysis of Active Extension or Short-enabled Investment Strategies
Frost & Sullivan, Dec 2008, Pages: 64
Investments from Institutional Investors and Pension Funds Critical to the Growth of 130/30 Strategies
Much of the momentum in the U.S. 130/30 funds market is derived from the search for alternate alpha generation strategies and investments from institutional investors and pension funds. The market will have to achieve operational and technological efficiency to sustain its rate of growth. 'The 130/30 strategy is a hybrid of traditional and alternative investment techniques and is attracting interest from fund managers,' says the analyst of this research. 'The traditional fund managers accept the opportunity to offer services that generate higher management fees, while successful hedge fund managers welcome the chance to extend their services into long-only fund management, complementing their alternative strategies.'
Owing to the current economic uncertainties, institutional investors are scouting for avenues to generate additional returns (alpha). Investors seeking greater alpha opportunities from active management could possibly relax the long-only constraint. '130/30 strategy uses financial leverage by shorting unattractive stocks and purchasing stocks that are expected to perform well,' notes the analyst. 'This strategy provides greater flexibility to the portfolio manager to exploit information regarding underperforming stocks, resulting in better alpha generation and enabling the funds to perform better than the traditional long-only funds.'
However, the shorting strategy cannot be easily implemented as fund managers face many challenges while transitioning to the 130/30 strategy. For instance, not many custodians have the infrastructure and technology support necessary for shorting. Their legacy systems have to be compatible with the current and future needs of the 130/30 strategy. 'Central dealing desks should be able to cater to the requirement of short selling and the use of derivatives for leverage and hedging purposes,' observes the analyst. 'Risk, liquidity, and collateral have to be managed efficiently.'
Market Sectors
Expert Frost & Sullivan analysts thoroughly examine the following market sectors in this research:
130/30 funds
130/30 exchange-traded funds
This Frost & Sullivan research service titled 130/30s - Analysis of Active Extension or Short-enabled Investment Strategies provides growth monitor, market share analysis, competitor analysis, and investment themes. In this research, Frost & Sullivan's expert analysts thoroughly examine the following 130/30 markets: funds and exchange-traded funds.
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