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AIMA Canada Strategy Paper: 130/30 Equity Strategy

“130/30 strategies are a class of equity portfolio where a manager’s long only skill is extended and augmented with a modest amount of short-selling in an effort to produce an enhanced return.

Starting with a $100 investment, the manager is mandated to take $30 in short positions and invest the proceeds generated from those positions back into the long portfolio. Thus the extension manager maintains a 100 percent market exposure and a beta near 1.0, while seeking enhanced levels of alpha.

This alpha is generally accompanied by increased tracking error, but this does not have to be the case. 130/30 strategies are also called “equity plus”, “core plus” or “index plus”, “enhanced equity”, “equity flex”, as well as “active extension”, alpha extension” or “short extension”…