A popular hedging strategy that aims at 130% long exposure to stocks and 30% short positions wrapped into a single portfolio is now available to exchange-traded fund investors.

The first such so-called "130/30 ETF," the ProShares Credit Suisse 130/30 ETF (NYSEArca: CSM), launched on Tuesday. As its name implies, the portfolio will try to outperform traditional long-only funds by using a combination of leverage and short-selling.

While ProShares gained first-to-market status for ETFs, there's actually another exchange-traded product that competes in the same market. The First Trust Enhanced 130/30 Index (NYSEArca: JFT) came out in May and shares a similar cost structure with the newer CSM. (See related story on JFT here.)

As noted in previous IndexUniverse.com stories, JFT is an exchange-traded note. As such, it carries counterparty as well as added credit risks since it's basically using unsecured debt notes—just like other ETNs.

The 130/30 strategy is used by many active managers, both on the institutional as well as retail fund level. It involves pairing 130% exposure to stocks a portfolio manager thinks will outperform the market with 30% short exposure to stocks a portfolio manager thinks will trail the market.

The end portfolio retains 100% net exposure to the market, but aims to deliver alpha through smart stock-picking. CSM charges 0.95% in annual expenses.

The ETF is based on quantitative strategies developed by Pankaj Patel, director of quantitative research at Credit Suisse, and Dr. Andrew Lo, chairman and chief scientific officer of the AlphaSimplex Group and a well-known professor at MIT.

Lo and Patel developed the index backing this ETF—the CS 130/30 Index—in 2007, and published the methodology and results in a 2008 paper in the Journal of Portfolio Management (available here).

“The quantitative model behind our 130/30 Large-Cap index is based on extensive, robust research on the real-world factors contributing to stock performance,” said Patel, in a statement.

The approach is fully transparent and the holdings of the index, both long and short, will be disclosed on a daily basis.

The new fund focuses exclusively on large-cap U.S. equities, and is designed to replace traditional large-cap equity exposure in a portfolio. On a backtested basis, the index handily outperformed the S&P 500 on a long-term basis.

For ProShares, CSM marks a departure from the rest of their ETF lineup, which consists of funds designed to deliver either leveraged or inverse exposure to different segments of the market. ProShares CEO Michael Sapir described CSM as the first of an entirely new product line for ProShares called Alpha ProShares.

That category will likely include more 130/30 funds. Patel said that the quantitative strategy backing CSM can be applied to other areas of the market, including small-caps, mid-caps and potentially international exposure as well.

The new fund will follow a hybrid structure. Typically, the fund will use physical holdings to gain its core 100% exposure to the market; that is, like most plain-vanilla ETFs, it will buy the actual securities it wants to hold to gain exposure to the market.

The 30%/30% long/short extension, however, will be achieved via a swap—an institutional agreement between ProShares and a third-party bank who agrees to exchange payments based on the movement of an index.