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S&P Launches 130/30 Index In November, Standard & Poor's (S&P) launched the first widely available 130/30 strategy benchmark, the S&P 500 130/30 Strategy Index. Typically, a 130/30 strategy will pair a 100 percent core portfolio with a 30 percent long/30 percent short basket. Inside the 30/30 basket, the portfolio manager will go long stocks she thinks will outperform and short stocks that she thinks will underperform. The intended result is higher returns with lower risk. 130/30 strategies have emerged as one of the hottest trends in the investment space over the past few years, with billions of dollars flowing into the market. Previously reserved mostly for institutional investors, 130/30 has gone mainstream: A large number of retail 130/30 index funds have been filed at the Securities and Exchange Commission (SEC), and ProShares has even filed for a 130/30 ETF. S&P's new index has three parts: the S&P 500, which comprises the core of the overall index; a 30-stock basket that holds 1 percent overweight positions in components expected to outperform; and a 30-stock basket that holds 1 percent underweight positions in components expected to underperform. Because the S&P 500's stocks are generally less than 1 percent of the index, a 1 percent underweighting means a stock will be shorted. S&P uses its Stock Appreciation Ranking System (STARS) to choose the over- and underweight positions. The index is rebalanced quarterly. |
