In Retrospective - 130/30 Funds

Back in 2007, 130/30 Funds were hyped as the next great thing in the market. As the market tumbled a dozen years ago the concept of a fund that would generate profits in both rising and falling markets was a sales pitch that hit appealed to the pain investors were encountering at this time.

Multiple mutual fund families immediately offered 130/30 Funds mirroring hedge funds. The mutual funds launched marketing campaigns in 2007 worked to draw in investors based on downside fear - many remembering the 2000/2001 decline. Some ads implied investors would profit greatly in both rising and falling markets.

As outlined earlier, 130/30 funds allow managers to short-sell up to 30% of their portfolios, and use the proceeds to buy an extra 30% long. The funds both use leverage and short-selling.

Now over a decade later - how have 130/30 Funds fared?   Back at that time I was very skeptical of 130/30 Funds. The results demonstrate I was quite right to question these 130/30 Funds as nothing more than a marketing gimmick with the intent of generating out sized fees for financial institutions.

Since 2008 the financial press has covered the decline of 130/30 Funds.   However now in 2019 as we seem to be approaching a market peak new 130/30 Funds are now again being offered.  One example is JPM and UBS unveil 130/30 funds.

A long list of media has demonstrated the gimmicks and decline of 130/30 Funds as they greatly under-performed the related index put forward by Andrew Lo of the Massachusetts Institute of Technology and Pankaj Patel of Credit Suisse and merely served as a payday for money managers.  A sampling of media 130/30 Fund articles include:

The decline, fall and afterlife of 130/30
https://www.ft.com/content/fdbf6284-b724-11e2-841e-00144feabdc0

130/30 Funds: 130% Gimmick/30% Good Idea
https://www.morningstar.com/articles/287506/13030-funds-130-gimmick30-good-ideak/30% Good Idea

130/30 Mutual Funds: Don’t Believe the Hype
https://investorsolutions.com/2012/09/28/13030-mutual-funds-dont-believe-the-hype-3/

A Hot Fund Design Turns Cold
https://www.wsj.com/articles/SB10001424052748704388504575419642095323262


Now that 130/30 Funds are being pushed by brokerages again, don't fall for the hype. Stick with your long term investment plan with proper diversification, low fees, and a long term view.